Foreclosure is a word that strikes fear into the hearts of homeowners. And unfortunately, it’s a word that we hear quite often these days. An alarming number of homeowners are going through it, or coming dangerously close.

In many cases, foreclosure is avoidable. But most homeowners have little or no knowledge about how to save their homes. This causes them to make mistakes that put them in even greater danger. Here are some common mistakes to avoid at all costs:

* Don’t wait until the sheriff is knocking on your door to get help. The time to start looking for solutions is when you first start having trouble keeping up with your payments. Unless you’re absolutely sure that it’s a temporary situation and you’ll be back on track next month, contact your lender immediately and discuss your options. If you can get something worked out before the foreclosure process begins, you’ll be more likely to keep your home.

* Don’t waste a lot of energy placing blame. Whether you think the foreclosure is your own fault, your spouse’s or someone else’s, playing the blame game will get you nowhere fast. Try to forgive yourself or the other party and work toward a solution.

* Don’t run from your lender. It’s easy to toss letters in the trash and stop answering the phone, but avoiding your lender won’t help matters. You need to explain your situation and try to get the lender to work with you. And you can’t accomplish that by giving them the silent treatment.

* Don’t agree to a payment plan you can’t afford. Lenders often propose that homeowners who have missed payments make increased payments for a while until they catch up. But if you could make more than your regular payment, you probably wouldn’t be in such a situation to start with. Don’t agree to an unaffordable payment plan just to get them off your back. Keep negotiating until they come up with something that you can afford.

* Don’t give the lender too much information. It’s important to be honest when answering the lender’s questions, but don’t provide information that they do not ask for. If you do, it could hurt your chances of getting your loan modified in a way that is acceptable.

* When requesting a loan modification, don’t rush through the paperwork. Make sure you fill everything out completely and accurately. If you have questions, ask. This is something that you need to do right the first time, because if you mess up, it could cost you time that you don’t have.

It can be difficult to keep your head on straight when you’re facing foreclosure. But do your best to remain calm and rational and avoid these mistakes. If you play your cards right, you can often prevent foreclosure and get back on track with your payments.

Sticking with a debt relief plan is the hardest thing for many people to do. Part of the problem is that many debtors just aren’t good at managing their finances, and that is part of the reason they got in too much debt in the first place. Others had their debt under control until they lost a source of income, and they have trouble adjusting.

There are things we can do to help us stick to our debt relief plans. Here are some ideas:

* Eliminate the source of temptation. If you have trouble saying no to purchases when you have a credit card in your pocket, put all of the plastic away in a safe place. If just knowing where the credit cards are tempts you to use them, have your spouse or someone else you trust hide them.
* Write down all of your expenses. Many planners have budget pages you can use for this, but a notebook will work just fine as well. Writing down the exact amounts that we spend and what they were spent on holds us accountable, making us less likely to slip up.
* Close accounts when they are paid off. An account with a zero balance can be too much temptation for some people to withstand. If you think it will be too much for you, simply close the account and be done with it. Keeping only the account with the lowest interest or most favorable terms will allow you to obtain credit easily enough if you need it after you’re all caught up.
* Shred credit card and loan offers as soon as you get them in the mail. When you’re already in too much debt, the worst thing to do is to acquire the means to take on more.
* Don’t beat yourself up if you slip up. Just pick up where you left off and keep paying down that debt. Too often, debtors make mistakes and decide that it’s just too hard to pay their debts off, so they go back to their old habits. But one mistake is not the end of the world, and if you keep trying you will eventually eliminate your debt.

Coming up with an effective plan to pay off your debt is quite an accomplishment. Sticking with it can be difficult, but it is imperative if you want to get rid of your debt. By getting rid of temptation and holding ourselves accountable for our spending, we can greatly increase our chances of success. ]]> http://www.ourfamilybudget.com/tips-to-pay-off-debt.html/feed 0 http://www.ourfamilybudget.com/debt-settlement-basics.html http://www.ourfamilybudget.com/debt-settlement-basics.html#comments Thu, 12 Nov 2009 00:35:16 +0000 admin http://www.ourfamilybudget.com/?p=66 We all get into financial situations that we can’t handle from time to time. Sometimes the debt we incur is more than we can cope with and we need help. If this applies to you, then debt settlement is one possible solution. However, be aware of all that it entails in order to make an informed decision about whether it is right for your situation.

Debt settlement involves using a third party to manage the debt situation. You may have tried to talk to the creditors but to no avail. Each month that the payment is late, there is a fee. Once the fees push the balance over the credit limit, there is another fee. Things can get out of control in an as little as a few months.

Debt settlement puts you in touch with an agency that specializes in helping individuals deal with serious debts. Debt settlement agencies will review your situation to see if you qualify. Debt settlements are mainly done for unsecured debt. This includes unsecured credit cards, store charge cards, gas cards, and the like. There is nothing backing the extension of credit except your good name. Creditors have taken a risk with you as to whether you can repay any debt that you create.

Debt settlements can still affect your credit in a negative way. Creditors may report that you are entering into a debt settlement plan and other notations that can turn away future creditors. If you use a third party debt settlement agency, make sure that you understand this fact.

Once your case has been accepted, the debt settlement agent will look at several factors to determine a repayment plan for the debt. The amount of the debt is important. It needs to be beyond your ability to repay without some intervention.

The debt settlement agent will look at the interest rates being charged by the credit card company. During a debt settlement, they may be able to talk the creditor into lowering the interest rate to a more manageable one. The same goes for late fees. If late fees are a problem, the creditor may waive them in the interest of recouping some of the debt owed to them.

Working with an agency, the monthly payments agreed upon are made to the debt settlement agency. From there, they forward the payment to the appropriate creditors in accordance with the terms of the debt settlement. Your payments may include their fee for the services rendered.

Working with a debt settlement agency can keep the creditors off your back. Those annoying phone calls will stop most of the time once arrangements have been made for creditors to get their money. A few may still try to harass you, but the majority will be glad they are getting something from you.

Debt settlement agencies aren’t for everyone. Try to work out a deal with the credit card company before using a third party to do it for you. Besides the fees that may be charged to you, your credit could take a hit in the process.

A person with a sizeable debt that is hard to manage may consider talking to a credit counselor. A credit counselor is someone who is well versed in the area of debt management and repayment. Their job is to help an individual not only to get out from under their debt situation, but also to educate them on how not to end up there again.

Credit counselors work for the consumer. They exist to help you work out an agreement with the creditors to get them their money and you back into financial shape. A credit counselor will listen to the particulars of the credit debt situation and come up with suggestions for a debt repayment plan.

The debt repayment plan takes into account your assets, earnings, and ability to pay. The monthly payment will be based on what you can pay without causing other bills to fall behind. These counselors have established a rapport with many creditors and know what they will and will not accept concerning payment arrangements. As much as fifty percent or more of your outstanding debt could be forgiven.

Credit counselors usually have backgrounds in business and/or finance. They also know how to counsel people in such matters. They must keep up credit counseling certification to be recognized as a legitimate practitioner of this service. Training and testing are involved in the process of becoming a certified credit counselor.

Credit counselors will offer information on credit repair. They advise clients about how to rebuild credit after they have gone through debt restructuring. They stress the importance of reviewing and understanding a credit report. Most importantly, they discuss how to manage money wisely so that debt is not a way of life, but something to be avoided in the future.

Credit counselors do not repair your credit. Some people are under the impression that credit counselors will help to fix credit after the repayment plan is completed. You, the consumer, can fix your credit in as much time as it will take them. Ask for advice on how to go about the process, but work on fixing credit on your own. It will be a helpful learning experience.

Credit counseling services may charge a fee. Check into the programs that appeal to you and find out what, if any, fees will be asked of you. If the credit counselors are reputable, go with a company that charges fifty dollars over the one that charges a higher rate. More expensive doesn’t mean that the services are better.

Credit counselors are there to help you. They work with creditors to lower payments for the consumer. If you have reached the point of pulling your hair out, give them a call and find out what they can do for you.

Did you know that some credit cards carry an interest rate as high as twenty-nine percent? You wouldn’t want an interest rate that large on your home or car, so why settle for it on your credit cards? For those credit card companies that offer a super low interest rate at the beginning, if you miss one payment, the interest rate jumps up to around a whopping eighteen percent or more. Read the fine print.

Credit cards are a way of establishing credit. Purchasing items and making payments on time lets potential credit lenders know that you are an acceptable risk for them. Good credit helps people to qualify for low interest loans on houses, cars, and furniture.

But that good credit standing can quickly change if you begin to charge more on those credit cards than you can possibly pay back. Interest is tacked on each month that the credit card carries a balance. It may be only a few dollars now, but let the balance linger for a few months and you will see the difference.

Using credit cards for intangible things encourages debt. It is convenient to purchase groceries, gas, pedicures, and other services on a credit card, but in a few weeks there will be nothing to show for it. When the bill comes, the food will have been eaten and the gas gone from the tank.

There’s no need to get rid of all of the credit cards. Keeping one card is okay for emergencies. We’ve all had the odd bit of car trouble now and then. Or, even worse, something happens to the heating unit or something else in the house. A credit card provides emergency money for the types of things that are unexpected.

What about the other cards? Cut them up! As soon as the balance reaches zero, call the credit card company and cancel them. Be aware that the representative will try to entice you to stick around. They may even offer to up the credit limit. It’s a trap, so don’t fall for it.

Before there was plastic, people used to pay with cash. Remember cash? If people didn’t have enough money, they waited until they did. We all could take a page from their book. People are too comfortable carrying around a boatload of debt.

Get rid of your debt for good. Keep one credit card for emergencies and let the rest go. Pay with cash or not at all. If it is meant for you to purchase a particular item, then it will still be there in three or four months when you’ve got the cash.

There are television commercials, radio ads, and websites that tell us that we can get government grants to pay for almost anything, including debt consolidation. This sounds like a debtor’s dream come true, but it’s not as simple as it sounds. In fact, it is downright misleading.

What kind of grants are they talking about?

It’s true that the government gives out some grants. But most of these grants are for things like assisting people in starting a business or helping first-time homebuyers. There are no programs specifically aimed at helping debtors pay off their debts.

The only type of government grant that is remotely related to personal debt relief is the small business grant. One could conceivably start a small business using grant money, make a profit, and use that profit to pay off debts. These small business grants are few and far between, however, and are designated for use by specific types of business that meet the government’s needs.

What about other grant sources?

The government is not the only source of grants. Many corporations also give away grant money to individuals. But this money is earmarked for those who meet specific qualifications as well, and these qualifications depend on the company’s needs. Paying off someone’s debt rarely does anything to meet a large corporation’s needs.

That said, it is conceivable that a corporation might give away grant money to help those in need. Large companies sometimes do charitable things to give back to the community or improve their images. But it’s not something we should count on. There are much more reliable ways to get rid of debt.

Where can I get debt assistance?

While it’s unlikely that you will be able to get someone else to pay your debt for you, there is help available. You may be able to negotiate with your creditors to have interest rates and minimum payments lowered, on the condition that you can’t take on any new debt with them. There are also credit counseling agencies that may be of assistance.

There are also some free resources online that can help you take control of your finances. You can learn how to make a workable budget and put extra money toward your debt payments. It may not be as easy as getting money from the government, but you can often get your debt under control on your own.

It may seem impossible to get out of debt. But if the problem is recognized early on, it can be fairly simple to do so. If you have financial problems, here are five ways you can eliminate your debt and get your finances back where they should be.

1. Pay more than the minimum payments. Ideally, we should pay off our credit card balances every month, but sometimes we don’t or can’t. Paying more than just the minimum payment will allow us to pay off our debts much faster. It also has the potential to save us a lot of money, because the quicker we pay credit cards off, the less interest accrues.

This also holds true for mortgages, car loans, and any other type of loan. Some loans have prepayment penalties, but it’s best to avoid them anyway. For any loan that doesn’t, paying it off early is a good thing.

2. Cut back on your expenses, and put the extra money toward paying down your debt. If you examine your budget closely enough, you will likely find many areas where you could save money. Just taking your lunch to work instead of eating out can save you a substantial amount.

3. Sell things you don’t need. Do you have an extra vehicle, or anything else of value that you don’t use or need? Even just gathering up some things and having a yard sale could help you raise money to put toward your monthly payments. Every little bit helps.

4. Find ways to make extra money. You could take on a second job, do some babysitting, or sign up with a direct sales company. If you put all of your extra money toward paying off your debts, you shouldn’t need to do this for very long.

5. Consolidate your debts, but do so wisely. The best way to do this is to transfer all of your balances to a low-interest credit card. That will usually result in lower minimums, but keep on paying as much as you can to get the debt paid off. Avoid using home equity loans or other secured loans to consolidate if possible, because that will put your property at risk unnecessarily.

Getting out of debt may be easier than you think. Often a few minor adjustments are all that’s needed to eradicate a debt problem, especially if it is attended to early on. Then you can learn from your mistakes and keep your debt manageable.

In some cases, debt problems can be attributed to poor financial management. But sometimes even the best money managers end up in too much debt. Here are some reasons that debt management may not work:

1. People lose their jobs. Job security is not what it once was, and an increasing number of people are becoming victims of downsizing or outsourcing. An unexpected job loss can be a source of financial hardship, making it difficult to pay bills for necessities, and leaving little or nothing to pay debts.

2. Health problems cause money troubles. Accidents can render people unable to work, as can a variety of illnesses. Between the lack of income and the medical bills, people whose health has taken a turn for the worse often find themselves unable to repay their debts on schedule.

3. Unexpected expenses arise. Sometimes people have expenses creep up on them that they haven’t budgeted for, causing them to be unable to pay their usual bills. Expensive car repairs are a common expense that we may not be aware of until it becomes a necessity. Weather could cause property damage that is not covered by our insurance, or appliances that are not under warranty could suddenly quit working. All of these things can put a damper on our financial plans.

4. We don’t keep adequate savings. Many financial problems can be avoided, or at least made less burdensome, if we have some savings to fall back on. This is one area of the budget that many people either don’t think about or do not take seriously. Making room in the budget to put some money into savings each month is an asset to any debt management plan.

The same problems that often cause us to get into too much debt in the first place can also derail us when we’re already in too much debt and trying to get out. When these things occur, it may become necessary to seek outside help. Consolidating our debts may make things easier, but sometimes even that is not enough. When all other options are exhausted, some debtors end up filing for bankruptcy.

The best way to manage debt is to keep it under control in the first place. Putting money into savings can help for when unexpected things occur. And if all else fails, we may need help in reorganizing our finances. Getting our finances back under control may be difficult, but the peace of mind we gain from doing so makes it all worthwhile.

Debt management simply means keeping debts down to a level where they do not present a problem. Those who have managed debt successfully can usually pay off credit card balances each month, and they often put extra money toward loans to pay them off more quickly. They do not take on more debt than they can handle, so they have no trouble paying it back.

Tips for managing debt successfully

* When going into debt for a necessity like a house or car, shop around for the best interest rates. This will keep your monthly payments lower. But that doesn’t mean that you can’t put extra money toward the payment each month and pay the loan off ahead of schedule.
* Shop around for credit cards as well. They are not all created equal. Some have higher interest rates than others, and some charge annual fees while others do not. If possible, get a card that offers cash back on purchases.
* Limit your credit cards to one or two. The more credit cards you have, the more temptation you will face. If you are managing your debt properly, you won’t need more than two cards anyway.
* Refrain from getting cash advances. These usually carry a higher interest rate than regular purchases. If you need cash in an emergency and must get an advance, paying it back as quickly as possible will minimize the charges.

When debt gets out of hand

One of the most important aspects of debt management is knowing when you’re getting into too much debt. People often do not realize that they’re in too deep until their debt has become completely unmanageable, making it much more difficult to get back on track. By recognizing when debt levels are getting too high, you can retain control of your finances.

Early signs that you’re getting into too much debt include the following:

* You are having trouble making your minimum monthly payments.
* You use credit cards to buy everyday necessities, without paying the balance in full each month.
* Your total charges each month add up to more than your total payments.
* You are approaching your credit limit.

If you find that you are heading toward too much debt, taking action quickly could save you a lot of trouble – as well as a lot of money. By recognizing the early signs of debt overload and paying debt off as quickly as possible, you could regain control over your finances before you know it.

Debt consolidation is a solution sought out by many debtors who are in too deep. This can be achieved by transferring all debt to a low-interest credit card, or by taking out a home equity loan. There are also debt consolidation or credit counseling services that consumers can utilize.

How do these services work?

Credit counseling consists of negotiating with a client’s creditors for lower interest and/or lower payments. Late and over-the-limit fees are often waived as well. Then the client sends the credit counseling agency one payment each month, and the agency distributes the money to creditors as agreed upon.

The pros

If you’re unable to negotiate lower rates and payments with creditors on your own, a credit counselor can usually do it for you. This will save you money and help you get your debt paid off more quickly. The credit counselor can also help you write a budget to help you stick to the payment plan while still being able to afford all of your other expenses.

The cons

One problem with credit counseling is that it sometimes does not result in a monthly payment that the client can afford. Creditors are only willing to negotiate so far, and if you owe a lot of money you may not be able to afford the best deal they will give you. If that is the case, you’ll have to either find another means of paying your debt or consider bankruptcy.

Another thing about credit counseling is that it isn’t free. Credit counseling agencies may charge monthly fees for their services, adding them on to your monthly payment. If they don’t, they have to get the money to pay their employees somewhere. That “somewhere” is usually from your debtors, as a percentage of your payment.

There is some debate as to how going through credit counseling affects your credit. It is noted on your credit report. In most cases, you can’t get new credit until you complete the program. But it could also affect you after your debts are paid off. Many lenders consider credit counseling as being similar to Chapter 13 bankruptcy.

And finally, it is imperative to check out any credit counseling agency that you are considering. Just like any other business, there are some that are not trustworthy. The Better Business Bureau is a good source of information on credit counseling agencies.

Credit counseling may be able to help you get your debts paid off. But it is important to consider the pros and the cons of entering such a program. Trying to work out a deal with creditors on your own may work, eliminating the need to get a third party involved.