loans and credit

Personal loans are a necessity sometimes. They are a great way to get the money you need to make ends meet, cover an unexpected expense, consolidate debt, etc. If you need a personal loan, then the higher your credit score, the lower your rates will be (in general). You have a variety of options available to you, some of which could offer a better deal than any bank:

Peer-to-Peer Lending: With the recent financial crises and breakdown of the US banking system, more people are turning to a much older way of getting needed money. They are borrowing it from each other. This practice, called peer-to-peer lending, is offered through websites like LendingClub.com and Propser.com. They require only that you have a credit score over 650, are a US resident, and have a debt-to-income ratio of less than 25 percent, not including your mortgage, student loans, or auto loan. Peer-to-peer lenders typically offer rates well below many banks and other financing sources.

Credit Cards: Depending on the rate and terms you have/receive with a credit card (and your need and ability to pay), giving yourself a personal loan from your credit card can be a great option. Remember, however, that while you may have 0% APR right now, that rate is not permanent nor is it likely applicable to cash advances. In fact, even with such a low introductory rate, your cash advance rate could be as high as 29.99%, so make sure to do your homework first. Alternatively, if debt consolidation is your goal, doing your due diligence by researching applicable transfer fees and balance transfer interest rates is also to your advantage. You can be charged a fee as high as 10% on a balance transfer in addition to the interest you will have to pay. That said, credit cards can be a particularly great option if you have a large, unexpected emergency purchase (e.g. furnace), and you have the discipline to pay the amount in full by the end of the low APR period.

Your Banking Services Provider: If your need is not urgent, you may want to consider going to your personal bank, credit union, or financial institution. While personal loan rates can be relatively high, you may be able to get a lower rate based on your relationship with the bank and/or lower your interest rate dramatically by offering collateral, if you have an asset or assets of value.

Is the federal government’s massive mortgage modification program little more than a giant debt consolidation program for struggling homeowners? And if that’s all it is, is it even working at providing debt relief to the homeowners who need it? A growing number of critics, ranging from angry bloggers to politicians to consumer advocates, are criticizing the federal government’s Home Affordable Modification Program. Some say that it is little more than consumer debt consolidation with some fancy dressing from the federal government. Others say it simply hasn’t been effective: Too many homeowners are still falling into foreclosure to be able to say that the government’s modification program has had any real success.

Fanfare

The Obama administration announced the Home Affordable Modification Program in 2009 with great fanfare. The goal was to help three to four million homeowners avoid foreclosure. Under the program, the government provided financial incentives to banks and lenders who agreed to modify the mortgage loans of homeowners struggling to pay their monthly bills. Lenders can lower the monthly payments of these homeowners in one of many ways: They can reduce the interest rates on their loans, restructure loan terms or forgive a portion of their principal balances. Critics came out right away, saying that it wasn’t the government’s place to bring debt relief to homeowners who overspent on their residences. Supporters, though, said that anything that could cut down on the soaring number of housing foreclosures had to be good for the national economy.

A Sluggish Start

The problem so far has been that the Home Affordable Modification Program has helped nowhere near the initial 3 million to 4 million targeted. In fact, the U.S. Treasury Department reports that fewer than 1 million homeowners have received permanent loan modifications under the program. At the same time, a study by Fitch shows that nearly 65 percent of homeowners who do receive mortgage modifications default on their new loans within 12 months. Those are all abysmal numbers, and highlight a program that’s simply not working.

What Now?

What other options do homeowners have to stop foreclosure? Critics have said that the mortgage modification program acts a bit like debt consolidation, under some of the options that lenders have, because banks and lenders are taking existing consumer debt and reworking it, leaving homeowners with payments that they are supposed to be able to afford. Why not, then, advise more homeowners to look into traditional debt consolidations? It’s true that these loans do come with some disadvantages – taking one out lowers the credit scores of consumers; these loans often come with high interest rates – but they can also help consumers get a handle on their debts. Struggling homeowners who take out debt consolidation loans might be able to get their finances in enough order to be able to make those mortgage payments comfortably each month.

A debt consolidation loan can act as a financial lifesaver for consumers struggling to manage their revolving debt. Unfortunately, the debt consolidation industry does have its share of bad apples, companies that charge unreasonable fees to desperate consumers. It’s why the debt consolidation industry, along with payday lenders and debt settlement firms, has such a bad reputation, and why it routinely gets such bad press. Even state legislators frequently target these companies. The truth is, though, that consumers who do their research before taking out one of these loans can get their financial lives back in order with debt consolidation.

Beware Of Upfront Fees

Terry Savage, a financial columnist, recently wrote in the Chicago Sun-Times about the dangers inherent in working with debt settlement and consolidation companies. Her concerns centered on fees: Some of the companies promising debt relief to consumers charge upfront fees that total as much as 17 percent of consumers’ outstanding total debt. That is an exorbitant fee. And it’s why it’s important for consumers to do their homework before taking out a debt consolidation loan or working with a company that provides debt settlement. Consumers should make sure to get a list of all the fees and possible penalty charges they face when working with one of these companies. If those fees seem excessive, consumers should shop around for a new debt consolidation company. If the company won’t provide a written list of fees, consumers, again, should hunt for a new firm with which to work. There are certainly plenty of debt-management companies out there today.

States Get In the Act

Consumers don’t have to heed only the warnings of financial columnists. Several states have also issued warnings advising consumers to avoid working with debt consolidation firms that charge hefty upfront fees. Just recently, North Carolina and Montana joined the growing list of states expressing concerns about the rates that some of these firms charge borrowers.

Desperate Consumers

There is a reason that consumers often jump into relationships with debt consolidation firms without first during their research: These consumers are struggling financially and are desperate for any possible financial help they can get. The hope of ending the calls from collection agencies and not being afraid to get their mail each day is enough to cause them to jump at the first debt consolidation opportunity they can find. This, unfortunately, is something that won’t change until the national economy, and unemployment improves. Consumers, though, should follow the advice of Savage and several state legislatures: They need to take the time to find out exactly what they’ll be paying every time they take out a debt consolidation loan or work with a debt settlement provider.

There was a time when homeowners took out second mortgage loans for debt consolidation purposes. They’d take out the loans and then use the cash to pay down their high-interest credit card debt. This made financial sense: Second mortgages came with far lower interest rates. Borrowers were swapping expensive debt for cheaper debt. Today, though, far fewer homeowners are using second loans to pay for debt consolidation. There’s a good reason, too: Too many homeowners have seen their housing values fall dramatically. They no longer have enough equity in their residences to take out second mortgage loans.

All Mortgage Loan Types Down

Actually, consumers are taking out fewer mortgage loans in general, not just second loans. And this is happening at a time in which mortgage loan interest rates are at near historic lows. According to the Mortgage Bankers Association, the average interest rate on a 30-year fixed-rate mortgage loan stood at 4.81 percent as of the first week of June. That’s an incredibly attractive rate, and can mean hundreds of dollars less in mortgage payments each month, depending on what size mortgage loan homeowners take out. But at the same time that rates fell so low, borrowers pretty much ignored mortgage loans. The Mortgage Bankers Association also reported that the number of mortgage applications filed in the first week of June fell 12 percent from the previous week.

Unemployment, Tax Credits a Factor

There are two main reasons why mortgage applications fell so severely. First, the national unemployment rate remains far too high; near 10 percent in early June. People who do have jobs are worried that they won’t have them next month. It’s difficult for these people to commit to the financial obligation of a monthly mortgage loan. They’re wisely choosing to wait to buy homes until unemployment falls. Then there’s the demise of the federal government’s housing tax credits. The first of these credits provided up to $8,000 to buyers who purchased a first home. The second provided up to $6,500 to those who purchased any other home. Real estate experts said that the credits spurred thousands of buyers to purchase homes. The tax credits expired at midnight on April 30, which has resulted in fewer people being interested in purchasing a home.

Other Debt Consolidation Options

As first and second mortgage loan applications fall, consumers are turning to other methods of debt consolidation. Debt consolidation loans are near the top of the list. These loans combine all of consumers’ debts into one monthly payment that they can afford. As long as consumers make their payments, harassing collection calls will stop. Problem is, debt consolidation loans can wreck consumers’ credit scores. They also come with high interest rates.

It’s a statistic that might mean increased business for companies offering debt consolidation services: A growing number of homeowners across the country are underwater. This is something that you don’t want to be. It means that you owe more on your mortgage loan than what your house is worth. According to real estate Web site Zillow.com, 23.3 percent of homeowners with mortgage loans were underwater in the first quarter of 2010. That’s an increase from the final quarter of 2009, when 21.4 percent of homeowners were in the same situation.

A Need for Debt Consolidation

This can mean busier times for debt consolidation companies. That’s because homeowners who are in debt won’t be able to tap into their home’s equity for a loan if they are underwater. They also won’t be able to take on a cash-out refinance. Simply put, if you owe more than what your home is worth, there’s not much financial good that your residence can do for you. This leaves homeowners with precious few options. One of these is to take out a debt consolidation loan. No one claims that these loans are ideal financial tools: They come with high interest rates and they tend to hurt consumers’ credit scores. But for homeowners who are struggling mightily with debt, taking out a debt consolidation loan can keep the collection agencies away and increase peace of mind.

More Underwater Owners Coming Soon?

The worst news from the Zillow.com report is that officials with the company only expect the number of mortgage-holding homeowners who are underwater to increase in the coming months. Home values are continuing to fall across the country. It’s a frustrating situation for buyers who purchased their homes in 2004, 2005 or 2006. These owners may have spent $600,000 for a house only to find that it’s worth $380,000 today. It’s not easy for consumers to make big mortgage payments when their homes’ values have plummeted, even if they can afford it.

Walking Away?

This situation is why so many homeowners are simply walking away from their mortgage loans. They are no longer paying their mortgage, and are resigned to living in their homes until their banks or lenders foreclose and kick them out. This doesn’t often happen quickly; banks and lenders are overwhelmed these days. It’s not unusual to hear of homeowners who have been living in their homes mortgage-payment-free for 15 months or longer. But for those homeowners who need to pay off large amounts of debt, being underwater is a real problem. It may leave them with just one choice: debt consolidation services.

Should the United States consider a debt consolidation loan? There’s little doubt, after all, that the country has overwhelming debt. If the United States was a consumer or a business, it’d be filing for bankruptcy protection right about now. Ben Bernanke, the chairman of the U.S. Federal Reserve Board, expressed his own concerns about the United States’ growing levels of debt. Speaking before the House Budget Committee, Bernanke issued a warning that the federal budget is traveling along an unsustainable path. It’s hard to argue: The U.S. national debt soared past $13 trillion recently. Bernanke said that the United States has to rein in its spending.

Recent Spending Necessary?
At the same time, Bernanke defended last year’s $787 billion economic stimulus plan pushed by the Obama administration. Yes, this stimulus did add to the U.S. national debt in a significant way. But the stimulus was necessary, Bernanke said, to ease the pain of the Great Recession. It’s hard to argue against this, too. Consumers are still struggling with the impact of the worst recession in decades. The national unemployment rate is still near 10 percent, leaving far too many people either unemployed or underemployed. It’s debatable what impact the stimulus plan had. Supporters of the measure, though, said that it provided a significant number of jobs while bringing new road-construction and other projects to states. Supporters say that the Great Recession would have been even longer and more painful without the stimulus dollars. Critics take the other side, saying that the stimulus dollars did nothing but boost the country’s deficit.

If The United States Was a Person
It’s interesting to sometimes imagine that the United States is a person. What would we think about this person’s financial maturity? For one thing, we’d probably recommend that the United States immediately begin tackling its debt. Because the country’s debt is so severe, though, it’d probably have to take drastic action. Declaring bankruptcy would be one option. So would taking out a debt consolidation loan. Both moves would lower the credit score of the country. Debt consolidation, though, would administer the lowest hit.

Consumers Problems Mirror the Country’s
Many consumers have a problem that is similar to the one that the United States is now suffering. They, too, have run up too much debt, whether because of a job loss or a reduction in their annual salaries. For those with the largest amounts of debt, debt consolidation loans might be the best solution. They will hurt consumers’ credit scores, and they do come with high interest rates. But they also relieve some of the stress that comes with an overwhelming amount of debt. Consumers, just like the United States, have to make some difficult decisions.

People tend to think of consumers who file for bankruptcy as simply looking for an easy way out. But here’s a shocking fact: Only a small percentage of U.S. residents who need bankruptcy actually file for it. Most others handle their debts in other ways, including high-interest-rate debt consolidation loans. It’s true that the U.S. bankruptcy filings could reach 1.7 million this year, according to a recent story in USA Today. But that figure is actually just a fraction of the U.S. residents who need bankruptcy protection, according to the same story. There are many reasons for this: For one thing, filing for bankruptcy has become expensive. For another, many consumers are simply too overwhelmed with debt consolidation loans, high credit card bills and mortgage loans that are now too expensive to consider navigating the bankruptcy process. Instead, they’re simply adding more debt or walking away from their bills.

Expensive Filing

Chapter 7 bankruptcy protection is the one that most debtors want. It erases their debts. However, filing for this kind of bankruptcy protection is far from cheap. The attorney fees for the process now stand at $1,078, according to the U.S. Government Accountability Office. Filing fees for Chapter 7 bankruptcy stand at $299. That’s a lot of money, especially for people who are already deep in debt. At the same time, filing for Chapter 7 bankruptcy protection is a complicated and intimidating process. Many consumers, even if they are struggling mightily with debt, don’t want to go through it. For these consumers, other options, such as debt consolidation loans, seem like the easier solution.

Negative Consequences

There’s another reason why so many are hesitant to file for bankruptcy protection: Doing so severely damages consumers’ credit scores. And Chapter 7 bankruptcies stay on credit reports for 10 years. That’s a long time to be saddled with high-interest-rate loans and denials from lenders. Of course, the truth is that other ways of dealing with debt hurt consumer credit scores, too. Debt consolidation loans lower these three-digit scores. So does running up huge amounts of debt on credit cards. But even these financial decisions do not carry the same negative impact that filing for bankruptcy protection does.

The Debt Consolidation Alternative

Does the fact that only a small percentage of consumers who need bankruptcy protection file for it have an impact on debt consolidation companies? Probably. As painful as a debt consolidation loan can be, with its high interest rates and origination fees, it’s a far simpler process than filing for bankruptcy. You can bet that many consumers turn to it because the bankruptcy process is simply too overwhelming. This is unfortunate: Bankruptcy was designed to give consumers a fresh financial start. This can’t happen if they’re too overwhelmed or in debt to file for it.

There’s a reason why the economy’s recovery seems so sluggish: Consumers are taking steps to reduce their debt and curtail their spending, doing everything from signing up for debt consolidation services to working with credit counselors to change their negative spending habits. This may be good for consumers who are finally getting a handle on their debt after years of overspending. But it’s not good the economy’s recovery. The less money that consumers spend, the slower the economy grows. And until the economy begins to grow at a more significant pace, you can expect everything from housing prices to unemployment to remain at uncomfortable levels.

A Sluggish Recovery

The Wall Street Journal recently examined this trend. The paper wrote that even with a big bounce in corporate earnings and a boom in factory jobs, the economy isn’t growing jobs at anything but a frustratingly sluggish pace. At the same time, the paper reported, gross domestic product grew at only half of the 7 to 8 percent pace that usually occurs following major recessions. The paper points to a big reason: Consumers are relying on debt consolidations, credit counseling services and debt settlement companies to reduce their debt. And once they do this, they’re not spending nearly as much as they did during the national economy’s boom years. This is practically a scientific formula for a slow recovery.

Households Cutting Back

According to the Wall Street Journal, the U.S. Federal Reserve should soon announce that total consumer credit outstanding in April fell by $1 billion to $2.45 trillion. This is the 17^th monthly decline in outstanding consumer credit in the last two years. This is historically significant. It has never before happened in the 67 years that the Federal Reserve has tracked this trend. It seems that after years of spending carelessly, U.S. consumers are turning to debt consolidation and credit management services to eliminate their debt and cut back on their monthly spending. Some, of course, are doing this out of necessity: They may lack the credit scores necessary to qualify for loans for big purchases. Others are doing it because they’ve either lost their jobs, fear that they’ll soon lose theirs or have watched unpaid days off eat into their annual salaries.

More Debt Consolidation In The Future?

How long will this trend continue? Will consumers continue to take debt consolidation steps? Will they work on improving their credit scores and slashing their revolving debt? The recent history of U.S. consumers would suggest that this new frugality is a temporary thing. But maybe this time is different. Maybe we’ve all been burned enough by the Great Recession to have permanently changed our ways

It’s stressful raising a family today, what with the threats of debt consolidation loans, foreclosures and unemployment hanging over so many households. Ben Bernanke, chairman of the Federal Reserve, is well aware of this. While speaking at a forum in Detroit, a city in which the jobless rate soared past 24 percent in April, Bernanke said that he’s worried about the stresses that unemployment and the still sluggish economy are placing on U.S. families. He also said that the Federal Reserve is trying to encourage banks across the country to lend to strong, small companies, something that would help reduce some of the economic stresses felt by so many.

Challenging Times

It’s little wonder that so many families are worried today about their finances. The national unemployment rate remained near 10 percent in early June. At the same time, a growing number of families are considering options such as debt consolidation to manage their rising credit card debt. Many families are struggling to pay their mortgage bills; last year saw a record number of housing foreclosures, according to online foreclosure company RealtyTrac.com.

Bernanke’s Concerns

During his speech in Detroit, Bernanke said that he understands the struggles that many families face today. “High unemployment imposes heavy costs on workers and their families, as well as on our society as a whole,” Bernanke said. Statistically, the Great Recession has ended. The problem is, it doesn’t feel as if the country is in the middle of a recovery. That’s because this particular recovery is a sluggish one, and it’s not creating jobs nearly quickly enough. As long as unemployment remains high across the country, people are going to feel economic pressure. It’s hard to feel confident in the national economy when you’re either out of work or worried that you’ll be out of work in the next month. It doesn’t help, either, when employers continue to force their workers to take unpaid days off during the year. Such furlough days can dramatically lower workers’ salaries, making it harder to pay all those bills.

Turning To Debt Consolidation

To survive these tough economic times, some consumers turn to debt consolidations. This is far from a perfect solution: Debt consolidation companies charge high interest rates to consolidate the debt of consumers. And taking out these loans lowers consumers’ credit scores, making it harder for them to borrow money at low interest rates in the future. Still, it’s at least one option to manage debt. And until the economy’s recovery picks up, and until unemployment falls, it might be the only option for some consumers.

Bad credit personal loans can help many Americans get through the rough spots in these tough financial times. With the three big banks (Chase, Citi and Capital One) making bad credit loans, it is easier than ever for those with bad credit to score a personal loan. Still, if you want a bad credit loan, it is best to know your options because sometimes the biggest is not always the best.

The Best Source for Low Rates: The Internet

One might think that all Chase, Citi and Capital One rates will be the same. Nothing could be further from the truth. In fact, when you start going online looking for bad credit personal loans, you will find that not only will you find different lending options but you will find different rates among the same programs. Therefore, it is in your best interest to shop around online before deciding on a program or a bank. Think of it as comparison shopping and hunting for sales.

One Loan or Two

It may come as a surprise to you, but sometimes it is better to get two loans instead of just one. One large loan may be harder to come by and have higher interest rates than two smaller loans. Many times, smaller loans come with lower interest rates because the banks do not have as much to lose. The payback period time is also shorter making the overall interest smaller. Of course, you should never assume that two loans are better than one. It is just an option available to you and it should be considered. Whether you are applying for one loan or two, you need to carefully consider all your circumstances to find out how and when a loan is best for you.

Secure it, if you Can

While it is easier than ever to get bad credit unsecured loans, it is still best to get a secure loan when possible. A secure loan is any loan backed up by collateral. A home improvement loan backed up by the home itself is one such secure loan. What you may not realize is that a “home improvement” loan does not always have to be used to improve the home. While that is what many people choose to do with the loan, sometimes the money can be used for more personal expenses. Since secured loans have lower interest rates, it is always a good idea to try a secure loan over a non-secured loan. Keep in mind, though, that if you default on a secured loan, you will lose your collateral.