loans and credit

If you’re in debt and a homeowner, then a cashout refinance may be one of the best ways you can do a debt consolidation. Bad consumer debt such as credit cards can become overwhelming, and one of the ways you can regain control of your finances is to pay off high interest rate debt by doing a cashout refinance on your home. That being said, you do have to have equity in your home and have to have good enough credit to qualify. As is the case with any type of loan, debt consolidation or otherwise, using a cashout refinance as a debt consolidation solution has its good and its bad parts.

Benefits of Debt Consolidation with a Cashout Refinance

One of the primary benefits of using a cashout refinance as debt consolidation is that the interest rate on the refinance is typically lower than the interest rates you’re paying on personal loans, auto loans, and credit cards—the debts you are consolidating. The second primary benefit is that home mortgages tend to be tax deductible. Generally, you can deduct the interest you pay on a home mortgage from your federal tax returns, which is not something you can generally do with credit card interest. Using a cashout refinance to pay off and consolidate debt turns multiple monthly payments into one payment per month, so it makes paying bills much faster and easier.

Disadvantages of Debt Consolidation with a Cashout Refinance

While there are several advantages of using a cashout refinance as a form of debt consolidation, drawbacks to the method also exist. First, debt consolidation doesn’t change your financial habits, which is what got you in debt in the first place. Many who consolidate debt find themselves back in debt again if they don’t change the way they manage their money. Second, a cashout refinance requires your home as collateral, so if you default on the loan, you may be heading toward foreclosure. Some financial advisors say that tackling debt one item at a time over debt consolidation is a more cost-efficient way to go in the long run.

A cashout refinance can make consolidating debt faster and easier, but there are some pitfalls to beware. Whether you choose a cashout refinance or another form of debt consolidation, make sure that you learn new spending habits and ways to manage your finances. This is the part of a debt consolidation that helps you to stay out of financial debt. Research your other debt consolidations carefully, shop with your current lender and other lenders for a cashout refinance, and then choose which debt consolidation move is the right one for you.

By taking out debt consolidation loans, consumers can get a handle on their overwhelming credit card debt. Unfortunately, taking out these loans can also hurt these same consumers when they’re ready to take out a mortgage loan. There’s a reason for this: Working with a debt consolidation company will lower the credit scores of consumers. Mortgage lenders rely heavily on these three-digit scores to determine if borrowers are a credit risk or are likely to make their mortgage payments on time. Consumers with low credit scores, under 620, are considered high risk to default on their payments. Those with scores of 720 or higher will usually qualify for the best mortgage interest rates.

Missing the Housing Opportunity?
This is a great time to buy a house. Consumers with debt consolidation loans, though, may miss out. Freddie Mac, the mortgage finance giant, reported that the average interest rate on a 30-year conventional fixed-rate mortgage fell to 4.89 percent in May. That’s a terrific rate, and is down significantly from the average rate of 5.10 percent in April. At the same time, homes across the country are cheaper than ever. The National Association of Realtors reported that the national median home price for existing homes – which includes single-family homes and condominiums – stood at $179,600. That’s extremely affordable compared with just three years ago. Buyers who want to nab more home for less money, then, can do this in the current market.

Challenges
There are challenges, though. The national unemployment rate is still near 10 percent. That means a lot of potential homebuyers are out of work. Others have seen their annual incomes plummet thanks to the unpaid furlough days that their bosses have forced upon them. Many of these consumers have run up credit card debt during and after the Great Recession. Many of these are now working with a debt consolidation company to deal with that debt. As you can guess, mortgage lenders aren’t usually too fond of working with consumers who’ve had to turn to debt consolidation to deal with their debt. Lenders look at this as the sign of consumers who haven’t managed their finances particularly well.

Debt Consolidation Review
Consumers need to take a debt consolidation review before deciding whether the move is right for them. This means that they need to consider all their alternatives for erasing their debt. If there’s an option that allows them to reduce their outstanding debt without harming their credit scores at the same time, that’s the choice that consumers should make.

Getting personal loans for bad credit is something that you may have heard about. As so often happens in life, sometimes our best laid plans go awry, and we find ourselves looking for options to help us get back on an even keel. While many people despair and think that there is nothing that can be done to help them, this is often not the case. Just because your credit isn’t the best that it can be right now, that doesn’t mean that you can’t get or shouldn’t apply for a personal loan. Unfortunately, like many of us have found out the hard way, it really does pay to have all your ducks in a row when it comes to financial decisions. Going into something as important as a loan with little understanding of the process is a bad idea. If you can manage it, many folks find that the help of a financial adviser is invaluable. Here are a few other things to consider:

Do I Know My Credit Score? If your answer to this question is no, you are doing yourself a disservice. This is a good thing to be aware of, and a great place to start when trying to get a personal loan. Did you know that you are entitled to one free copy of your credit report per year? Take the time to do yourself this favor by requesting your report from one of the 3 biggest credit bureaus, namely TransUnion, Equifax, or Experian. It can’t be overstated how important it is for you to know this information, and also to be certain that there are no mistakes that are adversely affecting your ability to borrow.

Do you Really Need This Money? It may sound like kind of a dumb question, but you’d be surprised what some people take out loans for. The best advice is to make sure that it is for good, important reasons like home improvements, education, paying critical bills that would otherwise cause you great loss, etc.; and not for more frivolous things that could really wait, and be saved for. This is money that you will be paying back, with interest, so it’s in your best interest to not only compare rates available from banks, the Internet, etc. but also to be sure that there is a real, measurable benefit for you from this loan.

Finally, when considering an unsecured personal loan, it can’t be stated enough that you should shop around, as not all loans or lenders are the same. You can get started today, at home, using the power of the Internet, and with a little common sense, you’ll do great!

Many individuals believe that debt consolidation can save them interest, create a lower payment, and save them from all of their financial problems. Many financial advisors and experts believe that debt consolidation is similar to putting a band-aid on a bullet wound. It may treat the symptoms, but when the bandage comes off there is still a major problem. When you use debt consolidation, your debt does not go away but rather moves from several creditors to one. You cannot get rid of debt by borrowing money to pay off one debt by establishing another debt. Financial author Larry Burkett says that debt is a symptom of overspending and not saving enough money, and the focus should shift from short-term fixes to long-term solutions.

Debt Consolidation Statistics

One debt consolidation company estimates that 78 percent of customers who use debt consolidation go into debt again. The reason is that debt consolidation does not teach the consumer how to better manage their finances; it simply consolidates different debts into one big debt. In many circumstances, debt consolidation offers a lower monthly payment because the term of the debt consolidation loan is longer. In essence, the consumer ends up paying more with the debt consolidation loan than they would have without the debt consolidation.

Debt Consolidation Example

Sometimes using an example is the best way to illustrate how a debt consolidation may cause more harm than benefit. If your debt totals $40,392 with current payments totaling $2,200 and a debt consolidation lowers the payment to $640 per month at an interest rate of nine percent, it seems as if you’re saving $460 per month. What you’re missing is that now you have six more years to pay on the debt consolidation. Six additional years amounts to paying $46,080 instead of the t$40,392 you originally owed.

The Real Way to Get Out of Debt

Rather than turn to debt consolidation as a solution to your financial woes, it is more important to create a financial plan that deals with the true issues at hand—spending more money than you can afford rather than saving. Rather than debt consolidation, come up with a plan to change your spending and saving habits. As you formulate the plan, put it in writing so you can stick to it and accomplish your financial goals. The plan may include spending less money than you make or taking on a second part-time job to pay off the debt. While there are answers to your debt problems, debt consolidation may not be the best option.

It’s little surprise that some companies are trying to persuade consumers that they offer free or non-profit debt consolidation loans. These are bad economic times. And in bad economic times, the scam artists come out. The Federal Trade Commission is warning consumers that they need to do their research before signing up to take out debt consolidation loans from any company. That’s because there is more than one debt consolidation company out there that will promise to relieve consumer debt for free or little charge, but then change the rules, and their fees, once consumers are already committed to working with them. It’s a disheartening but rather common scam when bad economic times create a greater number of desperate consumers.

Free Debt Consolidation Loans Don’t Exist

Here is the number-one rule when it comes to debt consolidation: Free debt consolidation loans do not exist. Like all businesses, the local debt consolidation company exists to make a profit. There’s nothing wrong with that, so long as the company advertises this fact accurately. Too many companies claim to offer free or non-profit debt consolidation when they, in fact, charge their customers exorbitant interest rates or origination fees. The big problem occurs when companies advertise free debt consolidation loans and then change their tune – they’ll usually claim that their clients’ debt problems are too significant to warrant a free service – once they’ve enticed customers to work with them. They’ll then charge these confused customers heavy fees and interest rates.

Avoiding the Scams

Fortunately, consumers avoid these debt consolidation scams by doing their homework. There are plenty of debt consolidation companies doing business today that are upfront about what they do, the fees they charge and the services they provide. Before working with any debt consolidation company, consumers should make sure to ask for, in writing, a list of fees and interest rates that the company will charge them. They should also ask for an estimation of how long it will take them to pay off their debts. Any debt consolidation company that won’t provide this information is not one with which consumers should work.

Avoid the “Free” come-ons

Above all else, though, consumers should have a healthy dose of skepticism whenever they see an ad for non-profit debt consolidation or free debt consolidation. Unless the company in question truly is a charitable organization, there’s just no reason for businesses to offer consumers no-charge debt consolidation loans. There’s simply no money in that. Consumers who absolutely need debt consolidation loans should instead check with their office of the Better Business Bureau to find a lender that has few or no complaints filed against it.

Ads for debt consolidation companies dot the Internet. These companies promise to help you reduce your debt load by consolidating all your debts into one monthly payment that you can afford. As long as you make that payment on time, you won’t be harassed by collection agencies. However, there are some downsides to working with a debt consolidation program: Your credit score will drop. And the fees and interest rates can often be high. That’s why it’s so important for consumers to research any debt consolidation company with which they are considering working. This holds true, even for those companies advertising Christian debt consolidation. Just because companies say they’re Christian, doesn’t mean that they aren’t out to rip you off.

The Debt Consolidation Hope
Debt consolidation counseling can be a way for consumers to eliminate the stress that comes with overwhelming levels of debt. But when consumers work for a disreputable debt consolidation program, it can just make your financial situation worse. That’s why consumers need to ask the big questions before signing up for any debt consolidation counseling. Consumers should ask companies to put in writing exactly how much they charge in fees and interest rates. They should also ask how long it will take them to pay off their debt. Any debt consolidation firms that don’t provide clear answers to these questions should be avoided.

Christian Debt Consolidation
A growing number of companies promising Christian debt consolidation are also popping up on the Web. These firms say that they work with consumers in a compassionate, Christian-based way to help them reduce their debt burden. Many of these companies also say that they are non-profit. But all unsecured debt consolidation, even when it’s advertised as Christian, requires consumers to shell out a significant amount of money to reduce their debt. Eliminating debt doesn’t come cheap. Even Christian debt consolidation services can overcharge for debt consolidation counseling. Consumers, then, must do their homework before working with any company, even when they tag themselves with the “Christian” category.

Alternatives to Debt Consolidation
Even when Christian and other debt consolidation companies treat their customers fairly, this economic strategy isn’t always the best solution for struggling individuals. It’s not so much the fees that are a problem, but the damage that debt consolidation can do to consumers’ credit scores. That’s why it’s usually in consumers’ best interests to look for alternatives when possible. A home equity loan might allow consumers to pay off their debts without hurting their credit scores. Then there are family members who might be willing to provide a short-term low-interest-rate loan.

With the current U.S. economy, news is rarely all good or all bad. That’s the case when it comes to consumer debt, the need for debt consolidation and the number of personal bankruptcy filings hitting the country. It’s a bit of an odd mix, but consumer debt is filing at the same time that such negatives as housing foreclosures and bankruptcy filings are either at record highs or nearing them. This means that despite the fact that consumers are working hard to pay down their credit card debt, many of them will still need to take out debt consolidation loans.

Good News on Consumer Debt

A report by Bloomberg said that the ratio of household debt obligations compared to household disposable income fell in the first quarter of 2010 to its lowest level in nearly a decade. The data, compiled by the U.S. Federal Reserve Board, showed that payments on mortgage loans, home rentals, auto leases, consumer debt, homeowners insurance and property taxes accounted for an average of 17.4 percent of consumers’ household disposable income in the first quarter. That’s an improvement. According to the Bloomberg story, this ratio stood at more than 18 percent from 2005 all the way through the second quarter of 2009. The ratio hit its high point in the first three months of 2008, when it stood at 18.9 percent.

Bankruptcies, Foreclosures on the Rise

At the same time, though, some more negative numbers were slowing the economy. Bankruptcy filings and housing foreclosures are both high. This shows that while many consumers are able to cut down on their debts, many others are still struggling financially. This isn’t surprising; with unemployment near 10 percent across the country, many people are still struggling to find jobs. Their annual incomes, then, are either flat or falling. These are the people who might need to work with a debt consolidation company to get their spiraling debt levels under control.

Debt Consolidation Option

Working with a debt consolidation company is a good choice for consumers whose unpaid debts are keeping them up at night. It’s a good choice, too, for those who are tired of the phone calls from collection agencies. Consumers, though, should do some debt consolidation reviews before working with any company. They should research these companies to make sure that they don’t have an inordinate number of complaints filed against them. They should also ask for their interest rates and fees in writing before signing anything. It’s the only way to prevent working with a debt consolidation company that overcharges.

The number of U.S. homeowners who can rely on home equity loans to pay down their debts continues to fall, which might mean increased business for companies offering debt consolidation loans. Depending upon which studies you believe, the number of homeowners who are underwater on their mortgage loans, meaning that they owe more on their home loans than what their residences are actually worth, is somewhere from 10 million to 15 million. That’s a lot of people who can no longer borrow against their homes’ equity – because when you’re underwater, you don’t have any home equity – to pay down their credit card bills and other debts. Where else, then, can these people turn? Debt consolidation loans, of course.

The Debt Consolidation Alternative

Debt consolidation loans take all the debts that consumers have and roll them into one single loan. Consumers then pay down this new loan with monthly payments that they can afford until their debt is paid off. In theory, it’s a good way to relieve the financial pressure of carrying overwhelming personal debt. But consumers do have to be careful: Many debt consolidation companies charge exorbitant interest rates on their loans. Others charge equally high fees. There’s also the matter that, because of fees and interest, consumers will be spending more to pay off their debt with debt consolidation loans than they would have if they would have just paid off their creditors on their own. Of course, without a debt consolidation loan, consumers also don’t have the availability of a single, affordable monthly payment. There are definite pros and cons, then, when it comes to debt consolidation.

Disappearing Home Equity Loans

Financial analysts have long considered home equity loans as good alternatives to debt consolidation. This makes sense: Home equity loans come with far lower interest rates. They also do not damage the credit scores of consumers as debt consolidation loans do. There are some drawbacks, though. Consumers who default on home equity loans could lose their residences. And today, of course, it’s more difficult for a growing number of consumers to get these loans because they simply don’t have enough equity built up in their homes.

Falling Housing Values

Homeowners who purchased their residences in 2004, 2005 and 2006 are often holding a mortgage loan that is worth more than their home’s current market value. That’s because housing prices had soared to unprecedented levels in those years. Now, though, housing prices have fallen to the levels we once saw in 2001 and 2002. This leaves a whole lot of people who either have little or negative equity. For these owners, falling home prices may mean a trip to the nearest debt consolidation firm.

Often it comes about in life that a person may need a little extra money, and personal loans might help. This may be due to unexpected expenses, a need for extra tuition money, home repairs, etc. But what can you do if you don’t have any collateral to offer a lender? Are you just out of luck? Luckily, the answer is no.

What Are Some of the Things to Avoid?

#1: You’ll want to watch out for personal loans that have exorbitantly high interest rates. Bear in mind that just because you don’t have perfect credit, it doesn’t mean that you should settle for something that is unrealistic, or a bad deal.

#2: It’s important to shop around. This is particularly true if you are looking for a personal loan online, as there are many choices to consider. Obviously you don’t want to settle, because with a little effort you may end up saving yourself a substantial amount of money.

#3: Additionally, though the Internet has become a relatively safe place when it comes to online transactions, it’s still important to keep up your guard. Before initiating any transaction you should double check the websites credibility, and make sure that they use a well regarded form of secure encryption for any business involving personal information. 

I Have Relatively Good Credit and I’m Not Behind on My Bills

If the above sounds like your situation, you’re not so different from many people these days, and you may well be in the best shape to qualify for personal loans with the best interest rates. You’ll want to carefully consider what the payment schedule will be, as well as the total amount you will end up paying by the time the loan is due. It’s very possible to use this need for a personal loan as an opportunity to repair, and build up your credit, but like any other loan, late or missed payments will have adverse effects on your credit rating.

Can I Use the Money for Whatever I Want?

The short answer is yes, but bear in mind that it’s very easy to misuse the money so you should consider carefully. You should not get one of these loans for something trivial, like a vacation. Another good point is that while they may be useful to pay down some credit card debt, that should be done with the idea of getting that card under control and not as a means to be able to run it up again. One last thing to consider is if this is the best option for you at this time. Many experts advise that you get an informed opinion from a financial adviser first.

A personal loan calculator can help you to figure out your budget when you are planning your personal loan repayments. Typically, you will enter the amount that you want to borrow, the term of the loan, and the interest rate and it will calculate your monthly payment for you. All of these factors will play a major role in how much you end up paying for your loan, so it is important to fully understand these details when dealing with personal loan lenders. Since these details are so important, it is also wise to shop around for the best deals that you can find, and then examine them under these conditions to see exactly what you are looking at regarding the finances as applicable to your loan. Some other things to consider would be:

#1: Bad credit: Are you shopping for a personal loan with bad credit? If so, take heart; it doesn’t mean that you’ll be left out in the cold. There are decent loans available when in this kind of situation, but it will be even more imperative to shop around and examine every option before making a decision. It can be done, and done well, but use your head and make sure that you fully understand what you are getting into. The last thing that you want is to end up worse off than you were before the loan.

#2: Compare personal loan rates: Remember, there is no single loan that’s right for everybody, or even a single person. Knowing that you have a choice is half the battle, and you should realize that lenders want to lend money, so use that leverage to your benefit, and get the loan that you deserve.

#3: Research personal loan lenders: Make sure that you are aware of all of your options when going to get a loan. This could be your bank, credit union, small lending companies, or one of the many online services. Take your time to explore any benefits, as well as the negatives any personal loan lenders may offer, and make a more sound financial decision thereby. If possible, retain the services of a financial adviser to help you with the more complicated details, and make double sure that you understand the entire process so that you can proceed confidently.

The important tasks to remember are to do your homework and shop around. These cannot be stated often enough, as they play such a huge role (as well as your credit rating, obviously) when it comes to getting a good loan at a good rate. With a little consumer savvy and armed with the facts, you’ll do just fine.