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Is Taking Out a Loan a Smart Way to Get Out of Debt?
No one wants to be in serious debt, however, carrying some form of debt is unavoidable. To start, everyone needs to build credit, and one of the most effective ways to accomplish this is by taking on “good” amounts of debt and paying it off in a timely fashion.
While credit can be a luxury for some, for others—especially those in a low income bracket—credit becomes a way to help with bills, groceries, and other daily expenses. Unfortunately, even a small amount of debt can be a precursor to bankruptcy if a person falls on hard financial times.
The truth is that filing bankruptcy is a smart decision in many cases. However, there may be other ways to solve debt problems. One method that many people consider is consolidating debt by taking out a loan. This often is an effective strategy, but it is important to understand a few basic aspects about debt and loans.
Tips for Homeowners Who Are Struggling with Mortgage Payment Difficulties
Owning a home is one of life's great accomplishments, and mortgages help people achieve this dream. Home loans, however, can become burdensome when an individual or family enters difficult financial circumstances.
Some homeowners face bankruptcy or foreclosure as a consequence of struggling to meet mortgage payments. Fortunately, experiencing tough economic challenges does not always mean debtors will lose their homes or declare bankruptcy. Here are some helpful tips when monthly payments become difficult to afford:
1. Review Your Mortgage and Contact Your Loan Provider
Understanding the type of mortgage a person has is key to responsible financial planning. According to Bankrate.com, there are three main types of mortgages: fixed-rate, adjustable rate, and a hybrid between the two. These categories may influence the best approach to debt management.
Understanding the Different Forms of Debt
Many Americans are aware different types of debt exist, but may not know some forms of debt are more manageable than others. The type of debt also can affect an individual’s options when trying to file bankruptcy.
According to Investor Place, the average American citizen carries $225,000 or more in debt. This accounts for America’s total debt in credit cards, mortgages, and various loans, as well average interest rates and the percentage of citizens with more than $500 put away in a savings account.
Credit Card Debt
Debt from credit cards is incredibly common. As an unsecured form of debt, banks and lenders consider an individual’s credit score when determining eligibility for credit cards and their credit limits. Unfortunately, high interest rates can make credit card debt escalate quicker than most people realize. Also, having too much debt on a card—even if the card has not reached its limit—can reflect poorly on one's credit score.
Qualifying for a Mortgage after Bankruptcy
Many people who are considering filing for bankruptcy hesitate because they fear their credit will be ruined for years to come and future plans, such as qualifying for a mortgage to purchase a home, will be almost impossible. The good news is that most people who file for bankruptcy are able to repair and build their credit back up within a few years and are able to fulfill that dream of owning their own home.
Most mortgage lenders have certain guidelines they follow when it comes to credit issues such as bankruptcy, foreclosure history and short sales. The following is a standardized list that lenders around the country follow and include conventional lender guidelines, Federal Housing Administration (FHA) guidelines and Veterans Administration (VA) guidelines.
Federal Rules Debt Collectors Must Follow
When a person owes a defaulted amount on an account, such as a credit card or prior utility bill, the company who the original debt is owed to will often “charge off” that debt after a certain period of time has gone by. Someone who is struggling with overwhelming debt may have multiple accounts which have been declared charge offs by the original creditor.
There are certain guidelines a creditor must follow before they can charge off an account. If the account is an installment loan (such as an auto loan or mortgage), then the delinquency must be at least 120 days past due. If the account is a revolving credit account (such as a credit card), then the delinquency must be at least 180 days past due.
At this point, the creditor has three options for debt collection for the account. The company can continue to pursue collection themselves; they can hire a third-party collection agency to continue collection activity; or they can sell the debt to a debt buying company. Debt buying companies purchase debt portfolio from creditors and any funds then collected on the debt belong to the debt buyer.
Bankruptcy Filers Can Now Use Rental History to Rebuild Credit
When a person files for bankruptcy, it takes time for their credit history to “heal” from the painful ordeal of overwhelming debt that caused the bankruptcy filing. As long as person is careful not to overextend themselves, they are usually able to qualify for credit cards, auto loans and even mortgages within several years of filing.
Having taken control of their debt and filing for bankruptcy, a person can also take control of their credit history. Applying for a secured credit card and making the payments on time every month, as well as any other accounts that were not charged off in the bankruptcy, such as a mortgage or auto loan, will increase a person’s credit score enough that they may be able to qualify for unsecured credit within two years following the bankruptcy.
There is now a new way for people to help increase those credit scores and that is with their rental history. In the past, a person’s rental history was never included on credit history reports. If a person has a long history of making on-time rental payments, they never received the credit benefit for that good history like a person who pays their mortgage on-time.
Texas Ranks as a Best State for Student Debt Among the $1.12 Trillion Owed Nationwide
According to a recent study by WalletHub, the state of Texas ranks as number nine in the list for the “best” student loan debt. WalletHub analyzed all 50 states (including the District of Columbia) using 7 key metrics, including average student debt, unemployment rates, and students with past-due loan balances.
Though nine out of 51 may be good news for the Lone Star State, the rest of the country is not doing as well. As of June 2014, the Federal Reserve Bank of New York, total outstanding student loan debt stood at $1.12 trillion, an increase of $7 billion from 2013.
According to the WalletHub study, though the risk of joblessness declines with the more schooling you have, location also has a large effect on college debt levels. This means that if you live in a city or state where the economy is booming, you are more likely to pay off your student debt on time, without penalties.
How Bankruptcy Can Be the Start of a More Secure Financial Life
Let us redefine the popular yet misguided perspective of bankruptcy. First, here are the facts: Bankruptcy may have a negative impact on a credit score and will stay on record for 10 years. Lenders will consider someone who recently went through bankruptcy as a risk and will be less likely to loan money. According to Bankrate, it is even possible to see insurance rates rise. Due to these conceptions, many view bankruptcy as a stressful and that it is a difficult way out of debt. But, this does not have to be true.
Bankruptcy is an opportunity—even a tool—that grants debt relief while teaching some valuable financial lessons. There are a variety of reasons why one might consider bankruptcy, and the best chapter to file depends on the circumstances surrounding the debt.
Four Ways to Manage Credit Card Debt
Credit cards are a double-edged financial sword. Aside from their obvious benefits and functions, many banks offer points systems and other rewards for using their cards. Many Americans, however, are all too familiar with the possible risks associated with credit card use—especially when one falls behind on payments.
Nearly every American has a credit card--and likely more than one. According to TIME, the overall amount of debt incurred by Americans has actually been in decline. While this is great news for some, others are still facing the challenge of keeping up with payments, dealing with harassing creditor calls, and possibly even considering bankruptcy.
Solving debt problems is about active financial planning and making smart choices. Here are four helpful ways to regain control of credit card debt:
Can Chapter 13 Bankruptcy Lead to a More Financially Stable Life?
Many individuals and business owners wrongly attach a negative connotation to the word “bankruptcy.” While it is true that those who choose to file bankruptcy may be facing dire financial situations, the process should not be viewed as an inherently bad decision. Instead, debtors should view bankruptcy as an opportunity to develop a financial plan that leads to financial stability.
Though large companies are required by law to hire a bankruptcy attorney, individuals have the choice of filing alone. While there are standard laws in place for the bankruptcy process, every case is different. For this reason, it is often wise to hire an experienced bankruptcy lawyer to review the case and identify the best approach to filing.
Chapter 13 Bankruptcy Provides a Path to Financial Freedom
Chapter 13 bankruptcy differs from other chapters as it allows the debtor to restructure the debt they owe rather than liquidating assets. After submitting the initial petition to file for bankruptcy, the debtor, court, and trustee will develop a practical and comprehensive payment plan.
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