The Finance Blogger


Debt Settlement is not for the Faint of Heart

November 21st, 2016 ernie Posted in Debt Management No Comments »

Debt Settlement is not for the Faint of HeartWe all will in up in debt at sometime in our lives. For most it is the usual mortgage, car loan and a couple of credit cards. For many it is much more and they cannot seem to be able to repay these debts. Turning to a debt settlement company is one solution. However Debt Settlement is not for the Faint of Heart and also comes with considerable risk as well. It is important to know what the process is to really understand why it can be even more stressful than dealing with debt.

Basically you stop making payments to the companies you owe money to. It is important to place the usual payment amounts into an account that you cannot touch. You will need this money later. After a few months your account will build and if you let this process go long enough, you may have sufficient money to pay half or more of the debt. This is when your debt settlement company will begin negotiations. Their objective is to have your debters write off as much as 50% of your debt.

Debt Settlement is not for the Faint of Heart – Risks

There are numerous risks associated with this approach. For example, your credit rating is going to tank if you follow this approach. Future loans etc will be impossible to obtain. There is no guarantee that the debtors will accept this negotiation. They may play hardball and demand payment in full. Now you owe all of the accrued interest and payments along with whatever fee you agreed to pay the debt settlement company!

You may also still need to declare bankruptcy and they may not be able to manage all of your debt. Some debt may remain and you may find that you need to declare bankruptcy as a result. Both are bad situations to find yourself in along with the waste of time, money and damage to your credit rating.

The best solution is repay all of your debt and don’t get into this situation in the first place.

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Banks stop offering payday-like loans

July 21st, 2014 ernie Posted in Debt Management No Comments »

Payday LoansIt is about time that banks stop offering payday-like loans. Payday loans are notoriously expensive for consumers. When interest rates are so low, consumers should be able to find loans at very low interest rates. Unfortunately unless you have really excellent credit ratings, most consumers will not receive the low interest rate offers.  Instead they are offered high interest rate loans. This reflects the perceived increased risk that the banks perceive. This really costs the consumer a lot more money. Now that the banks stop offering payday-like loans, does this mean that they will now offer low interest rate loans to more people or does it mean they cannot get a loan at all from the bank.

Banks stop offering payday-like loans – costs

Consider a loan at current low interest rates of 3% vs a higher interest rate loan of 10% for $5000 over a 5 year term. Note that payday loans are much higher in terms of interest rates, however we will just compare these two to illustrate the difference in cost for a loan with a 7% higher cost rate.

The 3% loan over 5 years for $5000 will cost $381.18 in total interest costs and has a monthly payment of $88.46. The same loan with a 10% interest rate over 5 years and $5000 will cost $1,270.59 in total interest costs and has a monthly payment of $103.08!

This is a significant difference in total costs. Imagine the interest costs and monthly payments for a payday loan with much higher interest rates. Even credit card rates are not as high as pay day loan rates and credit cards carry a 20% interest rate charge. In addition there are often processing fees attached to these loans and if you miss a payment, the fees are astronomical. Consumers would do well to avoid these loans and just not spend the money that got them into a situation where they needed to borrow the money in the first place.

Banks stop offering payday loans – Loan Availability

Let’s hope that those people without perfect credit ratings, but not bad credit ratings, can qualify for low interest rate loans instead of the payday loans. They will save a tremendous amount of money by being able to pay only 3% for a loan. Time will tell whether the banks loosen the purse strings when it comes to payday loans.

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Loans for Debt

January 21st, 2013 Debt Posted in Debt Management No Comments »

Loans for DebtConsumers are always looking for loans for debt situations that they find themselves in or perhaps to purchase new furniture or a new car etc. Most consumers carry more than one credit card and use them from time to time to purchase things in their everyday life. You  might have a credit card for groceries, another for gasoline for your car and a third for all other purchases. Many stores are trying to obtain your business by offering loyalty credit cards. These credit cards are debt as well and also carry a very high interest rate with them on any unpaid balance.

What is the difference Between a Loan and Debt

Debt is basically money that you owe to somebody. Debt can be for many things, however the average consumer will have debt for their car, debt for their home and debt for their credit cards. Some will also have debt in the form of personal loans. Debt is money that you owe on anything.

Loans are also money that you owe and loans are debt as well. Loans might be mortgage loan on your home. Loans are usually provided when you borrow money to purchase a car. Every time you purchase something with a credit card, you are essentially borrowing money at credit card rates.

What kinds of Loans for Debt Are There

Credit card debt or loans is the easiest to describe. Basically when you charge something to your credit card and do not pay this amount at the end of the month, the total owed is carried over to the next month and you are charged interest on everything you have not paid at high rates of interest. These rates can be around 18% for regular cards with store cards and loyalty cards going as high as 28%. These are very high and if you are paying the minimum payment each month, most of your payment is going to interest payments and very little to the amount that you actually owe.

Personal loans come in secured and unsecured variations. A personal loan is debt that you owe to a lender. A secured personal loan is a loan that is secured with some asset that can be used by the lender to repay the loan if you are unable to meet all of the payments. An unsecured loan is not secured with anything and there is no link to your home or car or any other asset. Secured loans charge a lower interest rate than an unsecured loan and both are very much lower than credit card rates.

Mortgage loans are different as well. These are debt and they are loans, however they always use your home or building as collateral. As a result they are always secured and they carry a very low interest rate compared to all other loans and debt. Personal loan payments are usually spread over 5 years or less. Mortgages on the other hand have their payments spread over 25 years or more. With low interest rates and long payment periods the monthly payments are usually quite low compared to personal loans for the same amount of money borrowed. Mortgages are usually much larger than personal loans for the average consumer.

What are their Rates for Loans and Debt

We have already discussed credit card debt and the interest rates for that kind of debt. Personal loan rates and mortgage rates vary a great deal and are dependent on the bank rate that is established by the federal bank. These rates have been at historic lows for the past 3 years and are expected to stay that way until the beginning of 2014 at which time they will rise. This is a long term forecast and anything can happen over the coming year. Mortgage rates have been as low as 3% and loans have been as low as 8% in recent periods.

Loans and debt are pretty much the same thing, except that debt describes everything you owe, where as loans describe specific types of debt or money borrowed. Consumers should always try to minimize their debt as much as possible and minimize the interest they pay by consolidating all of their debt into one low interest loan.

For more posts about how ot handle debt management issues, click here.

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Pay Down Your Debts – Financial Freedom

March 7th, 2012 ernie Posted in Debt Management 1 Comment »

Pay Down Your Debts - Financial FreedomWe just read an article that fully 33% of Canadians nearing or in retirement still have loans and mortgage debt that they are paying monthly payments on. For some this is quite serious since they are still paying a mortgage and have limited income remaining to live on. Pay Down Your Debts Now! These folks are also on a fixed income from pensions and government income and cannot afford to pay down the debt all at once. For a limited few consumers, it is merely a manner or re balancing their portfolios to eliminate the debt and live debt free while they are in their retirement. If you are in your 40’s now is the time to focus on paying off all of your debt so that when it comes time to retire, your income is free to spend on whatever you wish! Imagine the freedom.

This same survey indicated that more than 50% identify it as an important issue to save, to pay down the debt they have and to have a plan to pay down their debt. This is the baby boomer group which is retiring or about to retire. Many are not prepared and are not good at meeting their plans if they have them. This survey caught our attention since it really brought home the fact that people in this age group may have to adjust to a lower level of living than what they are used to when they retire.

This may be a tough adjustment for people who are used to working, having a good pay check and then faced with living on a fixed income at a lower level than they are used to. They can easily build up their debt levels even further by not adjusting their living standards and reducing their expenditures.

Plan for your Retirement Now to Gain Some Kind of Financial Freedom

Most do not have plans and have no idea what they are in for when they retire. Here are a couple of steps that you can follow that will begin to help you get ready for retirement and also organize your finances:

  • List all of your monthly expenses
  • List your income
  • Identify income that will grow as time goes on
  • Identify your debt, the monthly payments and the maturity date
  • Review your income after retirement
  • Identify any income gaps
  • Prepare a budget
  • Develop a plan to reduce expenses if needed to balance your income vs. expenses
  • Meet with a financial adviser for help to assess your retirement situation
  • You will need a list of all of your assets and debts now, and at retirement
  • You may want to meet with several financial advisers and compare recommendations
  • Develop your own plan based on all of this data and recommendations.
  • Adjust your savings plan and your debt plan to meet your goals for retirement

Pay down Debt

If even one person reads this post and takes some action about paying down their debts, then we will feel it has been worth it to have written this post. Even if we find that people are thinking about saving and paying down debt, we will have made some headway. The best advice we can give to young people is to save 10% of their income towards retirement starting from the time they begin work until they retire.

Unfortunately for us, we fall into the group that still has debt but we do have a plan to get out of debt and be debt free by a specific age. Whether we get there or not is going to depend on the markets, the housing prices and how long we continue working. We would really like to be debt free, but we are not quite there yet.

If you have similar issues or have points you think our readers would appreciate, please leave us a comment.

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