loans and credit

Debt consolidation loans can serve as an important tool for consumers struggling with mounting debts. But consumers who aren’t careful might make their financial situation worse, rather than better, when they work with a debt consolidation company. Consider the case of Freedom Financial Management, a debt consolidation firm based in California. This company allegedly overcharged several hundred South Carolina residents, according to a recent story on The State news site. The company must now return a total of $839,000 to those customers by this fall. What happened? Desperate consumers, eager to cut down on their mounting debts, signed up to work with Freedom Financial without first researching either the company or their own state’s credit counseling laws.

Excessive Fees

Critics of debt consolidation loans often point to what they say are high interest rates and excessive fees charged by companies in the industry. There is truth to this: Many debt consolidation companies do charge sky-high fees. But consumers have the power to avoid these companies. The first step? They should always require any debt consolidation company with which they are considering working to list all of their fees and interest rates in writing. This way, there will be no surprises. They should then check with their state’s attorney general’s office or department of consumer affairs to see if there are any limits to the fees that debt consolidation companies can charge. If the consumers in South Carolina had done this, Freedom Financial wouldn’t have had such an easy time overcharging them.

High Fees in South Carolina

South Carolina law requires debt consolidation firms to obtain a license. The law also limits the fees that these companies can charge. According to the story on The State Web site, such companies can charge no more than $50 for an initial consultation. Financial Freedom did not have a license to conduct business in South Carolina, according to the state’s department of consumer affairs. It also charged monthly fees that are higher than allowed under the South Carolina Credit Counseling Act. According to the news story, the company charged one state resident more than $29,000 for its services. This resident, along with 362 other South Carolina residents, are due to receive checks from Freedom Financial by Oct. 11. Most of these customers paid from $1,000 to $2,000 too much for the services they received from Freedom Financial, according to The State.

An Important Lesson

The Freedom Financial case should serve as an important reminder to consumers: Debt consolidation loans can be effective tools in dealing with skyrocketing debts. But if consumers don’t do their homework first, they could end up losing a significant amount of additional money.

Bad credit is an increasingly common problem among people of all backgrounds, and this problem makes it extremely difficult to obtain personal loans. Due to the recent economic downturn, even people who had excellent credit now find themselves struggling to make ends meet. For example, if you were employed by a large corporation but got downsized, you may be facing a mountain of credit card debt, a car loan, or trouble simply paying your bills. A personal loan may be your way out of this struggle, but you may think you aren’t eligible for one if you have bad credit. But there are some easy steps you can take to get cash fast to pay bills, or even consolidate your debt.

1. Clean up Your Credit Report

Always begin the loan application process by ordering a copy of your credit report. By federal law, you are allowed to pull your credit report free of charge annually, from the 3 major credit reporting agencies: Equifax, TransUnion, and Experian. Look over it carefully for inaccuracies and dispute anything that is incorrect. Your credit report is a powerful tool for obtaining a line of credit, so it’s crucial that you make sure it accurately reflects your financial history.

2. Borrow Small, Borrow Long

Another way to increase your chances of obtaining personal loans is to borrow a smaller amount over a longer period of time. An unsecured loan is a greater risk to the lender because as a borrower, you do not have any kind of collateral (such as a house, a car, or valuable property) securing the amount of the loan. So if you borrow a smaller amount of money over a longer period of time, you are increasing the chances you will be able to make your payments and lessening the risk for the lender. It’s a win-win situation, and could make the difference between getting a loan and being denied credit.

3. Apply for Debt Consolidation

If you need personal loans to pay your credit card debt, medical debt, or other unsecured loans, you may want to apply for a debt consolidation loan. In this case, you can apply for an unsecured personal loan which will pay off your credit card debts at a lower rate of interest and with one monthly payment. Or you can opt for a secured loan, using valuable property such as your home as collateral. The secured loan is much easier to obtain as the risk to the lender is greatly reduced. In either case, your debt consolidation loan usually has a much lower rate of interest than credit card debt, and carries a fixed rate of interest, saving you a lot of money in the long run.

For years leading up to the recession, people got used to their home being as asset that boosted their net worth every year. Some people quit their jobs to focus on their real estate investments, flipping houses and making big profits within a few short months. As we all know, the real estate world got turned upside down beginning in late 2006 in most regions and its been an area of concern for homeowners ever since. The concern in real estate isn’t making money now nearly as much as it’s seeing the home value at least on par with what the homeowner owes the bank.

In spite of the headwinds in the housing market, 2010 should be a year of great opportunity for some owners and potential owners of real estate. A recovery seems to be on the horizon and there are opportunities for buyers, sellers, and for homeowners that plan to stay put in 2010.

Real Estate Buyers: Make no mistake–in spite of home prices showing some signs of stability and pending home sales increasing over the past few months, this is still a buyer’s market. Buyers have the power when it comes to negotiating with sellers and most sellers are willing to be flexible in their pricing as long as they can out least get enough out of their home to make the bank happy. Don’t be afraid to bid aggressively as many buyers just want to get out from under their mortgage payment. Buyers also are in a great position because mortgage rates remain very low and are likely to stay that way as the Fed continues using its influence to keep mortgage rates from rising. Finally, the tax credits available to home buyers that are available through June make this a great time for buyers to make a decision.

Real Estate Sellers: The good news for a seller is that prices seem have bottomed out and are on the way up again. The increase will be slow because of the huge amount of inventory on the market and the tentative nature of real estate buyers right now, but it’s sure nice to see home prices increasing again. If you have the ability to delay the sale of your home, it wouldn’t be a bad idea to let prices recover as much as possible before selling. If you have to sell, consider what you’re up against. Many foreclosures are left in a state below what most potential buyers are looking for so make your home stand out with fresh coats of paint, attractive landscaping, professional staging, and general good conditions. Buyers are picky in this market so making your home stand out will increase the chances of receiving an offer.

Real Estate Owners: If you have no plans to move then the best thing you can do right now is to consider refinancing your mortgage loan. It’s not easy in a home where your equity position has fallen below what you owe, but as home values improve some lenders will be more willing to work with you again. Consider increasing your equity with basic, cosmetic changes that enhance the appearance of the house without breaking the bank.

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If your credit score has taken a beating due to poor money management or the loss of your job, you can use personal loans to rebuild your credit. You can opt for using a secured loan against your own valuable property, or you can use an unsecured loan, which offers greater risk to the lender. Either way, a personal loan–if used wisely–can be a powerful tool to improve your credit score and show a responsible payment history. Here are the basics you need to know:

Using a Secured Loan to Rebuild Credit

You can use a secured line of credit to rebuild your credit history. This is generally done by using a home equity loan to consolidate debts. Basically, you are putting your home up as collateral on the loan, which offers a greater risk to you as the borrower. On the other hand, it’s an almost guaranteed way to get a loan, as it offers such a low risk to the lender. You can then use this credit to pay off high-interest debt, such as your credit cards, or unsecured debt such as medical bills.

Using an Unsecured Loan to Rebuild Credit

You can also obtain a high-risk unsecured loan to rebuild your credit. In this case, you apply for an unsecured personal loan with the lender, usually in a much smaller amount and with longer payment options than a secured loan to mitigate the risk to the lender. These loans are harder to obtain, since you are not offering collateral on the value of the loan, which makes it a much higher risk to the lender. On the other hand, by borrowing a small amount for a longer period of time, the lender is more assured that you can make the monthly payments.

Tips and Tricks of the Trade

No matter how you choose to borrow, the key to rebuilding your credit is to make your payments on time, every time. In fact, if you opt for unsecured personal loans and can work your budget so you don’t really need the money, you can place funds in a separate bank account, far removed from your own personal checking. Then you can simply use the money to pay off the loan, building your credit without the risk of blowing the money on personal wants. In fact, if you explain that this is how you intend to use the loan, obtaining an unsecured line of credit may be much easier. Once you pay off personal loans, make sure your excellent payment record shows up on your credit report–often lenders “forget” to record the good payments and only ding your credit report when you are late. This is one the best ways you can rebuild your credit–and all it takes is a little discipline on your part!

You know these are boom times for debt consolidation companies when even superheroes can’t keep their jobs. After all, when people are out of work, they are more likely to turn to debt consolidation to manage their mounting bills. It’s not certain if Marvel Comics’ Spider-Man will take out a debt consolidation loan. But he may have no other choice.

Reflecting the Bad Economic Times

In the latest storyline in the Amazing Spider-Man comic, Spider-Man’s alter ego, Peter Parker, loses his job as the staff photographer for the mayor of New York City. He also struggles to find a new job anywhere in the metropolis. In this case, Spider-Man isn’t unlike the many U.S. workers struggling to find their own employment. The national unemployment rate has finally dropped under 10 percent, the uncomfortably high figure at which it stood for large portions of the second half of 2009. But the rate, as of February, still stood at a far-too-high 9.7 percent. That is bad news for job seekers: It means that the competition for jobs is extremely high. It’s little wonder that Spider-Man – who’s notoriously unreliable, what with his habit of slipping into his red-and-blue long underwear to fight Green Goblins, Doctor Octopuses and Vultures – has struggled to find new employment.

Good for Debt Consolidation Companies?

Of course, unemployment isn’t bad for all industries. The debt consolidation industry, for example, usually sees business rise as unemployment rates soar. The reason is obvious: People rely more on their credit cards when they don’t have steady jobs. After several months of this, their levels of revolving debt rise too high. Often, their option then is to take out a debt consolidation loan, which reduces all of their debts to one monthly payment that they can afford. Debt consolidation can be a useful tool for consumers struggling with debt. It can also be dangerous, though.

Due Diligence Important

Like all industries, the debt consolidation business has its share of bad apples. These companies will take consumers’ money and then do little to help them improve their dire financial situations. The reputable debt consolidation companies, though, will explain, in writing, exactly what fees consumers will pay, what interest rate their new loan will come with and how long it will take them to pay down their debt. If a company is evasive on any of this information, consumers should avoid working with them. Consumers shouldn’t feel guilty, either, about taking out these loans: Remember, even the high-flying Spider-Man might soon be joining their ranks.

Here’s a shocking statistic that explains just why so many U.S. residents are turning to debt consolidation loans: Americans charge nearly $2 trillion worth of purchases every year, according to a recent report by CBS News. That’s a lot of spending put on plastic. And it explains why U.S. consumers so often struggle with their debt. It also explains why so many card holders reach the point where they view debt consolidation loans as their only option.

Struggling With Debt

Debt consolidation loans are attractive to consumers with overwhelming debt. Companies that provide these loans take consumers’ multiple monthly debts and consolidate them into one single payment. Consumers then avoid collection calls and legal action from their creditors by paying a single fee each month. These loans aren’t ideal, though: They often come with hefty origination fees and interest rates. But as long as the country continues to rely so heavily on credit cards, you can bet that the debt consolidation business will only grow.

Addicted To Plastic?

The CBS News report quoted John Ulzheimer of Credit.com as saying that more credit cards are issued in the United States than in any other country. In total, about 700 million credit cards are issued in the country every year. To put that into perspective, that equals two cards for every U.S. resident, even those too young to use them. The same story quotes Ondine Irving of Card Analysis Solutions, who says that U.S. consumers have been living on inflated incomes for the last decade thanks to their reliance on purchasing big-ticket items on credit. And in even more depressing news, U.S. consumers have a total credit card debt of $775 billion. This amount of debt is a big reason why the Great Recession, which the country is still trying to fight its way out of, hit so many consumers so hard: When they lost their jobs, they simply had no way of slowing their ever-growing monthly credit card debts.

Weigh Debt Consolidation Carefully

Consumers who do face hefty credit card bills should weigh their debt consolidation options carefully. While the terms of these loans are far from ideal, the financial peace of mind that they can provide might be worth the high interest rates and origination fees. For consumers who feel as if they are drowning in debt, those whose money woes are keeping them up at night, a debt consolidation loan may be the perfect tool.

Although the housing market has stabilized from its historic plummet, prices are expected to continue to trend lower through September 2011, according to a new report from Fiserv, a division of Moody’s Economy.com. Areas expected to be hit hardest include portions of California and Florida, with projections for prices in Miami to plummet an additional 29%. Depending on your individual perspective, this is either another sign that the economy is far from getting back on track, or welcome news.

Prospective Sellers

News of falling house prices will not sit well with homeowners looking to sell their home. They will most likely not be able to get the asking price they were anticipating. As additional homes enter foreclosure, inventories will increase, which will keep prices low and push them even lower.

If you’re looking to sell your home, ensure you take the steps necessary to sell it as quickly as possible. This means presenting it in a manner that will attract a variety of buyers. It also means pricing it appropriately; remove emotion from your sale price. As a result of our attachment to our homes, we generally place a higher value on them than market reality dictates.

Prospective Buyers

Falling prices is great news for those individuals looking to purchase a new home, particularly if they don’t have a current home they need to sell first. You will continue to have a plethora of homes from which to select and can take your time to explore your options. If you feel like you’re not getting the deal you expect, simply move on; there will be many more houses and you will not have to settle. That being said, ensure you’re fair and don’t try to take advantage of the situation.

Considering how quickly and how much home prices increased, it should be no surprise that they have fallen so aggressively. It’s unfortunate for those who must sell their home or owe more than their home is worth; however, I don’t think falling home prices are a terrible sign for the overall economy. Rather it’s a natural part of the economic cycle. Your current situation will dictate what action, if any, you should take.

The latest numbers from the U.S. Department of Commerce say that consumers are slowly starting to increase their spending again, which could mean a rise in the need for debt consolidation services. That’s because the same Department of Commerce numbers highlight a disturbing trend: Not only is consumer spending on the upswing, it’s rising faster than are income levels across the country. This makes for the perfect recipe for an increase in consumer debt. And when debt levels are on the rise, it often means big business for debt consolidation companies.

The Numbers

According to the U.S. Department of Commerce numbers released in early March, consumer spending is up 5 percent. That’s good news for retailers. Some economists also view it as a positive sign: Spending rises when consumers begin regaining confidence in the economy. According to Stephen Gandel of Time Magazine, this is important to the future health of our economy. He points to the somewhat surprising fact that a total of 70 percent of the U.S. economy is fueled by consumer spending. But Gandel on his financial blog also expresses some concerns: Spending may be up 5 percent, but people’s income levels are only rising by 1 percent. As consumers spend more, and as income doesn’t nearly match this rate, the country’s savings rate is falling. And that, Gandel argues, is a recipe for future trouble.

Sluggish Savings Rate

The Commerce Department numbers indicate that the U.S. savings rate has fallen to 3.3 percent. That’s the lowest this figure has been since October of 2008. Gandel says that the great recession from which the country is recovering should have taught U.S. consumers one thing: Having a large amount of debt is a bad thing. It’s the surest way to economic ruin, especially when consumers can no longer count on their employers to keep them on the payroll.

Debt Consolidation Growth?

As consumers spend more and save less, will the debt consolidation industry see a big boom in business? The odds are high that it will. After all, consumers can only keep spending more than they earn before their spiraling amounts of debt begin dragging them down financially. When that happens, many consumers will turn to debt consolidation loans. These loans can act as an important financial safety net for struggling consumers. But they can also serve as a financial trap with their high interest rates and origination fees. Let’s hope that the great recession did teach us one thing: Before making any financial decision, it’s important to do the research to make sure it makes sense. That includes the decision to take out a debt consolidation loan.

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Spending smart is tantamount to saving. By paying attention to consumer trends, you can make sure that your money is used for items that will have longevity, rather than those items headed for obsolescence. The trend for the last decade has been the proliferation of products designed to replace mainstays.

Follow these easy tips to make sure that your extra purchases will not end up in the trash before the end of the year.

Purchase energy-efficient appliances, when you need to. Appliances that meet the new federal environmental standards, many of which are Energy Star rated, may use less energy than their inefficient counterparts, however they also cost more. The federal government is offering tax credit up to $1,500 for these types of energy-efficient upgrades, and that credit is available through December 31, 2016 for most upgrades. Even for those that expire December 31, 2010, waiting until the appliance is actually needed allows you time to save up the money, rather than financing and paying interest.

Do not purchase media. Items such as newspaper subscriptions, DVDs and CDs are quietly being phased out. Today’s consumer can access the newspaper for free, in most cases, via the Internet. DVDs and CDs are quickly becoming relics as consumers download favorite music and audio books from places like iTunes and Amazon and watch movies via services like Netflix and the various On-Demand services offered by many television companies.

Home telephone service is not necessary. Almost one quarter (22.7%) of homes in the US have mobile phones and no traditional home telephone service. Even for those people who may live in an area where cellular coverage is practically non-existent, services such as MagicJack, Skype and Vonage offer home telephone service through an existing Internet connection for yearly fees that are approximately as much as traditional telephone providers charge for one month of service.

Avoid last year’s technology trends. Last year’s hot-ticket items, such as “alternative brand” smartphones, external hard drives and compact digital cameras, may not be very good investments.

In the last few years, smartphones have been introduced to the market with features that mimic or rival those of Blackberry and iPhone but have not really hit the mark. Current market share lies overwhelmingly with Blackberry (40%) and iPhone (25%); as a result, developers are not creating applications and other products for “alternative brand” smart phones, such as Palm and T-Mobile’s MyTouch, a factor that makes them less user-friendly over the long term.

Compact digital cameras are a trend that is rapidly coming to an end as consumers look to the slightly bulkier and, for now, more expensive digital SLR cameras. SLR cameras look a bit like traditional 35mm cameras but have the ability to deliver the picture as it appears in the viewfinder, a shortcoming that was never rectified by the compact digital camera market.

External hard drives, once considered a must-have, have been slowly losing favor in the market as companies like JungleDisk, Carbonite and Mozy offer on-line storage options for considerably less than the cost of purchasing a new external hard drive.