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Taking Control with Debt Management Debt Consolidation Loans: Yes or No?
A multitude of small monthly payments can add up to very big trouble. Before you know how it happened, you can suddenly have more payments going out than you have income coming in every month.
You aren't alone. It happens to a lot of people.
On the upside of debt consolidation loans, all debt is included. In debt management agreements, only unsecured debt is considered (credit cards). But in a debt consolidation loan, all debt is considered...secured debt as well as unsecured debt.
On the downside of debt consolidation loans, these loans are almost always second mortgages. In a nutshell...you really are betting the farm (the house) that you can meet the monthly payments every month until the consolidation loan is paid off.
With debt management agreements, even if it comes to the point where you must declare bankruptcy, this is still unsecured debt. Courts can set it aside. When you make a debt consolidation loan in the form of a second mortgage, this debt that was once unsecured now becomes secured. If it comes to the point where you must declare bankruptcy, your home can be foreclosed upon to satisfy debtors.
This point should not be taken lightly. Your home and the equity that you are establishing in it is your largest single asset. The mortgage on your home is usually also your largest monthly payment.
The low monthly payment that is promised with a debt consolidation loan is not always because the interest rate is lower. Sometimes it is because the debt payments have been extended for many additional years instead. Second mortgages can be as long as 30 years, and remember that you have bet the house that you could make every single one of those payments in full and on time.
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| Debt Management for the Future Debt Management by Negotiation
Negotiation is an ancient art, but that art is not the kind of negotiation that we are talking about here. You have very likely seen the advertisements by companies claiming that through negotiation they can eliminate you credit card debt by getting the issuing companies to settle for mere pennies on the dollar or what you actually owe them.
These debt negotiation advertisements will sometimes claim that this will not negatively affect your credit score and that you can continue to secure additional credit even while this negotiation process is going on.
Well...not quite. While it is true that debt negotiation is an alternative to declaring bankruptcy, both are last-ditch efforts to resolve financial problems.
If you are considering using a debt negotiation company to help with your own financial difficulties, you would be very wise to do three things before you sign on the dotted line.
1. Check with the Better Business Bureau (BBB) about the company you are considering signing on with. If there have been complaints by other clients, the BBB will have a record of them.
2. Check with the Attorney General of the state in which you reside. You can find out if debt negotiation companies are required to be licensed in your state and if the company you are considering does in fact have a license.
3. Read the fine print. Before you sign an agreement, you need to fully understand what you are agreeing to and what services you will be paying for. FREE in big letters in the advertisement is not necessarily what is written in the fine print on the actual contract that you sign.
Yes, heavy debt is a burden that you want some relief from. But be sure that the relief is the real thing and not something that is only going to cause you more problems in the future. |
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| Is Debt Consolidation Your Debt Management Answer Debt Management: Getting the Priorities Straight
Using half your paycheck to buy lottery tickets in hopes of winning millions instantly is not a satisfactory debt management plan. Successful debt management is based upon truth, reality, and keeping your priorities straight.
The necessities of life must come first when you make your debt management plan. You need food, shelter, utilities, transportation, and clothing....and pretty much in that order. After the total cost of these necessities is subtracted from your bring home pay, what's left is your disposable income.
How much you spend on each of these necessities will determine the total cost of your necessities. When you cut the cost of any of the necessities, you will have more disposable income and when you add to the cost of the necessities, you will have less disposable income.
My daddy summed it up pretty well for me. He said, “The less you spend on what you have to have, the more you will have to spend on what you want to have.”
You have to make your own choices, of course, but here are just a few ideas that might help:
1. Food: It costs less to eat at home than it does to eat out.
2. Shelter: Less space costs less money....usually.
3. Utilities: Raise the thermostat by two degrees in the summer and lower it by two degrees in the winter. Turn off lights when you leave a room. Don't leave water running.
4. Transportation: A five-year-old car will take you to the same places that a new car will take you.
5. Clothing: Clothes purchased at discount stores costs less than clothing purchased at upscale clothiers.
Debt management is all about getting your priorities straight and making choices. Priorities are nonnegotiable, but how much you spend on them is negotiable. |
Related Topics: The Virgin Consumer and Debt Management,
Responsible Debt Management, Debt Management Experts
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