Category / Debt Management

Debt Management

Bankruptcy Need not be Your First Choice

Debt and Bankruptcy Debt Advisory LineSerious economic challenges can exert a high degree of psychological pressure. Especially when expenses are exceeding the available income for extended periods of time, strain levels in a household can get insufferable. During this period, many will consider bankruptcy their only available option. In itself, this need not be a problem. After all, declaring bankruptcy means all financial obligations owed to lenders will be dismissed if your filing is decided in your favor. Choosing to file, however, is a serious matter and will seriously affect your life for years to come. Ahead of declaring bankruptcy you should therefore take numerous aspects into account – especially since debt and bankruptcy don’t have to go hand in hand.

The first question you should ask yourself is whether you may be able to restructure and get rid of your debt by yourself. When debts are too much to handle, after all, you are going to struggle to pay the lender commitments you agreed to. In this case, bankruptcy can be an option. Before arriving at that conclusion, however, you should take all available steps into consideration to improve your financial situation: Is there a car which can be traded in? Can the house be refinanced for a decrease in the mortgage payment? Are there higher paying jobs that can be added to the household income? There are also a variety of practical steps you can take to at least return to breaking even: Cut back on household expenses and instead of going on expensive vacations, go for cheaper alternatives. This can often help to relieve the stress of debt for you and your family. Try cutting back on extras like cable, cell phones and eating out before deciding to declare bankruptcy.

Mostly, though, bankruptcy is something best handled by experts and you should consider getting professional help. A debt consolidation company can help you negotiate with creditors to reduce the amount you have to pay each month, for example, and thereby avert bankruptcy. They can help create a plan to get you out of debt and back on the right path towards a sound financial situation. They will also assist you to determine how much debt you actually have. Although it may sound hard to believe, many people tend to hold an exaggerated view of their financial misery. You may be one of them.

The Debt Advisory Line have years of experience in helping you establish a precise picture of your debt and systematically reducing it. If you’re in need of debt management, contact us now to find out how we can assist you.

Debt Management

A trustworthy debt relief company can only help you – Know more

Most of us won’t like to begin the New Year looking at a long list of debt relief services. However, restricting your debts is one of your primary concerns if you truly wish to improve your personal finances.

Your credit situation can certainly be improved if you follow the tips mentioned below. A majority of us don’t have the time to look after our personal finances, although it really helps when we check out our individual credit situations. That’s one reason why so many of us are now reaching out to debt relief services.

Look for an organization of good repute.

Acquiring memberships of esteemed organizations or quality accreditations demand adequate time and dedication from a service provider. A company that wants to draw quick money and make a fool of its customers won’t spend too much time into this. Inferior services don’t engage trained professionals or complete paper-works. NFCC and AFCC are amongst organizations that have websites presenting lists of renowned debt relief services. Once you go through these lists, it will be easier for you to pick the right company. Reliability of these services can be easily understood once you read through the membership criteria of these organizations.

Acquire referrals from the ones you love.

Earning referrals of quality debt relief services from your loves ones is a natural thing, since many of them may have gone through similar situations in the past. You may find effective guidance under a certain company that had helped a friend or relative in the past. At the same time, you’ll need to go through the situation experienced by your loved one and not rely too much on such referrals. A referral doesn’t guarantee an experience that will surely yield positive outcomes. Success often depends on the particular agent that handles your case and your individual financial situation. You must look for a different debt relief company in case a particular company doesn’t feel right.

Conduct your own research before arriving at a contract.

You must study the way your chosen company works, even when you’re about to work with a reputable organization. Doing your own research may bring out facts about your chosen debt relief company that you must take into account. All reputable debt relief companies reflect the true nature of their services through testimonials and reviews posted by their past customers. You may come across positive reviews or complaints filed against your chosen company while searching for accreditations offered by renowned bodies like the BBB.

Understand the law and identify your rights.

There are laws governing the operations of any debt relief company, hence you must identify your rights. Websites like FTC.gov are likely to show you through the telemarketing rules governing various sales processes. Scammers often pose as legitimate businesses and rob consumers of their hard-earned money. Promising outcomes that don’t quite seem realistic and demanding charges upfront mostly signify such scams. Rules have been imposed to protect consumers from such attempts. You’ll need to analyze the overall financial situation and trust your instincts before you pay for these debt relief attempts. Feel free to express your concerns, if you feel skeptical about something. You may choose to work with a different debt relief agency if the policies of your favorite agency don’t seem agreeable. In the end, a reliable service provider can only pull you out of your debt burden.

Debt Management

Will Too Many Credit Cards Mean A Bad Credit Score?

With the holidays recently passed, it’s a fair guess that you were overrun with offers to sign up for credit cards, whether you’re at the cash register or checking your mail at home. Let’s take a look at two offers that always seem to make an appearance on a regular basis.

  • Clerk: “Hi, Would you like to open a credit card with Best Buy to save 15% today?”
  • Commercial Mail Offer: “Get 30,000 American Airlines Miles by signing up for the Citi AAdvantage Credit Card!”

We’re going to discuss how to make sense of choices like those above. What effect does opening a new credit card have on your credit rating? And what does it mean for your wallet when your credit score sags?

It might come as a shock, but to our mind the most important variable for the next year is your own readiness to take on loans. Below, we’ll go into why.

What is calculated in a FICO score calculation?

FICO uses a credit scoring system, which operates on a spectrum between 300 and 850 points. The exact calculation is not available for public knowledge, but there has been some information made available. This is the set of weighted factors that determine your FICO score:

Factor Weighting
Past Payment History 35%
Credit Utilization 30%
Length of Credit History 15%
Type of Credit Used 10%
Recent Credit Inquiries 10%

FICO focuses more on the recent past than the distant past

While the table above provides the basic picture of what goes into your FICO score, it’s also important to consider that your score is weighted towards your recent history overall, rather than the more distant past. If you’ve been making on-time payments on your credit cards for the last year or so, this can help minimize damage caused by past delinquencies. In the same vein, a pile of credit card payment notices that are a year old or more will do less harm today, but just a couple in recent months can be a big problem.

What is the impact of a new credit card on your credit?

A new credit card benefits your credit utilization since it lowers your total debt in proportion to available credit lines. On the other hand, it can decrease the duration of your credit history and increase your number of new credit inquiries. While it’s not fully clear how much each aspect of this choice will impact your score, its our opinion that this generally points to a small negative effect in the short term, while its long term effects have strong positive potential. In sum, opening a new credit card won’t have too much of an effect at all if you’ve got a score of 800 or more, but if you have a more limited credit history, this could push your score from the mid-range into “poor” and make it harder to obtain credit in the future.

What are the benefits of opening a card account?

Exercise careful judgment in how you use your credit card applications. Each airline mile is typically worth about a penny, so getting 30,000 of them by signing up for a new credit card means about $300 in real dollars. At the same time, the Best Buy 15% discount requires some very distinct math because the 15% savings probably won’t come out to be more than $300 unless you’re spending well over a thousand dollars on electronics.

Turn down all rewards credit cards that don’t offer some kind of immediate reward. The market is flooded with cards, like the Chase Freedom, that pay $100 or more for signing up, so unless you’re going to be getting some kind of incentive it’s not worth applying.

And how about the drawbacks of a lower credit score?

While most conversations about credit center around APRs and interest rates, the loan rate that a good FICO score can make available isn’t the most important thing to consider when thinking about the benefits of good credit. Even more important is how much money you plan on borrowing in the next year or so.

That is to say, if you’re going to be seeking a $45,000 home equity loan in the near future, having a good FICO score will be a much more significant factor than if you’re going to be looking for a $5,000 loan for your car. That’s because getting stuck with a higher interest rate on a smaller loan translates to a difference in interest payments that’s small enough to be negligible.

Input 1: Your FICO score and your interest rate

When seeking out a loan, your loan officer will base your interest rate off of a combination of criteria. A shorter loan duration and putting up collateral, as with a mortgage, can lower your rate. But the factor most within your control is your FICO score.

For instance, take a look at the table below, based on information from LendingClub’s average rates for a 36-month “debt consolidation” loan (note: these are not LendingClub’s actual rates, but our own estimates for illustration purposes only).

Credit Score Fico Score Interest Rate
Awesome 780+ 5.98%
Excellent 750-779 6.36%
Really Good 714-749 9.25%
Good 679-713 12.41%
Average 660-678 16.32%

Input 2: Loan Size

In terms of actual money that you’ll be paying, the most important factor is the amount you’re seeking to borrow. In the next table, you can see how a smaller loan minimizes the overall impact your FICO score has on how much your loan will cost you.

Loan Size Fico Score Interest Payment per Year FICO Score is 30 Points Higher FICO Score is 30 Points  Lower
$5,000 730 $483 Save $155/yr Pay extra $223/yr
$10,000 730 $965 Save $654/yr Pay extra $446/yr
$25,000 730 $2,413 Save $777/yr Pay extra $1,114/yr

Go for that new card if you’re not going to be seeking out any big loans in the near-to-middle future

In our opinion, opening 1-2 credit cards each year won’t have much impact on your credit score over the forthcoming year. In fact, it may raise your long-term credit score if you don’t have a very long credit history and keep the amount of credit you use at a low level.

If your future need for loans ranges from small to nonexistent, you should give some serious thought to the merits of an airline miles card. It’s likely that signing up for this type of card will net you a 30,000 mile reward, which translates to about $300 and thus ultimately cancels out much of the cost that comes from borrowing, according to our calculations. There are many rewards cards that have comparable deals.

But, if there is going to be a larger loan in your future, you should hold off on applying for a card or any other loan for around a year previous. In the context of taking out a loan over $25,000, its quite possible that whatever rewards your potential card offers to incentivize signing up will be outweighed by the increased interest rate that can come with a lower FICO score.

This post comes from the NerdWallet.com team of personal finance bloggers and experts in helping consumers find the best low APR credit cards.

Do you have too many cards?

Debt Management

Advice on Secured Loans

When you are searching for options to fund a new purchase, you have to make a choice between unsecured and secured loans. There are advantages to each of these, and it ultimately depends on the financial condition of the borrower, as to which alternative becomes preferable.

Unsecured Loans versus Secured loans

Unsecured loans are a recent innovation in finance, unlike secured loans which have been around for centuries. Even in the older days, people used to borrow money after keeping their land as security. This was the way most farmers were able to get money to finance buying of seeds and fertilizers for their activities. Unsecured loans have led to larger risks being taken by lenders and this has led to rates and terms for such loans being far more costly and stricter. Mortgages are a form of secured loan, because the property being acquired itself is offered as collateral, to guard against default in payment.

Secured Loans and Credit Ratings

Financial institutions always prefer to have clients that have good credit ratings. Even so, where collateral is offered as security for the loan, they may not give this credit rating too much of importance, as their risks are covered by the asset value of the pledged security. A good credit rating and a loan that is covered by collateral can lead the lender to offer much more generous terms. So, interest rates will be lower, conditions will be easier and payment concessions will figure in the final contract. A poor credit rating along with collateral will still allow you to get the required loan, but because of the poor history, terms are likely to be stiffer and more demanding.

Business Secured Loans

Most banks offer businesses secured loans that require some sort of collateral. This can be in the form of any property that the business has rights over. While property is the most preferred, banks will even offer such loans against equipment, vehicles and any other asset that the business has.  Before such loans are granted, the lender will insist on an independent valuation of the assets, so that they cover the full value of the loan being considered. In some cases, banks may even offer to give such loans against shares or stock, as long as the company has a history of being well traded in exchanges. Businesses even in case of secured loans, are expected to provide complete financial details and history, so that the lender can ensure that they have the necessary business acumen to run the business profitably. A well-run company can even further negotiate to get very advantageous terms, that ultimately lower the cost of such financing.

Secured loans must always be preferred by both individuals and businesses as the interest rates in them are much lower. It also enables an idle asset like a home or other property or collateral to realize its potential value, which otherwise lies dormant. Loans are normally offered that can go as high as a hundred percent of the value of the security offered, though eighty percent is more the norm. Click here if you need to get more information on secured loans.

Debt Management

Pay-day loans – the fast, convenient and user-friendly was of borrowing money

Payday LoansPay-day loans are like any other loan products in as much as they need to be treated with respect and due caution. The fact of the matter is that most people have to borrow money at some point in their lives. Whether that borrowing takes the form of a mortgage or a pay-day loan from payday loan giants Wonga – they’re all loans. They all involve paying back interest of the original loan amount, and they all have to be repaid within a certain time frame.

An alternative to traditional bank loans

Pay-day loans have received a certain amount of bad press, but it’s not the actual product that’s at fault as much as some of the borrowers. The fact of the matter is that pay-day loans offer a new, modern alternative to traditional borrowing. In an ideal world most people will approach their bank for a loan. They offer flexible loan amounts, flexible repayment periods, and good rates of interest. But there is a problem.

The problem with banks is that the majority are so staid and stuck in their ways. They’re trying to reinvent themselves, but their hearts are not really in it in the same way as they are in the new Fintech start-ups that are setting up shop and challenging the old financial regime.

The loan application process from a traditional banks can be long and drawn out, and quite invasive. A large percentage of loan applications never succeed. This is where pay-day loans really score. The application process is fast and efficient. In most instances it can be carried out entirely online, which is something that suits South Africa’s young generation down to the ground. Banking innovation is key according to the Africa Progress Panel, and South Africa is not short of innovation.

Higher interest but over a shorter period of time

Admittedly the amounts lent out are relatively small. The initial pay-day loan product that market leaders Wonga (South Africa) has a ceiling of R2500. Given the fact that the loan period is so short (typically no more than 47 days) the interest charged has to be much higher than the interest on traditional bank loans, but it has to be that way in order to be viable for the lender. Its why these products are referred to as high cost short term loans (HCSTLs).

The advantages of speed and convenience

The beauty of pay-day loans is their speed and convenience. This is their main attraction; but it can also open a loophole for unscrupulous borrowers too; those who have little intention of paying the loans back if times are tough, and this is how some of the bad press originates. Even though most pay-day loan companies are responsible lenders, in order to make the loan application process as fast and user-friendly as it is, it does open the door to some “fraudulent” applications.

Responsible lending and borrowing is good for the South African economy

The majority of people who apply for pay-day loans do so carefully. They weigh up their options, and make sure they can pay the loan back when it is due. Having done their research carefully, some people are now beginning to use pay-day loans to start up their own on line businesses. According to a recent article in The-South-African.com there is a tough start-up market emerging, mostly reliant on self-funding.

Pay-day loans are a good product that offers an alternative form of lending. With responsible lenders and responsible borrowers, they can add a significant boost to the South African economy.