Debt Solutions

With the ever-rising costs of living, debts are something that piles up in our lives that are a major cause of stress.

We often find ourselves in a quagmire of financial crisis when we try to extend our credit for the next month just to find out that we are again facing the same problem and the over-extended credit just keeps adding up to present debts. In worse cases, people are known to declare bankruptcy to save them from impending doom.

Debt Reduction Solutions
In the case that you are unable to pay off your pending bills or find yourself trapped with increasing debts, there are some debt reduction solutions you can use in order to control your finances better.

It is important to look up the similarities and differences between the two debt reduction solutions in order to understand which of these solutions is better for you before making a choice.

1. Debt Consolidation
Debt consolidation programs are excellent alternatives to bankruptcy and offer consultation to manage and reduce debts. They also provide you with options to handle credit card debts.

a. Debt consolidation programs can plan your finances and give you a debt consolidation loan to pay off all your debts.
b. They offer specialized debts consolidation too in the case of credit card debt consolidation.
c. They have a very low interest rate and you are required to make only one monthly payment that is very small and is planned keeping in mind your financial situation.
d. You can use these programs with all kinds of debts – secured and unsecured.

2. Debt Settlement/Negotiation
This is different from debt consolidation. A debt settlement consultant will reach a settlement with your creditors to drastically lower your interest rates up to 50 percent of reduction is possible.

This system works because most creditors are reasonable and are interested in obtaining their money so they will be willing to reduce their rates as they know that they stand a better chance of getting their money in this fashion rather than from a person who declares himself bankrupt and can no longer pay the money.

a. You can choose the debts you wish to include in the debt settlement program.
b. There is no guarantee that all creditors will accept debt settlement though most will.
c. You will still be responsible for all secured debts incurred.
d. This system is most suited for people who are employed and working hard to clear their debts.

Credit Card Debts Solutions
Control the urge to flash that plastic. Each time you swipe your credit card; you are further pushing your credit limits and adding to expenditure. The start to saving can be done if you change your spending habits and reduce or eliminate the use of credit cards.

Credit card companies offer attractive benefits and schemes to lure the user into making a lot of non-essential spending as they stand to make a profit from pending balances. People end up ensnared in debt and then most of their money can just flow in the direction of clearance of credit card debts.

Lenders also tend to avoid lending any money to people with a bad credit card history or a high amount of balances. Bad credit is an extremely bad partner to have when you are in need of a loan for making a huge purchase such as a home or car. It is possible that bad credit does not go against you in obtaining a mortgage or finance but the terms of finance may be very narrow and binding as in a higher rate of interest or a bigger down payment which basically adds up to yet more losses and possibly more debts.

Tips for credit card debt reduction:
1. The best way to cope with credit card debt is to stop the problem at its source that is to stop using the card. Cutting down on those expenses could help you save money which you can use to pay off your debt.
2. The minimum payment you need to make is just about equal to the sum required for the finance charges. For quick debt reduction, keep track of this and make a higher payment than the minimum payment. The more you pay the sooner the debts clear off.
3. Make sure that you use a zero percent interest credit card. That way you will not be paying interest and transfer all your existing credit card debts to that card too.

These are a few of the debt reduction solutions you can use to eliminate debt from your lives. The best thing of course, is not to incur debts at all but if that is inevitable it is equally important to take charge of your finances and keep your debts under control, in order to lead a stress free life

Your Credit Report

Conscientious consumers are sometimes startled to learn they've been turned down for a loan or credit card, not because they're unemployed or lack savings, but because they lack a credit history.

These people are:

Teens College students are showered with credit card offers because lenders know that their earning potential will soar after graduation. But those who bypass college may find it difficult to get such offers or build a credit history.

Retirees, widows, divorcees Retirees may have sterling credit, but if the mortgage was paid off years ago or a deceased spouse managed household finances, the widow(er) may find that an inactive or nonexistent credit history can keep them from buying a new car, for example.

Immigrants Regardless of their bill-paying history in their native countries, immigrants must start to establish credit history from scratch when they arrive in the United States.

"Conscientious objectors" Some people prefer paying only in cash because of personal beliefs or an anti-consumerism philosophy. But they risk a cash crunch if unanticipated expenses arise. The wealthy Highly affluent people may not often need good credit because they usually pay cash. In an emergency, though, their money could be tied up in illiquid investments and not readily available.

There are many options for young people and others who recognize the importance of establishing a solid credit history based on responsible borrowing, on-time bill payments and disciplined spending habits.

Options include: - Secured credit cards - Student credit cards - Debit cards - Prepaid cards - Joint credit cards - Authorized user cards - Co-signer loans Remember, lenders purchase borrowers' credit reports from credit reporting bureaus to help decide if they should extend credit, whether it's credit cards, mortgages, car loans, or student loans.

Landlords and employers may also run credit checks to determine what kind of risk you are. Familiarize yourself with what lenders are looking at by reviewing a free credit report annually. So, what does a credit report contain?

1) Personal information This includes basic details like your Social Security number, current and past addresses, and date of birth.

2) Your credit history This contains detailed information about credit accounts in your name or accounts that list you as an authorized user. This information, reported by creditors, may include the date accounts were opened, loan balances, credit limits, and payment history. Closed and inactive accounts may also appear.

Inquiries:
Whenever third parties (anyone other than you) pull your credit report, the credit bureau makes a notation here. Public Records: Government agencies will report bankruptcies, overdue child support payments, and liens.

3) Personal payment history This section summarizes your payment history for credit accounts. You'll see mortgages, installment debt, revolving accounts (such as credit cards), and accounts in collection.

4) Public information This section provides details on matters of public record, such as bankruptcies, tax liens, foreclosures, or judgments.

5) Inquiries This area lists businesses that have inquired about your credit during the last two years. Typically, this happens whenever you apply for credit.

6) Creditor contacts Here you'll find contact information for current creditors. As you can see, credit reports contain a wealth of personal data that can have a lasting impact on your financial household, dictating the interest rate you'll pay for loans. In fact, there's so much history there, dating back to the time you borrowed your first $3,000 for a second-hand Mustang, that you might start thinking your credit report contains everything but the kitchen sink.

To set your mind at ease, here's what's not revealed in your credit report. - Your gender - Your race or national origin - Your salary history (although the names of previous employers may show up) - Your religious affiliation - Whether you're up to date on your dog's vaccinations - Information on your savings or investment accounts - Your medical history (although a medical credit score is currently in development) - Any criminal record you may have - Your family background - Whether you're a stingy tipper - Your voting record or voter registration - Any purchases for which you paid with cash or check - Your jury duty records - The $50 you owe to a bad bet on the Red Sox - Chapter 7 bankruptcies that are more than 10 years old - Speeding tickets (as long as you paid them) - Your credit score (which you'll have to purchase separately to see) While the items above are legally restricted from appearing in your credit report, someone reading between the lines could still deduce some personal details.

Medical conditions, for example, while not reported directly, could be guessed at based on the name of a medical creditor, like the Greater Milwaukee Substance Abuse Medical Center, when the debt shows up on your report.

For many negative marks in your credit past, the magic number is "7," meaning that these items disappear from your credit report after seven years: - Charge-offs or debts placed in collection - Lawsuits and judgments (unless the statute of limitations hasn't yet expired) - Chapter 13 bankruptcies, provided they were paid in full (10 years if not paid as agreed) - Foreclosures - Paid tax liens If you have unpaid tax liens, you'

re on the hook forever. The same holds true for unpaid federal student loans.

Fed extends consumer lending program

The U.S. Federal Reserve has extended a program intended to spur lending to consumers and small businesses at lower rates, but the central bank will not expand the types of loans made.

The Fed on Monday said extended its Term Asset-Backed Securities Loan Facility through March 31 for most of the types of loans it makes. The program was scheduled to end on Dec. 31.

The TALF started in March and figures prominently in efforts by the Fed and the Obama administration to ease credit, stabilize the financial system and help end the recession. Under the program, investors use the funds to buy securities backed by auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration.

The program for commercial mortgage-backed securities was extended through June 30 because issuing new securities in that area "can take a significant amount of time to arrange," according to a joint news release from the Fed and the Treasury Department.

The broader TALF program had gotten off to a lethargic start, hobbled by rule changes, investor worries about financial privacy and fears that participants might become ensnared in an anti-bailout backlash from the public and Congress.

The program has the potential to generate up to US$1 trillion in lending for households and businesses, according to the government. Spurring such lending is vital to turning around the economy.

The Fed and Treasury on Monday said they were prepared to reconsider this decision if financial or economic developments conditions indicate that such an expansion would still be warranted. However, the government believes the financial system is beginning to stabilize after being hit last fall by the worst financial crisis since the Great Depression.

"Conditions in financial markets have improved considerably in recent months," the Fed and Treasury said in their statement. "Nonetheless, the markets for asset-backed securities backed by consumer and business loans and for commercial mortgage-backed securities are still impaired and seem likely to remain so for some time."

The Fed last week delivered a vote of confidence in the economy, saying the downturn appeared to be "levelling out." Fed officials also said they would slow the pace of a program to buy $300 billion worth of Treasury securities, an effort aimed at keeping mortgage rates affordable. The central bank said it planned to shut down the program at the end of October.

How Much My House Cost

With the real estate market still in flux after the subprime mortgage crisis, many potential home buyers are confused over which listings they should be scouting. That's because the math that once guided their decisions about what buyers can afford has been through the ringer and back again.

There are more than 1.5 million cautionary tales for getting in too deep. That's how many U.S. properties received a foreclosure filing during the first half of 2009, according to RealtyTrac. And as of December, one in every five American mortgage holders owed more on their mortgage than the value of their home, according to First American Core Logic. With the market still fluctuating, real estate is far from a sure bet as an investment.

Of course, for those with an appetite for risk, there are plenty of opportunities. Interest rates are low, and so are prices. The S&P Case-Shiller 20-city index of home prices suggests they are roughly at 2003 levels. Although the decline has started to slow, in an uncertain market, the question of how much house you can afford may be more important than ever before.

The old guidelines were fairly loose and straightforward. Spend roughly three and a half times your annual salary on the house, and make monthly payments somewhere between 25% and 33% of your monthly salary. In the years leading up to the bust, easy credit left a lot of wiggle room here.

Now, after all of the ups and downs, those basic guidelines are the same, but the gatekeepers have grown stricter about making you stick to them. Lenders have tightened mortgage criteria in the new, post-bubble housing market. Even if your own financial situation hasn't changed, you may find you're not able to access as much credit as you might have a couple of years ago at the height of the boom.

Given the current low prices, these tighter standards may represent an overcorrection from the excesses of the subprime boom, says Ryan Tomazin, COO of Integrated Asset Services, a privately held default real estate and mortgage-service provider. "Affordability is almost as high as it's ever been, but what the banks are allowing people to purchase is still far more conservative than what people could afford," Tomazin says.

Others maintain that lenders' tighter standards represent a return to more traditional ideas about home buying that bypass the boom-time assumption that incomes and real estate values rise without bound. Once again, lenders are requiring a down payment, documentation of income and assets, and good credit scores, says Keith Gumbinger, the vice president of HSH.com, a mortgage market analysis firm based in Pompton Plains, N.J.

"The world is very largely a fixed-rate world," Gumbinger says, but in an uncertain economy, with some economists predicting that unemployment could go as high as 25%, the certainty of a fixed monthly payment is a good idea anyway.

Online calculators will offer you a ballpark figure of how much house you can buy based on your income and other debts. However, buyers should use that estimate as a starting point for a careful examination of their budget and overall financial goals, particularly in today's economy.

"For a person that likes to spend, if you give them a rule of thumb, they will always take it to the max," says David Hefty, a certified financial planner and chief executive at Cornerstone Wealth Management in Auburn, Ind. He recommends going through a quantitative assessment of your real expenses and a qualitative assessment of your priorities to come up with a number that represents the house you can really afford.

Even in a market where low housing prices mean you can get a bigger house for your buck, "sticking to that number is key, so you can get a bigger house, but you're not overextending yourself financially," Hefty says.

Don't just take a lender's word for it when they tell you how much of a monthly payment you can afford. If you're now renting, use your rent as a starting point and be wary of lenders that assume you can suddenly start paying much more in housing costs, says Liz Freeman, a mortgage expert for ShopRate.com, and a former loan officer.

Consider questions like, "Am I starting a family? Would I like to take a trip around the world? Do I spend my weekends jumping horses?" Freeman says. Make sure the house you're planning to buy fits in with your overall financial plan.

Real estate isn't a get-rich-quick scheme, but that doesn't mean that buying a home can't be a good investment for those willing to look at it in the long term. "You'll be building equity slowly and over time," Gumbinger says, "just like your parents did."

Some credit union loans are not a good deal

Short-term loans offered by some credit unions as alternatives to high-cost payday loans are as risky and deceptive as those they're supposed to replace, some consumer groups say.

Payday loans allow cash-strapped consumers to take out small loans against their next paycheck. The loans often carry annual interest rates of 400% or more. Because they typically have to be repaid in two weeks or less, many borrowers roll the balance into a new loan, which mires them deeper in debt.

In recent years, hundreds of credit unions have introduced short-term loans for members who face a temporary cash crunch. But some of the loans "are only marginally cheaper than traditional payday loans," says Lauren Saunders, an attorney with the National Consumer Law Center.

The National Credit Union Administration, which regulates federal credit unions, last week issued guidance to its members, alerting them to the "risks, compliance issues and responsibilities" associated with a short-term loan program.

The agency issued the letter in response to the rapid growth of these programs in recent months, says John McKechnie, spokesman for the agency.

Federally chartered credit unions are prohibited by law from charging more than 18% on loans, but some charge excessive fees that drive up the effective rate, Saunders says.

For example, Nevada Federal Credit Union says it offers a 0% annual percentage rate. Brad Beal, president of the credit union, says it charges an application fee of $70 for a 14-day loan of up to $700, or $60 for members with direct deposit. That's half the fee charged by the average payday lender, he says. But the National Consumer Law Center points out that a $70 application fee for a $400, 14-day loan is the equivalent of a 455% APR.

Saunders' consumer group has recommended capping the annual interest rate for payday loan alternatives at 36%, including fees. But Beal says that works out to less than $10 per loan and wouldn't cover his credit union's costs.

"We're not out to take advantage of our members," Beal says. "We're just trying to find a way that's economical for them and economical for us."

Lois Kitsch of the National Credit Union Foundation, the charitable arm of the credit union industry, acknowledges loans offered by a handful of credit unions resemble traditional payday loans.

But, she says, "there are a huge number of others that don't look like them at all."

Many short-term loan programs offered by credit unions require members to deposit a small percentage of their loan payments in a savings account, Kitsch says.

"Eventually, they'll have enough money so they can borrow against their own savings at a very low cost," she says.

And unlike payday lenders, Kitsch says, many credit unions give members 30, 60 or even 90 days to repay their loans.