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Debt Management

To Borrow or Not to Borrow: Making Sound Financial Decisions

While it would be nice if money was never an issue, life simply doesn’t go that way. Everyone deals with financial pitfalls that sometimes force them into a corner where they must decide how to stay afloat. When it comes to affording things that you want or need when you don’t have the funds, it can be pretty tempting to decide to take out a loan. Though loans can be a great way to secure cash fast and boost your credit (when paid timely), applying for one is a financial decision that should not be taken lightly.

You see, the problem is that many people apply for a loan and then fall further into debt because they aren’t able to keep up with the payments. You can eliminate all of this by simply evaluating the decision to borrow a bit further. Below are a few suggestions that should assist you in determining whether obtaining a loan is feasible or not.

What’s the Loan For?

The first thing you want to do when deciding to borrow or not is to assess your financial need. What exactly are you looking to borrow funds for? Does your car need repairs you can’t afford on your own? Or are you planning a trip and want some spending money? Other factors to consider are how long you’ll need to repay the loan. Companies like Max Lend Loans for instance offers short term loans (typically 14-30 days). If you simply needed to make a repair to your car but didn’t get your paycheck for another week, then obtaining a short term loan makes sense.

Can You Pay it Back?

Before taking out a loan, determine whether or not you can pay the loan back in a timely fashion. You’ll need to look at things like interest rates, fees, and the monthly payment amount and compare it to your personal budget. If you don’t have room in your budget to pay it back in a timely fashion, it’s probably not a good idea to take out the loan. Failure to pay a loan back on time could result in higher interest rates, increased fees, and a poor credit rating.

Are There Other Options?

Borrowing money is often the first go-to when you don’t have the means to pay for something. However, before you decide that a loan is your only option, check other avenues first. Can you borrow the funds from a friend or family member? Is there a way to earn some extra cash really fast? Can you contact the bill collector and ask for an extension? Can you skip out on a luxury such as eating out for lunch every day to pay for your needs? If the answer to all of the above is no, then a loan is a wise decision.

Finding the Right Loan Company

If you’ve determined that you do have a real need for a loan and have exhausted all other avenues of resolving the matter, then obtaining a loan can be a life saver. It is important that you do your research before applying for loans to ensure that the company is legit. For example, a MaxLend Loans overview found on their Twitter account allows you to see when they were established as well as review tips and comments from their followers. If you see good reviews or lots of followers, chances are the company is credible.

Borrowing funds from a lending institution is not something that should be taken lightly. Though loans can certainly help you out of a jam if you need it, irresponsible borrowing could cause you to fall into deeper financial trouble. Therefore, before deciding to take out a loan, be sure to follow the advice above. Evaluate the severity of your circumstances, determine if you can reasonably pay the loan back, and of course exhaust any other options first. From there, it’s all a matter of selecting a lender that offers competitive interest rates and reasonable repayment options to suit your needs.

Debt Management

Credit repair – Is it really needed?

Credit repair can mean rebuilding your credibility in the eyes of the lenders. While doing this is no overnight activity, it is not an impossible one too.

As you know, credit score is the most important thing in individual’s life as by people’s credit score lenders decide weather to lend money or not, to qualify for home loan, business loans, auto loan everything depends on the credit score. Even the rates given on insurance also depend on the credit score of a person. There are firms which give you ways to repair your credit score quickly but most of them are scams so here are some techniques which are not recommended by us for credit repair.

1. Selecting and taking the services of a credit restoration agency

There are many companies who promise to repair your credit report. If you are thinking to hire such companies then wait for a while and go through this article further to know about it more.

According to Ken Lin, CEO of credit karma, there are many companies who give advertisement to repair credit report to lure poor customers and basically they don’t help you out of it rather than they will help you to file bankruptcy which is not a part of credit repair. If you have decided to hire any of these companies for repairing of credit report then make sure that you go to a genuine company. You can judge which company is genuine by few points 1) if a company wants fees to be paid before service is provided then understand that company is not genuine. 2) If the company is not telling you your legal rights then assume that company is not genuine. 3) If the company says you not to contact the credit reporting agencies directly then assume that the company is not genuine at prlog.

You cannot get your credit report by throwing money on credit reporting agencies. All you can do is look for genuine ways which can help you to clear negative remarks from your credit report. It is best that you should keep a look on your credit report every 3 months so that you can get your credit report rectified if there is any sort of mistake done by credit reporting agencies.

2. File Segregation – Right or wrong

File segregation means creation of new credit file by making an application for employer identification number from IRS. Once you get your EIN then you can apply for credit from your EIN number rather than social security number. This thing is considered as fraud and some of the credit repair companies use this technique to repair your credit report.

3. Consolidating debts 

Usually credit reporting agencies derive your credit score by looking on the total credit used by you from the available credit. They even look at the time since your credit account is opened. So because of this consolidating your account can spoil your credit score because it will increase the amount of credit and can decrease the length of your credit account from time since it is open. Even if you consolidate all your account then also it will put a negative impact on your credit score because 10% of credit score is based on the new credit account which you open.

4. Getting the discrepancies removed from your credit report 

Some credit repair companies claim that they can get your entire negative remark remove from your credit report. They tend to say that the credit reporting agencies will clear all the negative remarks from your credit report for 30 days while they will investigate the problem but actually it is not true, while even at the time of investigation the negative remark remains on your credit report until and unless problem is found.

5. No credit – An oath 

There is no compulsion that you should use your credit, you can avoid using them buy not buying home, car, shopping, booking tickets, hotel rooms, and shop online. All these things are difficult to do online but you can manage to book all this offline by paying cash. All these things are fine which you can forget to do but don’t forget to clear off all your debts because your lenders will not forget you.

These are just few of the options or the steps which you can take in case you are looking to repair your credit report. However, there are a lot of people who take multiple loans without even being aware of their credit report and the scores. This mostly happens in the cases when you have a really good credit score and whatever loans you apply for gets approved by the lenders without any queries regarding your financial credibility. However, things are fine till the time they are. Once you get stuck in any kind of financial issues, repayment of multiple loans can pose a lot of problems for you.

Looking at the current economic situation dealing with the perennial issues of recession are in no ways easy. The financial meltdown which basically dates back to 2008, has its affects felt even today. There are a lot of people who have suffered losses in business or have lost their jobs due to recession and for them loan repayments have become a tough commitment to meet. They are looking out for ways to maintain their credit rating from falling and at the same time keep up with their payments.

One of the best ways to deal with your finances in such situations is to keep your spendings to the minimum.

Debt Management

4 Key Types of Debt Consolidation Loans to Choose From

If you have a lot of debt weighing down on you, you have several options for debt relief that can help you find financial freedom. Debt relief is amongst the better options that you have to get rid of your debt because it allows you to make manageable monthly payments at better rates than all the individual debts combined.

The different types of debt consolidation that you can choose from include the following:

  1. Personal Loan

By taking a personal loan that can cover all your debts, you can more manageably pay for all your original debts and remain with a single loan that you can pay off with more friendly terms.

Depending on your credit rating, a financial institution can give you quite attractive rates that may be better than your combined individual loans.

  1. Home Equity Loans

A home equity loan is an attractive option for debt consolidation because the loan usually has very low interest rates and its payment is over a very long period. With a home equity loan, the limit and basis for the loan is the value of your home.

The idea is to take a low interest home equity loan in order to pay off all your other debts and remain paying off just the home equity loan.

  1. Debt Consolidation Loans

You could also get a more direct debt consolidation loan from a financial institution or a debt relief company for the sole purpose of consolidating your loans.

  1. Credit Card consolidation

Credit card consolidation involves transferring debt balances from several credit cards to a single credit card that offers better terms.

Credit cards with interest rates as low as 0%, are usually promotional campaigns by credit card companies that seek new clients. These promotional rates are usually for a relatively short period.

If you are to use this option in order to consolidate your debt, you should make sure that you take note of the period when the promotion ends and when normal interest rates will take effect. You should also confirm if the limit of the promotional credit card is long enough for you to hold most or all of your debt.

It is important that you are able to settle all the consolidated debts transferred to the promotional credit card on or before the time when normal interest rates take effect, otherwise you may not benefit from this form of debt consolidation.

It is imperative to note that with a debt consolidation loan, you are actually just bringing together all your loans under a single roof, so to speak, so that you can gain control of your debt by benefitting from better payment terms for the combined loans.

You will need a lot of discipline to remember that you should avoid getting into further debt while still settling your debt consolidation loan. To help you stay on course with paying your debts through a debt consolidation loan, you should find out how others have managed to stay the course through reading debt consolidation reviews. These reviews should keep you focused on achieving your goal of being free from debt.

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

Mistakes People Make When Taking Out A Short Term Loan

Taking out any quick loan is difficult. That is especially the case when people want to take out such a loan from the internet. They are drawn in by the simplicity and can easily end up faced with more problems than they initially had. In order to help you make a proper financial decision, let us consider those mistakes that most people often make at the moment. That will aid you in avoiding them.

Taking Out The First Loan That You Find

You can be lucky to find a short term loan with good rates or one that has a really high interest rate. The differences noticed between lenders do tend to vary a lot and it is usually a very bad idea to just settle for the first offer you locate. Our recommendation is to make a list of the most reputable lenders that service your country. Use the internet because the best deals are available online.

After your list is complete, try to learn all that you can about the lenders. That will help you to understand what financial entity is honest and what company tries to take advantage of people that are in need. Stay focused only on those with really good reviews. You should always avoid those that have various complaints written about them on the internet.

Not Talking With Friends And Family Members First

We have to understand the fact that these loans do have high interest rates. You can find one that would offer the amount you need with a payday repayment schedule but you can expect to pay much more back than with any other loan type. With this in mind, all financial advisors recommend that you first ask friends and family members. Try to get as much as possible from other sources and then focus on short term loan lenders. That will help you to repay less when you give the money back.

Not Reading The Contract Before You Sign It

Even if you conduct a really good and lengthy research, you may still end up in talks with a dishonest lender. Make sure that you read every single line of the contract that is sent to you. That will aid you a whole lot more than you may imagine since nobody can take advantage of you unless you sign such a document. You have to see all the facts that were promised in writing and you need to be extra careful with the repayment terms.

Conclusions

The biggest mistake that you can make when you need to take out a short term loan is to hurry. This may sound weird but in the event you use the internet, you can easily learn all that you need about the lenders and end up making a suitable choice in just one day. It is really easy to find all that you have to know and it is not difficult to receive the money in just a couple of days from the moment you make a decision.