Life on Credit

The art of borrowing money

How Would Filing for Bankruptcy Affect Your Borrowing Power?

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Filing for bankruptcy can negatively affect your borrowing power because your credit score is likely to plummet. This depends on your credit profile, however. If you have fair or bad credit and multiple negative items listed, then you would expect a low to moderate drop. Borrowers with spotless or very good credit, however, see a significant drop.

What to Expect

It is a good idea to learn more about bankruptcy as to know what to expect. This is a last resort for borrowers who have exhausted all other options such as counseling, negotiation with creditors, debt consolidation. Consolidation loans, for example, are offered to borrowers to combine multiple debts and benefit from a single payment. It is a form of refinancing for borrowers with a lot of outstanding debt. Bankruptcy is a solution for people who owe more money than the total value of their assets. In fact, if you owe $1,000 or more and are unable to keep up with payments, you meet the criteria.

Bankruptcy is a solution for borrowers who have unsecured debts, including personal loans, vacation loans, credit cards, lines of credit, etc. Those having a lot of equity may not be allowed to keep their home. When it comes to personal belongings, there are certain exemptions to look into. The list includes things like retirement savings and pensions, heating fuel and food, and farm supplies, equipment, animals, and land. When filing for bankruptcy Canada based borrowers are also allowed to keep their vehicle, furniture, clothing, and health aids. Exemptions vary from province to province. In Alberta, for example, you are allowed to keep your social allowance, farm land, principal home, farm property, tools of trade, household appliances, and food. In Manitoba, you are also allowed to keep some life insurance policies, locked-in pension plans, religious items, etc. In any case, bank accounts are not exempt.

The Bankruptcy and Insolvency Act governs receiverships, commercial and consumer proposals, and bankruptcies. A bankruptcy trustee is appointed to represent the borrower’s estate. Once you have filed, you can expect to receive a discharge in about 9 months unless a court orders an extension.

Your Borrowing Power

After you have filed for bankruptcy, your borrowing power will be seriously affected because you are considered a high-risk customer. There are some things to do to improve your chances of getting approved for a loan or a credit card.

Get Your Discharge

The first step is to get your discharge in a timely manner. Once you do this, it is time to start rebuilding your credit.

Apply for a Secured Card

There are several options to look into, among which secured loans and secured credit cards. A secured credit card is easier to get even if you have a tarnished credit score. The reason is that your savings account serves as collateral, i.e. guarantee of repayment. This makes it less risky for financial institutions. Secured cards are offered to borrowers with a history of poor credit and limited credit exposure. The limit depends on the amount deposited and your score.

A Store Card

Another option is to apply for and open a department store card but interest rates tend to be significantly higher compared to other products. This can be a good solution if your department store offers generous discounts but there is more. A store card can help you to improve you score if you make occasional purchases (as opposed to many purchases). This will help you to lower your utilization rate. A low utilization rate proves to financial institutions that you are a low-risk borrower. Aim at a utilization rate of about 15 percent to help rebuild your credit score. This is provided that you make timely payments and use the line in a responsible manner. In fact, responsible use is the key to rebuilding credit. Late and missed payments show on your report and negatively affect your score. You don’t want this if you declared bankruptcy recently.

An Installment Loan

There are other things to do to boost your borrowing power, and one is to get an installment loan. If you made regular payments on your department store or secured card over the past couple of months, you may want to visit your local bank. Ask what they have on offer. If you get approved for a small installment loan, make regular payments. When it comes to the loan amount, it is always better to be on the safe side and start small. Borrowers with poor credit are usually offered very high interest rates, which adds to the cost of the loan. It is always good to have a credit mix, i.e. personal loans, credit cards, etc. A good mix means diversity and shows financial institutions that you can handle different types of credit. Be careful when applying. Multiple applications can have a negative effect on your score.

Develop Healthy Financial Habits to Deal with Debt

Finally, the most important thing is to develop healthy money and credit management habits to avoid debt and bankruptcy. If you are unsure where to start, you may want to contact a bankruptcy advisor or financial advisor to learn the basics. Your financial advisor will help you learn how to budget, save, and set long- and short-term financial goals. They will help you build a financial cushion (an emergency fund) for a rainy day and emergency situations. A financial advisor will also help you develop a personalized plan based on your individual circumstances. A personalized, step-by-step plan can help you a great deal in terms of rebuilding credit, when to start, what financial products to apply for, and more. When choosing an advisor, make sure you ask whether they offer free information, what services they offer, how much they charge, etc. Ask whether they have monthly or set-up fees.

Once you succeed in rebuilding credit, you will have plenty of choice when it comes to credit cards and loans with attractive terms, low than average rates, and incentives and perks.

Money and Motivation: Is Your Consumer Behaviour Driving You into Debt?

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There are a number of strategies you can make use of to find out what your “financial” personality is like, so that you can get out of debt and start learning some responsibility. Statistics show that household debt is skyrocketing, reaching new and new heights year after year. Consumer debt comprises around 30% of the total debt.

Market Principles vs. Individual Principles

We live in an age when supply is almost endless. We can buy practically anything we can imagine, and in wondrous variety at that. When you think of the traditional supply and demand graph, you would expect demand to plummet. Perhaps this can be seen as a challenge to the age-old economic principle. Not only is demand not plummeting, it is rising and rising and the state of debt testifies to this. It seems we want things so much that we no longer care that we can’t afford them. However, we should be careful when we assume that macroeconomic principles transfer to microeconomic ones. In other words, market principles do not always reflect individual ones.

Personality Balance Sheet

Experts advise debt-ridden consumers to create what they call a personality balance sheet. The idea is to make a list of your personality traits as they relate to your behaviour as a consumer and define them as advantageous or disadvantageous. What motivates most of your purchases? Granted, this is a difficult question to answer. There are many factors that motivate purchases apart from personality traits, such as age, sex, even location. Naturally people in sparsely populated areas will have a whole different set of criteria when it comes to purchasing goods or services compared to people from big cities.

How Commercials Influence Behavior

Before you can understand how your personality may be driving you into debt, you have to understand the psychology of advertising. What are producers actually going for when they advertise their products? You may have wondered how they possibly get returns on commercials, what with there being so many. Advertising’s main function is informative, true, but it also serves to educate. By advertising expensive luxury products, they work on your system of values, artificially creating demand for something costly and prestigious that you don’t need. If you are especially vulnerable to that sort of “propaganda”, as would be someone with low self-esteem who wants to be respected and admired, you’ll fall for this. You may take out a loan to get the latest BMW or Mercedes model instead of sticking with your trusted Volvo or Pontiac.

If you tend to be on the impulsive side, make sure you stay far from temptation. Take all your credit cards out of your wallet, do not go into stores if you don’t actually NEED anything, and even curb window-shopping. This is not going too far. Do you want to get out of debt or don’t you?

Main Money Personality Types

According to experts, there are several money personality types – the spender, hoarder, avoider, and amasser.

  • Spenders tend to buy on impulse and buy things they don’t need, whether jewelry, groceries, or anything else. They find it difficult to prioritize and save for a rainy day. Spenders are often knee-deep in debt.
  • Hoarders, on the other hand, usually have a budget and prioritize their purchases and long-term and short-term financial goals. For hoarders spending on travel, dining out, magazine subscriptions, and entertainment is a waste of money (and time). Hoarders usually have an emergency fund and prefer to save for college education, retirement, or just in case.
  • The avoider tends to put off things like paying bills on time or doing taxes. He has a hard time saving, planning, budgeting, and dealing with financial matters. This money personality type has a nonchalant attitude towards financial planning and things like retirement income, investment, or insurance. If you are an avoider, it is a good idea to talk to a professional to get in control of your financial life. Always shop with a list, create a budget, and stick to it.
  • The amasser is a different story – for him money means power and enhanced self-esteem. Lack of money, on the other hand, may result in depression and poor self-esteem and feelings of worthlessness and failure. The money monk is the exact opposite, feeling that money and consumption are the root of all evil. A steady paycheck or inheritance money will actually make him feel insecure.

There are three more personality types – the flyer, security seeker, and risk taker. The risk taker, for example, tends to make risky investments such as real estate investment trusts, options, currency trading, and high yield bonds. Risk takers aren’t too worried about financial matters and details. They actually get excited about potential returns, risk, and possibility. Security seekers, on the other hand, prefer low-risk investments such as bonds, savings accounts, and certificates of deposit. They like to be prepared for anything, be it a natural disaster, depression, or apocalypse and humankind vanishing from the Earth. Security seekers usually have an emergency fund for a rainy day. For them, life is about careful planning, budgeting, and saving for the future. The flyer also has a distinct way of thinking. He feels content and happy with life as it is. The flyer has a nonchalant attitude toward financial matters and as long as he is independent, free, and making his own choices, that’s all that matters.

A Final Word to the Wise

At its core, consumption is a social habit. We buy what others buy or encourage us to buy, even though we may not realize it. It follows that you should surround yourself with positive people who realize that there is more to life than shopping.

Debt Consolidation: An Interview with Jeffrey Schwartz

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Samantha, LifeOnCredit.ca
Credit is a way of life here in Canada. The Canadian Banker’s Association (CBA) says a whopping 89 per cent of adult Canadians have at least one credit card, and the majority (60 per cent) pays their entire balance every month.

But what about the Canadians who carry credit card debt? What if that balance continues to grow, and the interest charges get bigger and bigger? There are a lot of debt management tools out there if you are wondering how to get out of debt. One option for relief is debt consolidation, and to get more information on this, I interviewed Jeffrey Schwartz. Schwartz is the executive director of Consolidated Credit Counseling Services of Canada, a non-profit charity that helps people get out of debt.

Samantha: What kinds of people seek credit counselling for help?
Jeffrey: We help Canadians of all ages and all income levels. Debt does not discriminate; everybody is financially vulnerable and can find themselves in trouble thanks to common issues like unemployment, illness, divorce, or simple overspending.

Samantha: What levels of debt do you typically deal with?
Jeffrey: Different levels of debt require different debt solutions. Typically if someone owes around $5,000 or less, we are often able to advise them on some changes they can make to their budget and lifestyle that can usually get them out of debt with a little hard work and determination. When you’re getting above $10,000 in debt, that’s when you may need a helping hand – often it can be too difficult to manage on your own, and we can provide some tools to get it under control. If you owe $40,000 or $50,000 or $60,000, chances are, the interest payments alone are crushing.LOC44

Samantha: I know people who have gotten into the trap of making minimum payments and trying to pay down huge debts on their own – just how hard is it?
Jeffrey: It’s a lot like being on a treadmill. You can exhaust yourself all you want, but you won’t get anywhere. Our website has a credit card interest calculator, and it’s a great tool to illustrate just how much interest you can expect to pay, and how long it will take, if you only make the minimum payments. For example, if you have a couple of credit cards with a total debt of $30,000, at 19% APR, it will take you nearly 40 years to pay that back. But that’s not the worst part. You’ll pay almost $47,000 in interest – more than your actual balance! Four decades and $77,000 dollars – it sounds like a punishment, not a repayment plan!

Samantha: Yikes. So it seems that it is the interest rates that really hurt people.
Jeffrey: Yes, when people are using high-interest credit cards and Payday loans, so much of their payments are going toward their creditors, and not enough is paying down the actual balance. That’s where we come in. Through our Debt Management Program (DMP), we are able to negotiate with your creditors to get your interest rates reduced to very low levels – often zero. You’ll still pay everything back, but without the heavy shackles of interest. Using the program in this way will allow you to pay back this debt, in full, within three to five years. To make it even easier, we consolidate all of your unsecured debts into one simple monthly payment.

Samantha: So what’s the difference between the DMP and say, a consumer proposal or bankruptcy?
Jeffrey: The big difference is with the DMP, you pay back the entire balance. With a consumer proposal and bankruptcy, you do not pay back your entire debt load, and your credit report will reflect that.

Samantha: Are there ever any cases in which a bankruptcy is the right move?
Jeffrey: It’s a worst-case scenario, but it’s helpful for people with massive debt loads and little means to pay it back. At that point, with too few assets and too little income, bankruptcy may be the best solution. The DMP is an excellent option for people who have experienced a hiccup in their financial lives but have the means to pay it back. They just need a helping hand. That’s where we come in – we can be that helping hand to lead you through your trouble. If you feel like you’re drowning in debt, we can throw you a life ring.

6 Steps to Reduce your Credit Card Debt by Thanksgiving

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There are many benefits to dealing away with debt within a short period, the most important being less stress and more money to spend on leisure, groceries, and home improvement.

1. Create a Budget

It is a good idea to create a budget to find out where your hard-earned money is going. The first thing to do is to list your combined income, including wages and salaries, bonuses, commissions, rent, and other sources of additional income you may have. Then make a list of your ongoing expenses such as mortgage payments or rent, groceries, cleaning detergents and cosmetics, daycare, clothing, and utilities (gas, phone, internet, water, etc.). Compare your expenses and income to find out if you spend more than you can afford.

2. Cut Back on Some of Your Expenses

Now that you have a budget, it is time to discuss different ways to cut on some expenses and use the money to repay any outstanding balances. If you spend too much on dining, for example, think of preparing homemade meals for your family. There are other ways to save on monthly or ongoing expenses, and one is to save money on transportation. You can do this in different ways – sell your vehicle, use public transportation (e.g. subway, bus, train), car pool to work, etc. In addition, you can save on debt in at least several ways by consolidating student or consumer loans, refinancing, and transferring high interest balances. There are automatic debt repayment plans as well.thanksgiving

3. Look for Additional Sources of Income

If you are unemployed or underemployed or have a seasonal job, then you may want to look for additional sources of income. One option is to look for part-time employment or a second job to increase your income. There are other ways to make money in the form of passive income. One is to open a high interest savings account to earn a higher yield. Another option is to invest in other low-risk products such as certificates of deposit or government securities. This is provided that you have some free cash on your hands.

4. Increase Your Payments

This is one way to save on interest charges and repay outstanding balances over a shorter period for a debt-free future. Always try to pay more than the minimum, especially on high-interest credit cards. If you have a low-interest card, you may want to use it to make payments. Note that if you only pay the minimum on a high-interest account, charges accumulate over time, and you are more likely to be late on your payments. Late and missed payments can have a negative impact on your score and future ability to borrow.

5. Reduce your interest rate

There are several ways to reduce the interest rate, and the most obvious one is to shop around for cards with low interest rates. In fact, some financial institutions actually offer such cards and advertise very low rates of about 6 – 8 percent. This is the standard rate provided that you make on-time payments. Penalty rates are usually significantly higher and apply to late and missed payments. Another option is to apply for a balance transfer card. If you have high-interest cards, then you pay a lot in charges, especially if you only pay the minimum each month. If you use a card with a high interest rate, then you should always try to cover the full amount. Otherwise it is better to use a low-interest product or transfer your existing balances to a card with a promotional period and a low rate. There are good balance transfer cards with long promo periods of 12 – 18 months and zero or a very low rate over the intro period. A third option is to contact your issuer and try to negotiate a lower rate. If you are a regular customer with a steady payment history and healthy credit score, they may actually agree to do this to keep you in.

6. Use Cash or Debit

This is a good idea, especially if you have multiple card accounts and a lot of debt to sort out. Either use your debit card to make payments online and in-store or carry cash with you. You may want to take small amounts with you to avoid the temptation to make frivolous purchases and overspend.

Conclusion

As you can see, there are many ways to reduce your debt load by Thanksgiving, from developing a budget and finding additional sources of income to trying to reduce the interest rate and using cash. If you have multiple debts, including consumer loans, mortgages, and credit cards, you may want to develop a repayment plan to get rid of debt faster.

5 Steps to Debt-Free 2015

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Is Debt-Free 2015 Possible? Start Planning Now

Medical bills, car and mortgage payments, and card balances add up unless you acquire good financial and budgeting skills. Specialist advice and online spending and budget tools can help sort out your finances for a debt-free new year.

1. Get a Good Look at Your Budget

The first step is to look at your family’s budget, income, and expenses. Make a list of all sources of income, including bonuses, wages, salary, rental income, cash in savings accounts, employee achievement awards, child support payments, and others. Then list all expenses, for example, utility bills, insurance premiums, groceries, rent, loan and credit card payments, and others. Compare your expenses and income to see where your money is going. This will help you to make a good decision about future purchases and how to allocate your money.

TOOLS: Budget Tools and Calculators

One option is to use online budget tools such as planners and calculators. Some tools help track sources of income, spending, and savings, investment, and checking accounts. There are online budget calculators that allow users to develop a budget based on their total income and expenses such as health and medical bills, clothing, transportation, housing, food, utilities, and others. There is an option to print your budget. Some online calculators allow users to plug in monthly expenses and savings and annual income and expenses.LOC5

2. Set Your Financial Goals

Setting your financial goals is also a very important step. Consider factors such as total debt, income level, household size, age of family members, and others. If you have excessive debt, it may be a good idea to prioritize debts. Setting up an emergency fund is also a good idea. You may want to open a savings account to save for unexpected expenses such as medical bills and car and home repairs.

Think of long-term and short-term financial goals you want to achieve. Examples of short-term goals are saving for a summer holiday or car down payment, minor home improvements and projects, buying furniture or electronics, and others. In general, these are goals to achieve over a period of 1 – 2 years. Long-term financial goals take more time to achieve, i.e. 5 – 15 years. Examples are saving for retirement or college education, saving for a large mortgage down payment, and others. Such goals require financial commitment and discipline.

TOOLS: Financial Goal Calculators and Other Tools

There are some tools that help set your financial goals, including money saving apps, tools to track spending, financial goal calculators, and others. Financial goal calculators ask users about their monthly income before taxes. Users can choose from different goals, for example, saving for retirement and getting out of debt. If you are looking for ways to get rid of debt, choose this option and plug in details such as payment frequency, interest rate, current balance, type of debt, target end date, payments, amount, and others. There is an option to view a debt chart.LOC15

3. Reduce Your Spending

This is one way to get out of debt quicker. Look at your list of expenses to see if you can reduce your spending. There are different ways to cut your spending without changing your lifestyle too much. It is a good idea to create a shopping list to avoid buying on impulse. You will also save on gas by making a single trip to the grocery store. Compare prices at different stores and clip coupons to reduce your spending. Instead of eating out, you may want to pack your lunch to save money. Unsubscribe to sales alerts to avoid impulse purchases.

TOOLS: Cut Back Calculators to Track and Reduce Spending

You can also use different online tools that help reduce your spending. There are cut back calculators that allow users to choose from different purchases, for example, takeaways, petrol, music, magazines, lottery tickets, gym, and movies. You can also choose from fares, coffee, cigarettes, chocolate, alcohol, and other purchases. You are also asked about the price and purchase frequency. For example, if you smoke 1 pack a day and it costs $4.50, you will save $135 a month.

4. Use Debt Consolidation Specialist/Service

Using a debt consolidation service is also an option if you have high interest balances. Consolidation specialists help customers to secure a lower interest rate and more affordable payments.

In general, debt consolidation is an alternative to bankruptcy, credit counseling, and consumer proposal and can be used for unsecured loans. If you have multiple high-interest cards, you may want to transfer your balances to a low-interest credit card. The right approach depends on the types of debt you have, the amounts owed or outstanding balances, the interest charges, repayment terms, credit standing, and other factors. Debt consolidation specialists offer professional advice and counseling and free savings estimates. Your consolidation specialist will ask about the total debt held, including student loans, health club memberships, lines of credit, medical bills, and legal bills. Other types of unsecured debt include cell phone bills, personal loans, department store credit cards, and unsecured credit cards. Secured loans are not accepted, including auto loans and mortgages that require collateral. Specialists also offer personalized solutions to your debt worries as well as tools, tips, education, and resources.

TOOLS: Debt Consolidation Calculators

You can use debt consolidation calculators to find out how much you will save. To this, choose from different types of debt such as retail credit cards, standard credit cards, consumer loans, and others. Enter the estimated monthly payment, current balance, and annual percentage rate.LOC14

5. Become Debt Free

There are different ways to go about excessive debt and alternatives to choose from. Options to consider include settlement, debt management plans, budget planning, individual voluntary arrangement, and self-money management. Other options include formal proposal, negotiation, and debt restructuring. These are alternatives to bankruptcy, and the choice depends on whether you have delinquent or excessive debts and other factors. A home equity loan is one option if you have debt problems. In this case, your home equity is used for loan repayment. The good thing about home equity loans is that lenders offer attractive interest rates because your home serves as collateral and a guarantee of repayment. A debt management plan is another option to pay down your outstanding balances. In this case, your financial institution may be willing to lower the interest rate to make payments more affordable, especially if you are about to default. Finally, debt settlement is yet another option to become debt free. This method involves a cash settlement with your financial institution. A one-time payment is required in exchange for a partial debt payment.

Getting out of Debt: Get a Chance with Debt Consolidation Loans

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A consolidation loan helps combine multiple high-interest accounts and obtain a fixed or lower interest rate. This is one way to make payments affordable, pay down excessive debt, and reestablish your credit history.

How to Tell if You Have Bad Credit?

Having a low score affects your purchasing power and access to credit. People with poor credit find it difficult to get a job, rent a house or apartment, and meet unexpected expenses. There are some red flags and warning signs that you have made poor financial and credit decisions. If you have multiple card accounts, excessive credit card debt, and missing or late loan or card payments, you probably have less than perfect or poor credit. Getting calls from collection agencies and accounts closed by issuers are other signs that you are knee-deep in debt and need help. There are other warning signs that you need to look into different repair options, for example, having too little or too much credit and having your card and loan applications denied. Obviously, your score is the best indicator of credit problems. A FICO score below 620 means that you have poor credit.LOC7

Finding a Debt Consolidation Loan with Bad Credit

Many people check with their local banks first, especially if they are existing customers. Banks have stringent criteria for approval, however, and you may see your application turned down. Some finance companies specialize in consolidation loans for customers with tarnished credit and allow borrowers to combine payday and consumer loans into a low-cost payback solution with a single monthly payment. Look for loans with no early prepayment penalties or hidden charges.

What is the Best Way to Consolidate Debt with Bad Credit

There are different lenders that offer bad credit debt consolidation loans – payday loan providers, credit unions, and banks. The best option for customers with poor credit is probably a reputable consolidation service that charges no upfront fees and advertises generous interest savings. Credit unions are usually more lenient than other financial establishments, banks in this number. Reputable companies offer a range of options, and customers are allowed to consolidate between $2,000 and $10,000 in unsecured credit. Some providers require stable income and have minimum income requirements. If you have student loans, the best way to get out of debt is to apply for a student consolidation loan. There are two options – fixed rates and capped variable rates with terms of 5 to 15 years. Some providers also advertise loans with 20-year terms. Customers who opt for automatic payments enjoy interest rate reduction. Some issuers also offer interest rate discounts to existing customers who have checking accounts or existing loan balances. And some financial institutions even offer loan deferral options.LOC6

Are Debt Consolidation Loans Bad for Your Credit

In fact, debt consolidation loans help customers to reestablish credit. They go with lower rates and affordable monthly payments, making it easier to catch up on payments. The fact that customers have only one monthly payment means that it is easy to keep track of and avoid missed payments which affect your credit. Timely payments will boost your score and will widen the range of financial options available through mainstream financial establishments. At the same time, missing loan payments may ruin your score, leaving you with few options available, most of which carrying high interest rates. As a rule, debt consolidation has a positive effect on your score because it simplifies payments, and customers can opt for automatic payments. It is a good idea to close some existing accounts so that you avoid piling up debt again.

What are Your Chances of Getting a Debt Consolidation Loan?

Many people are unsure how to qualify for debt consolidation loan if they have a bad credit. The chances of getting a loan depend on your overall stability, employment history, and earnings. Some issuers are willing to work with customers with less than perfect credit provided that they are able to meet their payments. Finance companies often require proof of income and proof of employment such as recent pay stubs. Some issuers also look at your debt to income ratio. Your disposable income must be at least 15 percent of your gross monthly income. Your chances of getting approved for an unsecured debt consolidation loan are low if you are switching jobs often. Some financial institutions offer debt consolidation loans for bad credit to customers who have home equity. Finally, your chances of getting a loan also depend on how much you owe to different creditors.LOC10

Advantages of Debt Consolidation Loans

There are plenty of benefits for debt-ridden borrowers, one being that customers are able to eliminate debt without incurring additional charges. Budgeting and financial planning are also made easier given that customers have only one payment to make. Multiple monthly payments take a huge amount of effort and mental energy to deal with. Customers benefit from easier debt management, and payments are spread over a longer repayment term. Another benefit for borrowers is the fact that customers are allowed to consolidate different types of accounts, including credit card balances, student loans, and other unsecured debts. A further benefit is that customers can choose from several types of loans and programs, including balance transfers, and home equity loans. Unsecured loans feature shorter repayment terms and are safe for customers as they don’t risk a valuable asset. Secured loans go with lower interest rates, longer repayment terms, and affordable monthly payments. With home equity loans, borrowers benefit from the fact that interest is usually tax deductible.

Deb Consolidation Application

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Disadvantages of Debt Consolidation Loans

While convenience and lower rates are major advantages, there are some issues and downsides. One of the downsides for borrowers is that a longer repayment term adds to the cost of borrowing. Customers pay more toward interest when payments are made over a longer period. A secured loan carries a risk in that customers risk losing their home, vehicle, or other asset in case of default. There are other risks as well. Retirement funds, life insurance policies, and other assets may be available for use only after loan repayment. Another issue is that financial institutions are less willing to offer unsecured short term loans to customers with poor credit. Those who are willing to work with customers with bad credit usually offer higher-than-average interest rates. The only option may be a secured loan with a competitive rate. In any case, stay away from providers that feature points, charge costly penalties, and advertise low introductory rates that skyrocket after the initial period. Finally, there are unscrupulous loan providers that assess outrageous charges and rates and try to take advantage of your financial worries. Avoid companies that offer help with bankruptcy, settlement, and debt management because these methods work differently. Also avoid issuers that offer credit insurance because it makes borrowing a costly endeavor.