Debt Consolidation – Pros and Cons
By Daily Dosh | November 26, 2007
Are you one of those people who have found that they have more debt than you can afford to pay each moth? Many people in this situation find themselves in a downward spiral. Often people are late in paying and so get hit with high late payment charges which only adds to the debt.
Many companies have sprung up offering people a life-line by allowing them to consolidate their loans into one. These companies can paint a very rosy picture suggesting that they have the perfect solution. Although in many cases it can be a good way to deal with debt, for others it may not be so good.
What is Debt Consolidation?
If you have many debts simply gather them all together and make one single repayment to a single debtor.
This on its own is not necessarily going to help. What does it matter if you pay $150 + $70 + $20 to three different companies or to $240 to one company? If paying online you don’t even need to factor in the cost of a stamp.
For debt consolidation to be worthwhile one of more of these things has to happen:-
- The total amount paid out every month has to decrease.
- The net amount of interest should decrease
- The total debt that you owe should decrease.
The deal you receive will totally depend on the company you go with and what plan they offer you.
Ideally all three benefits should take place. Most of the time the monthly payment will be lowered. The most obvious benefit of this is that it will be more affordable so you’re more likely to keep up with payments.
Stress and debt of course go hand-in-hand so knowing that you can pay your bills will also take a load off your mind.
Cons - The potential pitfall is that if the amount is too low you then may go out on a spending spree and find yourself in a worse financial situation.
The way that most companies reduce the monthly payments is by extending the number of years you have to pay it. In the long-run you will end up paying more in interest. Always try to negotiate the best deal and make sure that you make the payments every month.
When dealing with debt you need to be consistent and committed. Eventually you will have the freedom from debt that you wish.
Further Finance Reading:-
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Debt Collectors: How to Deal with Them and Get a Better Deal
By Daily Dosh | November 22, 2007
To say debt collectors knocking at your door, phoning you day and night or sending you threatening letters can be intimidating and stressful is the understatement of the century. Luckily there are forms of protection and techniques you can use to deal with them.
The Fair Debt Collection Practices says that debt collectors can’t phone before 8am or after 9pm, they can’t take your wages or harass you with non-stop phone calls.
[For the full text, see: http://www.ftc.gov/os/statutes/fdcpa/fdcpact.htm#801]
Because of this you have several options. First of all, you don’t even need to take the calls, simply use your answering machine to screen calls before picking up the receiver. If you have a call blocking service you can filter them out altogether.
If you do pick up the phone, simply tell them you don’t want them to call you again; legally they have to respect your wishes if you send them a ‘cease and desist’ letter. Taking legal action can be very costly so you may want to deal with them in other ways initially.
Ultimately, if you took out a debt and the creditor is entitled to repayment then paying it off would be a sensible option. If money is tight however you can try negotiating a lower rate.
If you keep your end of the bargain then the phone calls with end. At the end of the day, debt collectors are just doing their job and are humans too. Once and agreement has been set up and you stick to it, they will simply leave you alone and target other debtors.
Start a diary and take notes of calls made and received along with the content of the conversation. Write down that you told them to stop calling you. You may even want to record the calls you have made, however it may be a legal requirement for you to inform the advisor of this.
If a debt collector knows they’re being recorded they will usually be on their “best behaviour.” A diary or recording can become very important if you have negotiated a better deal on the debt.
What you may not realize is that the majority of debt collectors are able to reduce the amount owed. Because they receive a percentage of the collected amount, they may think it’s worthwhile to have 50% of $700 than %100 of nothing.
When making an agreement about payment, you’ll also want to have the collector agree not to add any further black marks to your credit report. You should also be firm about them reporting quickly about payments you make and adjust the total amount due.
Ensure you have this in writing before sending substantial amounts. Send a small amount to prove that you mean what you say; but if you send too much they may not bother binding to the agreement you made over the phone.
Always stay patient and calm during your conversations. You don’t want to make the situation any worse than it already is. Be prepared to take financial advice.
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Credit Reports and How to Use Them to Your Advantage
By Daily Dosh | November 19, 2007
Credit reports are treated with dread, particularly if you happen to have hit some money problems. The good thing is that credit reports are there to help you. It provides you with a stepping stone to restoring your financial health. When dealing with money matters it is essential to equip yourself with the best information you can.
Those reports are maintained - at least in the U.S. - mainly by the three major credit reporting agencies: Equifax (PO Box 740241, Atlanta, GA 30374; www.equifax.com), Experian (PO Box 2002, Allen TX 75013, www.experian.com) and TransUnion (PO Box 2000, Chester, PA 19022; www.transunion.com).
These reports contain multiple years of you financial history including, home loans, car loans and credit cards. Any late payments are reported here along with how late they were. On your report you will also find current and past addresses along with phone number and social security number.
It is the same info that is available to banks and mortgage lenders however the problem is that sometime errors can occur.
Loans that have long been paid off may be listed as active. They may also list credit cards you cancelled or thought you cancelled. Ideally these records would be accurate but sometime human errors can occur.
You may be blissfully unaware of what errors are on your reports so the only way to sort these errors out is by requesting copies from each of the three agencies. When you find an error, look through your records for proof, then send your proof to the agency requesting them to update their details.
Also, because of the increased popularity in online social networks, scammers are using the information found on these sites to steal your identity. By requesting a credit report you’ll be able to identify any unusual behaviour.
Because of legislation, a free copy can be obtained per year. You can make a request by filling out a form online or by phone. One way is to go to: annualcreditreport.com.
Luckily having this information gives you the ability to create a debt-free plan for your future. It does nobody any good to stick your head in the sand and hope that nothing bad will happen.
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