Debt Consolidation and Management Guide

US President Barack Obama has proposed the most ’sweeping’ regulatory overhaul since the 1930s, vowing to stop future meltdowns in a financial system humbled by lax oversight, greed and huge debts.

The reforms, which must be approved by Congress, will inject the government deeper into financial markets and industries in a bid to tame the recklessness in which a mortgage meltdown tipped the world into deep economic crisis.

‘We did not choose how this crisis began. But we do have a choice in the legacy this crisis leaves behind,’ Obama said in remarks released by the White House ahead of his formal announcement of the reforms later on Wednesday.

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When facing serious debt problems, consumers are often advised to seek credit counseling immediately.  But did you know that turning to the wrong counselor for help can cause more trouble and frustration?  Why should you be cautious when choosing a credit counseling agency?

How Credit Counseling Works

First, let’s discuss how credit counseling works.  A credit counseling agency negotiates with creditors on behalf of the borrower.  A credit counseling agency can ask for a lower interest rate or adjustments in your fees to make repayment easier for you.  Most agencies have built partnerships with different lending companies so it’s easier for them to negotiate.  In exchange for their services, some agencies charge monthly fees for as low as $10 to as much as $100 or more.

In extreme debt cases, a counselor may advise debt consolidation or debt settlement as possible solutions.  Nevertheless, a reliable credit counselor should not focus solely on these two methods of debt reduction.  More importantly, a credit counseling agency should help a person address the root of the problem.  It should be able to teach about correct financial management strategies to help a client stay away from debt problems permanently. 

The Dark Side of Credit Counseling

Unfortunately, many consumers fall victims to credit counseling agencies that take advantage of their financial situation.  Some agencies actually charge expensive rates for their services.  Some of them may insist on debt consolidation loan as the best solution to the problem.  The unsuspecting client may agree to be part of a debt consolidation program, not realizing that it would bring more pain and trouble. What is the danger in signing up for a debt consolidation program?

Some consumers found themselves stuck in deeper debts after getting a debt consolidation loan.  The reason?  Their monthly interest rates unexpectedly increase right in the middle of their repayment.  Under a consolidation program, a credit counseling agency may also volunteer to submit your payments to your creditors.  However, instead of submitting your monthly payments, an agency can actually withhold your payments and not pay your creditors until the deadline.  Many fake credit counseling agencies also charge hidden fees that can only add up to your burden.

These agencies don’t really care about your debt problems.  They’re only after their own interests – and that is to make profits from your debts.  Many consumers were forced to drop out of a debt consolidation program because they’re not making any progress. After resorting to debt consolidation, they had to file for bankruptcy as a last resort for their problems.

Don’t let the same thing happen to you. Before signing up with any credit counseling agency, carefully examine its background and reputation.  Check from the Better Business Bureau if the agency has had complaints in the past.  Even so-called “non-profit debt counseling organizations” can be a fraud.  If you don’t take time to do your research, you can end up as a victim of these predators.  Therefore, do your homework and save yourself from the dark side of credit counseling.

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WASHINGTON, June 10 — JPMorgan, Goldman Sachs and eight other top US banks won clearance yesterday to repay US$68 billion (RM238 billion) in taxpayer money given to them during the credit crisis, a step that may help them escape government curbs on executive pay.

Many banks had chafed at restrictions on pay that accompanied the capital injections. The US Treasury Department’s announcement that some will be permitted to repay funds from the Troubled Asset Relief Programme, or TARP, begins to separate the stronger banks from weaker ones as the financial sector heals.

Treasury didn’t name the banks, but all quickly stepped forward to say they were cleared to return money the government had pumped into them to try to ensure the banking system was well capitalised

Stock prices gained initially after the Treasury announcement but later shed most of the gains on concern the money could be better used for lending to boost the economy rather than paying it back to Treasury.

"If they were more concerned about the public, they would keep the cash and start loaning out money," said Carl Birkelbach, chairman and chief executive of Birkelbach Investment Securities in Chicago.

Treasury Secretary Timothy Geithner told reporters the repayments were an encouraging sign of financial repair but said the United States and other key Group of Eight economies had to stay focused on instituting measures to boost recovery.

Earlier this year US regulators put the 19 largest US banks through "stress tests" to determine how much capital they might need to withstand a worsening recession. Ten of those banks were told to raise more capital, and regulators waited for their plans to do so before approving any bailout repayments.

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Being stuck in huge debts can be frustrating and stressful and many people are left with only their jobs and homes to hold on to.  If you’re in a similar situation, don’t lose hope.  Instead, let this financial challenge put your money-management skills to the test.

Let Debt Consolidation Help You

In extreme cases, the best way to stop debts from further accumulating is to consolidate.  By acquiring a debt consolidation loan, one can pay off all his existing debts to his creditors and clear all his charges at once.  This prevents interest rates from adding up continuously and also eliminates late penalty charges.

Nevertheless, a debt consolidation loan isn’t 100% interest free.  The good thing about consolidation is that by combining all your debts into one account, multiple fees are eliminated and your interest rate is significantly lowered.  Furthermore, you’re instantly freed from the stress and hassle of dealing with multiple creditors and debt collectors.

If you have decided to seek consolidation, choose your lender with care.  Search for lending companies that offer debt consolidation services and learn as much as you can about it.  What are the rates and fees?  Does the company provide flexible or easy repayment terms?  Are the conditions fair and reasonable?  Is the lending company recognized by the government and other national debt organizations?  What do past and present clients have to say about it? 

How to Make Debt Consolidation Work for You

As we’ve said, setting yourself free from debts would put your money-management skills to the test.  After acquiring a loan consolidation, you’ll be confronted with a new obligation- to pay your debt consolidation company on time all throughout your loan’s term.  To do this, you’ll need to pay attention to your spending habits and lifestyle.

Have you already created a monthly budget plan?  A budget plan or repayment plan would help you distribute your income accordingly so as not to neglect or overlook your debt payments.  If your salary is not enough to cover for everything- utility bills, personal expenses, debts- you’ll need to make some adjustments without compromising your debt payments.  Remember, your priority at this time is to complete your consolidation loan payment as soon as you can.

In case of emergency and you think you won’t be able to pay on time, call your loan consolidation company right away and ask for an extension.  If you give them advance notice, lenders would gladly extend your due date without reporting as late payment. 

Unfortunately, some people who sought debt consolidation found themselves stuck in deeper debt trouble.  The reason?  They didn’t follow the budget plan they created and thus, were not able to submit their loan payments on time.   The result can be dreadful as most consolidation loans are secured with collateral.  To avoid this dilemma, be strict in following your repayment plan.  It isn’t so easy and needs a lot of determination and discipline.  Nevertheless, your sacrifices would be rewarded and debt consolidation would prove to be an effective solution for you.

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An offer by the Missouri Theatre Center for the Arts to settle outstanding debts from its $10 million restoration project for less than the amount owed has some contractors seeing red ink.

“I have to eat $6,000,” Brad Schmitz, owner of A to Z Theatrical, said this morning. Schmitz was offered $15,000 to settle an outstanding $21,000 bill.

“We very reluctantly agreed,” he said. “We felt they had us over a barrel.”

Schmitz said it was apparently necessary for Missouri Theatre Land Co. LLC, which has been sued by several contractors, to settle up to $1.6 million in debt by last Friday in order for contributors to the project to qualify for some $3 million in federal and state historic preservation tax credits.

“It was my understanding that is why it had to be done in such a hurry,” Schmitz said of a “take it or leave it” settlement offer he received via e-mail Wednesday from general contractor Huebert Builders Inc.

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