loans and credit

Debt consolidation loan might be the answer, if you are struggling with an ever-mounting monthly debt. However, before you take on one of these loans, you should consider every other option. That’s because debt consolidation loans are known as credit-score killers. When you take out one of these loans, your credit takes a big hit. And today, when auto and home lenders rely so heavily on credit scores, taking out a debt consolidation loan may prevent you from buying your dream home or car in the future.

Raising the Standards

It used to be that a credit score of 720 was considered top-notch. Borrowers with this score or higher would qualify for the lowest interest rates, whether they were borrowing money to buy a house or a new car. Today, though, this has changed. A recent story in CNNMoney reported that lenders have raised the standards for a top credit score by 20 to 40 points. This means that borrowers who want to qualify for the best interest rates now need a credit score of 740 to 760. This hardly seems fair; in today’s dismal economy, more consumers than ever are struggling to pay their monthly bills. Now even small dings to their credit history will knock their scores down enough so that they won’t qualify for the best mortgage interest rates.

Keeping Your Credit Strong

There is no secret to keeping your credit score strong. Basically, you need to pay your bills on time, not default on any of your loans and pay down your revolving debt. If you do this consistently, your credit score will steadily rise. However, if you’re facing financial difficulties today, you’ll have to make a difficult decision: Do you take out a debt consolidation loan to keep the creditors at bay knowing that it will hurt your credit score? Or do you try to pay off your debt on your own terms, taking the risk that, should your financial situation get even worse, you may default on some of your loans, hurti ng your credit score by an even more significant factor?

No Easy Answers

Unfortunately, there are no easy answers to this question. The decision to take out a debt consolidation loan is a personal one. If your debt is causing you to lay awake at nights, is negatively impacting your relationship with your spouse or family members or is causing you to be less productive at work, maybe a debt consolidation loan is the wise choice. If you can get your debt under control, despite the immediate hit to your credit score, you can then begin repairing your financial health.

While the consolidation of credit card debt can be a wise move financially, it is important to do it correctly with a clear understanding of whether it will truly benefit someone or get them deeper in debt. Care must be taken to check the various rates of interest on each of the credit cards because the intention is to get a lower rate and a lower payment after the process of consolidation. There are some key steps to take to ensure that such debt consolidation will work for your financial situation.

Start by Assessing Your Current Credit Card Debt: To ensure that debt consolidation is a good financial move for you, collect your credit card statements and do a bit of homework. Add all of your outstanding credit balances to get a total of combined credit card debt. Next, calculate how much you would pay each month for all of the cards if all you did was pay the required monthly minimum (hopefully, you’re not just paying the minimum on each card). This will permit ease of comparison.

Check What Various Companies Offer for Card Consolidation: Many card companies clamor for your business via countless advertisements that tout the benefits of debt consolidation. Doing more homework can help in determining whether selected companies are legitimate or if they appear on a scam list or a complaint list such as those listed with the Better Business Bureau. However, their offers are what will help you to check what they have to offer with respect to interest rates and various terms of their card agreements.

Compare Your Current Credit Cards To Favorable Offers: If the credit card being offered bears higher interest rates over time (beyond a short term introductory rate), or if the minimum required payment is higher than what you make on all your other cards combined, it may not be the best choice. Here is where you need to be smart and determine whether the consolidation of several cards into one will save you money. Some people don’t save much in monthly payments, but decide to have one payment as opposed to several due to the convenience factor.

Make A Decision That Includes Making Your Payments: Credit is extended by a lender based upon trust that the money provided will be repaid according to the terms of the agreement. When you are late or don’t make payments, your credit record will suffer and your score will decline. It is hard to repair a damaged credit rating because it is hard to rebuild trust. Determine to make the regular monthly payments.

Are today’s college students setting themselves up to be the debt consolidation customers of tomorrow? A new report from credit bureau Equifax, reported exclusively to the Reuters news service, seems to indicate this. According to the Equifax study, student loans outstanding are up nearly 50 percent since 2007. The amount of money that students have borrowed since that year totals $562 billion. The Reuters story quotes Dann Adams, president of Equifax’s U.S. Consumer Information Solutions division, who says that these numbers mean that this generation of students will struggle to buy their first homes, and maybe even their first cars, because of the overwhelming amount of student-loan debt that they will face.

Big Numbers

In the last year alone, college students have taken out $55 billion in student loans, Adams is quoted as saying. These numbers are especially unsettling when you consider that other consumers are actually cutting back on their debt. According to the Reuters story, total consumer debt has fallen by $590 billion – a very solid 5.1 percent – since its peak in October of 2008. Consumer debt now stands at $11 trillion. That’s a lot of money, of course, but at least it’s a figure that, unlike student loan debt, is falling. The Reuters story says that lenders are extending less credit to consumers today, and that borrowers are asking for less. For example, the number of new credit cards issued by banks is down by more than half since 2007, from 69.6 million to 32 million, Equifax reported.

Future Debt Consolidation Customers?

Will today’s college students, then, become tomorrow’s debt consolidation customers? Maybe. It all depends on what kind of jobs these students nab when they graduate. If college students graduate with tens of thousands of dollars of debt, and they can only land a low-paying job, they may soon find their monthly debt obligations piling up, especially when they begin making car and rent payments. They may find themselves with little choice but to take out a debt consolidation loan to get this debt under control.

A Bad Start

It’s unfortunate that higher education has become so costly. It puts graduates at a serious disadvantage just when they’re beginning their true adult lives, and leaves them with a future of debt consolidation and high credit card bills. The latest numbers from Equifax suggest that something needs to be done about the escalating costs of a college education. Whatever fix there is, won’t be easy. But fixing college funding is certainly a task that our legislators need to take on. Or are we comfortable with a future in which all our 20-somethings are broke?

Most consumers know that a good credit score is important when applying for a mortgage loan. But how many consumers know that a top credit score can also mean lower rates when they’re applying for auto insurance? It’s just one more reason that consumers should be focused more than ever on credit repair; your three-digit credit score truly impacts every facet of your financial life. You need that score, then, to be as high as possible.

Controversial Measuring Stick

Not everyone is thrilled that auto insurers rely on credit scores when determining how much money their clients pay for insurance. Critics say that consumers’ credit scores have no relevance on how safely they drive their cars and other vehicles. Count legislators in Washington State in this group: Members of the state Senate earlier this year tried to pass a law that would have banned insurers from using credit scores to set prices and underwrite policies. The bill died in committee in early February, meaning that Washington insurers don’t yet have to change their ways.

The Importance of Credit Repair

The Washington State example should once again highlight to consumers just how important their credit scores are. These scores, also known as FICO scores, are designed to tell lenders and other financial service providers how well you’ve managed your money in the past. If you’ve run up huge amounts of revolving debt your three-digit FICO score will fall. If you forget to send in your student-loan payment or skip your credit-card payment your score will fall. If your score drops by too much, your life might suddenly become more difficult. Mortgage lenders may not lend you the money that allows you to buy your first house. Auto lenders may be happy to give you a loan, but they’ll make sure that you pay sky-high interest rates for the privilege. You may not even be able to qualify for a new credit card. Fortunately, if your scores are down, some simple credit repair tips can help bring them back up.

Repairing Ailing Scores

If your credit score falls under 620, you definitely need to engage in some credit repair. First, never pay a bill late again. Making your monthly payments on time, all the time, is the surest way to steadily increase your credit score. Next, pay down your revolving debt. Finally, order free copies of your three credit reports from AnnualCreditReport.com, and search them for any errors. Notify the bureaus in writing to erase the error from your record. Credit repair is far from a fun or quick job. But if you have the patience to turn your financial life around, you’ll soon find that everything else becomes a bit easier.

Though most aren’t even old enough to vote, prospective college students are learning a harsh political lesson. Thanks to a plethora of states struggling with mounting budget deficits, many public colleges and universities are boosting tuition rates. Luckily, Junior and little Sally will have the option to take out a student loan to cover those rising costs. Let’s examine why that’s not such a terrible situation for your children.

Establish Credit

Rather than filling out numerous credit card applications just for the sake of getting a free t-shirt, which will likely ruin their credit, your children will begin building the foundation for solid credit. They’ll gain the ability to manage their expenses, be aware of what things cost, and learn to pay off loans. Learning these lessons through a low cost loan will prove invaluable to your children as they progress through life and take on additional financial responsibility.

Unbeatable Terms

A huge benefit of student loans is the associated terms. Borrowers do not need to start paying off the loan until they complete school and get their first job. Additionally, the rates for student loans are typically much lower than other types of loans.

Build Character

While your children won’t want to hear about it, taking out a student loan to pay for school will help them build character. Their college experience will be much more rewarding if they are responsible for paying their own way, as opposed to having it handed it to them courtesy of the bank of mom and dad. Your children will be more inclined to work harder and get better grades if they know they’re on the hook for the bill.

Other than the obvious advantage of being able to attend college without having the cash up front, these additional benefits should eliminate any hesitancy regarding obtaining a student loan.

Unless you’re surprised by things like the rising sun or crooked politicians, you’re probably not shocked to hear that the credit card companies are still up to their devious tricks. Almost immediately after credit card reform laws were passed to help protect consumers from their deceptive practices, credit card companies have already begun implementing new ways to screw their customers.

In the past, it was cardholders with balances who were most affected as card issuers would arbitrarily raise rates or apply payments to balances with lower rates first. Now that those issues have been addressed by the new law, the companies are charging fees for customers who don’t use their cards and increasing charges for balance transfers. Fortunately, you don’t have to be held captive by these companies. Instead, take action to avoid these charges.

Eliminate Credit Card Use

The surest way to avoid credit card fees is to stop using credit cards and cancel your accounts. Instead, use a debit card, or good old-fashioned cash. This will also force you to only make purchases you can afford. Of course, in today’s world where it’s become so convenient to use your credit cards and at least delay payment, that’s easier said than done.

Take Your Business Elsewhere

If you’re not quite ready to give up your credit cards, consider taking your business to a small bank or credit union. These institutions don’t rely on fees from credit cards to maintain their profit levels. That makes these businesses more likely to have better policies in place and treat their customers with respect.

Don’t Carry a Balance

Another way to avoid unnecessary charges is to pay off your credit card each month. If you don’t have a balance, you won’t care about fees for transferring balances to a new card. Also, if you continue to use your card responsibly, you won’t have to worry about being charged for not using your card.

No matter what laws government enacts, credit card companies will always find new ways to charge fees to their customers. However, if you act intelligently and monitor your credit card statement, you can avoid whatever charges credit card companies conjure up.

If you think it’s difficult to understand such financial matters as debt consolidation loans, credit card interest rates, credit scores and mortgage loans, think of how difficult this would be if you didn’t speak English. After all, most English-speaking consumers struggle to understand the fine print that comes with debt consolidation loans or their credit card statements. Those who are either learning to speak English, don’t understand the language at all or primarily speak a different language at home face a monumental task when trying to decipher the late penalties that come with their mortgage payments or the extra fees that come with credit card cash advances.

A New Study

As part of the new Credit CARD Act of 2009, which goes into effect the last week of February, the Government Accountability Office’s Comptroller General must study the relationship between consumers’ English skills and their financial literacy. The study will also look at how U.S. consumers who don’t speak English are impacted by their language skills when they are taking out credit cards, applying for debt consolidation loans or hunting for auto loans. In other words, are non-English speakers shut out of the American banking and lending systems?

A Growing Population

The report is due back by May 22, 2010. It’s a particularly timely report today: The number of people who speak a language at home that is not English grew by 38 percent in the 1980s and by 47 percent in the 1990s, according to a story on this topic by CreditCards.com. This is not a small population, and it is one that is intent on applying for home loans, using credit cards and even consolidating their debt, just like any other group of U.S. consumers. It’s important that these consumers know their rights and the terms of their loans and credit. It’s just one way to prevent them from making bad financial decisions.

Little Room for Debate

You might think that everyone who lives in the United States should learn how to speak English. However, it’s difficult to argue that U.S. residents who don’t shouldn’t be able to attend programs, or have financial statements printed in their primary languages, to help them better understand the financial choices they make. The fact is, if these people take out bad debt consolidation loans, mortgages with unnecessarily high interest rates or shaky personal loans, it hurts everyone. After all, non-English speakers can lose their homes to foreclosure as quickly as can anyone else. And the one thing our fragile economy doesn’t need now is a rise in housing foreclosures that are entirely preventable.

Personal loans are quickly becoming more popular in the wake of the Credit CARD Act of 2009. This act, implemented on February 22, was the most sweeping change within the industry in decades. Under the new regulations, low-income families and people with a bad credit history will find it nearly impossible to obtain a line of credit. In addition, the Federal Family Education Loan Program (FFELP) is on shaky ground, as politicians call for a shutdown of the program. If this program is terminated, it will be very difficult for students without a college fund to be able to afford tuition. Both of these shake-ups are making the personal loan a highly desirable option for people of all socioeconomic backgrounds.

Personal Loans vs. Credit Cards

A personal loan can be used just as you would use a credit card. For example, you can use a personal loan to fund a vacation you’ve always dreamed of taking. You can use it to cover unexpected expenses, such as medical expenses or an expensive home repair, such as a new boiler or new air conditioning system. The advantage of the personal loan is that it offers a flexible line of credit that can be applied to the same kinds of purchases you make with a credit card, without all the ridiculous penalties, fees, and the huge interest rate. It’s also much better than the popular alternative to credit cards, the infamous payday loan–which has such a high rate of interest that a single loan can put your financial outlook in jeopardy.

Personal Loans vs. Student Loans

As student loan lenders tighten their belts and the FFELP is in danger of shutting down, personal loans can be used to take up the slack when paying for college expenses. They can be obtained in a small amount, suitable for paying for books for one semester, or they can be made in larger amounts to defray tuition costs. As more student loan lending becomes privatized, opting for a personal loan is one of the many ways a student can take charge of his financial destiny. It’s also one of the few ways that a student who could not otherwise afford college can make it happen. Parents can also take out these loans to finance their sons’ and daughters’ educations.

As other tried-and-true forms of lending are on the wane, savvy consumers can take up the slack in their wallets by pursuing personal loans. If you are unsure if an unsecured line of credit can be used in your situation, be sure to contact your loan officer to see what your options may be.

A new scam involving phony “forensic audits” of mortgage loans is the latest variation on loan modification scams. An article in the Sacramento Bee this week, reported that California Attorney General Jerry Brown warned California’s distressed homeowner’s to refrain from forensic review of their mortgage loan and lender’s practices. Jerry Brown issued a press release stating that these loan audits are nothing more than loan modification scams that are taking advantage of people’s desperation in the midst of the nation’s persisting economic troubles. He joined with the California Department of Real Estate and the State Bar of California to warn homeowners who face the danger of foreclosure, to avoid such scams because they offer no help towards saving their home from foreclosure.

The Latest among Many Loan Modification Scams

Last year, the California Department of Real Estate investigated more than 2,000 cases of loan modification scam and from that number, 350 scam operations were ordered to terminate their illegal activity according to the attorney general’s office.

According to the article, the spokesman for the attorney general, Evan Westrup, explained that “It’s the latest phony foreclosure-relief ’service’ by an industry that continues to be long on promises and short on results…another way to get homeowners in distress to pay for services that ultimately aren’t helping or providing the relief they need.”

The “Forensic Audit’ Loan Modification Scam

This particular scam entices homeowners through newspaper advertisements, as well as radio and television spots. The hook is to get homeowners to believe that they can find errors, improper documentation, or outright illegal activity in the way the mortgage was originated or within the loan itself. Supposedly, with such information, the homeowner will have sufficient leverage to fight the lender in the home loan-modification process with the hope of receiving assistance in keeping their home. The provider of such a noble service simply charges an upfront fee. Tragically, the audits provide no benefit, as they have nothing to do with helping those facing foreclosure proceedings.

Even Legitimate Forensic Loan Audits Provide Little Help

On the attorney general’s Web site, Jerry Brown stated: “Forensic loan audits are…hawked by loan-modification consultants trying to cash in on the desperation of homeowners facing foreclosure…there is no evidence or statistical data to support claims that forensic loan-audits — even if performed by a licensed, legitimate and trained auditor, mortgage professional or lawyer — will help homeowners obtain loan modifications or provide any other foreclosure relief.”

Brown’s warning comes now, even though in October of 2009, California outlawed the practice of prepaying for mortgage loan modification. In reality, it doesn’t appear to have stopped the more creative criminal minds.

The news that job hunters whose credit scores have relegated them to the world of bad credit loans may have a more difficult time finding work has caused a bit of a firestorm across the country. Simply put, people aren’t happy with the fact that a growing number of employers are rejecting job applicants not because of their talents, work ethics or past experience, but because of their bad credit scores. It’s especially troubling today, the critics of this practice say, because with unemployment rates so high across the country, it’s more difficult than ever for even extremely qualified applicants to land a good job. When the credit-score test is added to the hurdles that workers must already overcome, it makes finding a job nearly impossible for anyone who has had to turn to bad credit loans to borrow money.

Legislation to End Job Credit Scoring?

This growing trend seems to have hit a nerve among consumers and consumer advocates. They claim that credit scores give no indication of how good a worker someone will be. Proponents of the practice, though, claim the opposite: They say that workers with high credit scores tend to be more responsible and conscientious employees than do those who are often forced to take out bad credit loans. Even state legislators have gotten into the act. In fact, a story in the Baltimore Sun reported that 16 state legislatures are considering bills that would forbid employers from relying on credit score information when making hiring decisions. A host of legislators, quoted in everything from the Wall Street Journal to the New York Times, claim that by using credit scoring, employers are preventing the people who most need steady work from landing jobs.

Hurting the Most Vulnerable?

Do bad credit loans always mean that people are already struggling economically? They’re falling behind on their bills and running up credit card debt. They desperately need a solid, steady paycheck. Problem is, when employers check the credit reports of these applicants they don’t see hard-working, bright individuals. They just see people who can’t pay their bills. It’s no easy task to get past that initial first impression.

Boosting a Score

Those job applicants who do have access only to bad credit loans can take steps to improve their credit score. These steps take time, though, so anyone expecting instant results will be disappointed. First, individuals with bad credit should start a new history of paying all their bills on time. They also need to reduce their revolving debt, as high amounts of credit card debt have a negative impact on credit scores.