Debt
Tips.
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# Most of these so-called
not-for-profit debt consolidation services are essentially fronts
for loan sharks.
# Be careful what you sign or
agree to. These organizations will get your entire salary and
then send you a cheque in its stead which will be much lower than
you expected.
# Use well-known companies
even if the deal does not seem so attractive.
# Use debt consolidation as the first
step towards changing your spending habits. Decide that you
are going to get your financial situation in good shape.
# Try to get (truly) independent
advice. Searching for debt consolidation counselling on the internet
leads you to affiliates of debt consolidation agencies i.e. loan
companies.
# Keep calm. All debt problems can
be solved. There's always help on hand. You are not alone in having
had problems.
# Commit to doing something now.
Don't leave it to get worse long term.
Online loan calculator HERE
# Resist the urge to borrow
more UNLESS you can pay off current debts with a loan at a much
lower rate and lower fees. The fees are the thing to watch.
THEN work like billy-o to pay off
that loan and get out of debt for good. Getting a debt consolidation
loan at a HIGHER interest rate than your current one, or with high
fees, is crazy.
Any method of borrowing that will
charge less interest can give you some breathing space. Just don't
use it to run up more bills! In reality, it isn't always easy. If
you have a lot of debt, it can be hard to find a consolidation loan
at a lower interest rate. You can end up deeper in debt than when
you started.
A debt consolidation loan is an
unsecured personal loan, and the only collateral you are offering
for the lender's security is you. Because lenders consider them
risky loans, they're usually more expensive.
Your goal in consolidating your debt
should be to lower your overall costs. Have a plan to pay off your
debts in three to five years. Any longer is too long, really, and
if a debt consolidation loan won't do this for you, don't get one.
# Be wary of secured loans. You
could end up losing your house.
# Prioritise your debts, pay
off the most important first.
There is a mathematically optimal
way to pay off your debts. Decide on a realistic, 'harsh' monthly
debt payment schedule, and commit to it each month. Pay as much
as you can on the highest rate debt first, while paying the minimum
on the rest.
You may find you don't even need
to consolidate to get out of debt in the next few years. Maybe
you just need a debt plan and you can do it on your own?
# Talk to your creditors immediately,
either by telephone or (better) by writing to them.
# Prepare a budget to work
out your income/outgoings and a realistic repayment schedule.
# Keep a record of all conversations
and letters. Get times, dates names and what was agreed.
# If you find a member of staff unhelpful,
ring back and speak to someone else. Service can vary considerably.
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# Don't ignore court documents.
Most judgments are issued by default because the debtor has not
responded. Courts are usually understanding regarding personal
debts. Judgements can go against you for not turning up, or
not responding. The court therefore assumes the plaintiff (your
creditor) has a just case.
Be brave! Get some free legal advice
from a Citizens Advice Bureau. And turn up on the day.
There is no jury and you won't be
sent to prison. It's a civil matter, not criminal.
# Always declare all debts and
income/outgoings. Do not underestimate or exaggerate your expenses.
# Maintain regular contact with
your creditors. If you promise to return a call, make sure you
contact them before they have to chase you up.
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"Looking
at debt consolidation agencies?"
Answer: Don't.
Instead: Find a lender who:
1. Offers a (much)
lower interest rate than the one(s) you're currently on;
2. Has low arrangements fees, and
3. Low or non-existent pre-payment penalties and late fees.
A debt consolidation loan might then work.
Debt
consolidation is the last
resort of the unwise, or the desperate, especially
if you use an agency. Do It Yourself.
OR:
Negotiate with your creditors individually.
Traditionally, you amalgamate all your debts into one lump
sum, owed to a single company, and get the old debts paid
off by said company. They handle the paperwork.
The catch is, to
get this done, you pay a fee to the debt consolidation agent.
So in effect you are still in debt, and are paying a fee
on top.
Also, debt consolidation agencies interpose themselves between
you and your creditors; another layer of bureaucracy, more
chance for something to go wrong.
Also, the fact that you're using a debt consolidation agency
will show up on your credit report. This will affect your
(future) credit rating.
Are you having money
worries? Too many splurges on the ol' credit card? Bought
a 4X4 on HP, and can't keep up the payments?
Here's another tip:
Re-negotiate.
If the alternative is bankruptcy, your creditors will take
something now, rather than next-to-nothing later. Loan finance
is just another business. You have bought money for more than
it cost the lender. Debt consolidation is the last
resort of the uninformed.
If you're going
broke, and you've no assets that can be sold off, like a house
or fancy car, your creditor will be more likely to agree new
terms. You can't get blood out of a stone!
You can re-negotiate unsecured debts. The are debts
where you haven't put up property as collateral. These include:
- Medical bills;
- Credit cards;
- Department store cards;
- Personal loans;
- Student loans;
- Bounced cheques.
Difficult to re-negotiate
- secured debts. These are debts secured on cars
or houses.
Even if you do have
secured debts, who wants the hassle of a court case to get
assets from you? A new agreement to pay off the loan
at a reduced rate, or a lower monthly payment, makes much
more business sense, than debt consolidation.
And regarding said assets: Can you sell the car at a good
price, and get a cheaper one, or move to a smaller house,
and pay off your debts? Can you rein in your monthly expenditure?
All these little treats that got you into debt, that you gave
yourself, because you're unhappy, add up. Address the cause
of your unhappiness, and your need for treats will diminish.
You'll then have more money in the bank, and be happier. A
sunny day, a walk in the park, the scent of a rose are all
free, and a much better tonic than a fancy stereo or umpteen
pairs of shoes.
Heck, you can keep your house, if you re-negotiate with
your lender; they don't want the hassle of evicting you. It's
a case of what is more profitable and easier; evicting you,
or getting money up front. You can avoid debt consolidation
companies altogether.
Being in debt is
fine as long as you keep up the payments, are never late,
and never default. Then everyone wants to lend you money.
When you do get into trouble, that's when the fun starts.
Then, when you DO really need a loan, for an emergency, you
may have trouble getting it.
Take the advice your grandmother told you: never a borrower
or a lender be. Borrow only to make more money i.e. for a
business. Don't get into debt for frivolous reasons. Pay off
your debts as soon as you can.
Don't call a debt consolidation company because you can't
be bothered to haggle with your creditors.
Then you will truly be
free.
So get in there and haggle! What have you got to lose? For
example, it is possible to get 25-50% off your credit-card
debt, your credit-card account closed, and go on a payment
plan instead.
IMPORTANT: Make
sure you stipulate to your creditors they are not to report
you to credit referencing agencies as being 'late' with your
payments, if you re-negotiate for lower payments. Then
your credit rating will be unaffected.
Take your time. Don't be too eager to settle. Hang the threat
of your bankruptcy over their heads.
KEEP WRITTEN RECORDS. Get everything in writing. Phone calls
are not legally binding. |
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T. O' Donnell
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