Over the last decade Americans have accumulated excessive amounts of debt. Partially fueled by low interest rates and increased equity on houses due to real estate markets driving prices high up. Excessive spending and no financial responsibility often lead to bankruptcy of consumers. Now with the new bankruptcy law in place filing for bankruptcy has become much more difficult and much more expensive.
More and more people have now to look out for different alternatives. Debt consolidation programs can help consumer to get rid of the burden of excessive debt and may reduce a consumers monthly costs by hundreds of dollars each month. Debt consolidation experts can help consumers to assess their individual situation and make recommendations for how to approach the situation.
With the assistance of a debt consolidation professional, a consumer can work out a customized debt consolidation plan Depending on the severity of the situation the debt consolidation professional will contact the credit card companies of the consumer to negotiate a way out of the existing situation.
Debt consolidation is easy to get started. All it takes is a simple phone call or online inquiry. A consumer should research which companies have a good reputation as there are quite a few debt consolidation businesses out there that charge a lot of money and do not provide valuable service. They actually make things worse. A consumer also needs to be honest about the situation and willing to work with creditors. Hiding things will not help getting a consumer back on track.
While filing for bankruptcy might sound like the easier way out, this is not necessarily true. The damage to the credit score and the credit report is worse compared to working the way out of a big pile of debt. In the long run it also does not help. A change of how people think about these things has to be made. Filing for bankruptcy is pretty much somebody else paying for your debt. Credit Card companies and banks will move these losses over into charges and everyone will have to pay more to cover bankruptcy losses. The consumer also does not learn how to work with a budget and often bankruptcy filings are done twice or more by the same people. By biting the bullet and paying off debt a learning process is established that will help to gain more financial freedom in the long run.
Debt Consolidation or Bankruptcy Part 2
It’s a question that has stumped wise men (with overdrawn credit limits) for generations. Do I file for bankruptcy, or do I get debt consolidation loan and spend ten years paying off my debt?
The simple answer is, if you can do the latter, do it.
Sure, bankruptcy means you don’t owe anything to anyone (well, sometimes it means you need to sell your assets, but more often than not you’re starting afresh), but it also means a big fat black mark on your record that will never go away (despite what some people say about seven years being a magic slate cleaner).
Bankruptcy marks you as a bad risk for every potential lender. Mortgage lenders, credit card companies, employers – they all see that credit history and get the same furrowed brow.
And even worse, the Bush administration has chosen to pass laws that mean, now, if you go bankrupt owing money to a credit card company, they can take your family home.
Yes, that’s right, the government has made it law that, unlike big businessmen who can go bankrupt every second year without penalty, normal people like you can have your family home taken off you just because you couldn’t keep up with your MBNA payments.
Of course, the credit card companies were behind the bill, and spent millions on Congressmen and Senators to ensure it passed without too much debate, and millions of Americans who look at their debt and think, “Well, I can always go bankrupt”, have no idea that if they do, they’ll genuinely lose everything they have.
Which leaves us with the other option – debt consolidation.
Debt consolidation is when you gather all the debts you owe, pool them into one amount, and borrow that amount from a bank or other financial institution, to be repaid over a long period of time, at a set (and low) interest rate.
It means that everything you owe to Sears and Best Buy and MBNA and Citicard is suddenly paid off, and all you owe is one long-term debt to a stable, secure, eager to help you stay afloat bank.
Think about it – why carry six debts that all need to be repaid in the short term, when you can have one debt that doesn’t have to be completely repaid for years? It just makes sense.
Debt Consolidation And Bankruptcy
People refinance mainly due to debt consolidation only. The equity is used to reduce their monthly payments. Many people are not able to pay their debt repayments in due time. The late fees and other penalties only increase the debt. A debt consolidation loan is used to repay the debt in a single once monthly payment. Sometimes there are multiple credit cards with different interest rates. You can take a debt consolidation loan and pay all your credit card dues. The rate of interest of a debt consolidation loan is definitely lower than the interest rates of credit cards. The monthly payment in a debt consolidation loan reduces gradually making the payments easier for the borrower. In this case the borrower has to pay back only one lending institution. But the payments should be made on time.
There is another way of paying back loans taken from multiple institutions. A debt consolidation loan is taken and the agency makes arrangements to pay back the loans to the appropriate lenders in the specific time. In this case care has to be taken to see that the payment is made on time to the debt consolidation agency.
Debt consolidation refinancing is another method to repay the mortgage. The balance of the mortgage is determined and the amount you need along with the closing costs are added up and the total amount given as loan. The value of your property is appraised and Loan To Value is calculated. You can then borrow even up to 100% of the value of the home as loan.
Many people in America are so much under debt that bankruptcy has become a method to save one’s skin from debt. This system is not good at all, as it is only leading to more suffering for the lender as well as the borrower. When a person declares that he is bankrupt, he loses almost all his assets and it will take quite sometime to recover. In the year 2003 in America over a million people filed for bankruptcy. Every year the number is only increasing.
Bankruptcy should be the last resort. The Bankruptcy Abuse Prevention and Consumer Protection Act makes life hard for common people of America. They find it difficult to file for a chapter 7 Bankruptcy. A breathing space can be acquired by filing for a bankruptcy. There is a time between filing and discharging the bankruptcy papers. Use this time effectively to think over.