The Truth in Loans

This shift to automated credit decision-making is particularly true for small loans. For loans over $250,000, many banks are willing to expand underwriting criteria and spend time to meet applicants and understand their businesses. For smaller loans, the decision-making process is much like applying for a credit card: impersonal and automated. In fact, most large banks today are organized such that the managerial oversight for business loans under $250,000 is part of the consumer-lending function rather than the commercial lending function. Since small loans are managed by the consumer-lending function at most banks, your personal credit history is the single most important criteria in determining the likelihood of you obtaining bank financing for your business.

Remember: Your business isn’t the borrower but you are and if you’re borrowing less than $250,000 and your company doesn’t have a long, audited history of profitability, your bank will require you to personally guarantee the business loan. A personal guarantee is a scary thing to sign. I know this firsthand because I’ve signed a few of these personal guarantee documents and they always make me shudder a bit. It’s ironic that you can spend thousands of dollars in legal fees to incorporate your business in order to limit your personal liability, but it’s virtually impossible to get bank financing without risking your personal credit. In my view, there are some promising trends that will help entrepreneurs get bank financing without risking their personal credit: first, some data companies are establishing business credit ratings that are distinct from personal credit ratings. Second, some banks are specializing in small-business lending and recognizing the value to the entrepreneur of protecting his or her personal credit rating; and lastly, some companies are helping startups to establish and improve their business credit rating. In the meantime, understanding that landing a startup loan is much like obtaining a credit card will help establish your expectations and, hopefully, simplify the process.

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What are Financial Obligations?

In planning for retirement, you need to take a realistic look at debt and financial obligations, as well as expenses for this new phase of life. Assessing your expected costs of retirement, with objective insights from a financial advisor, will help you realize your retirement plans and embrace the lifestyle you choose. This evaluation will enable you to adjust your expenses as needed, and develop a budget to ease the transition. If you approach retirement still owing money, you are not alone. According to the Federal Reserve’s 2010 Survey of Consumer Finances, nearly 65 percent of families headed by a person between the ages of 65 and 74 years have debt – including 40 percent owing on mortgages, 32 percent carrying credit card balances and 20 percent paying on installment loans.

The problem is that continuing to pay off debt is more difficult on a fixed income. When expenses spike, as in a medical emergency, retirees can find themselves in a financial bind. Among people over the age of 65 years, approximately seven percent end up filing for bankruptcy through many citing credit card debt and health issues. To avoid a financial crisis, it’s best to prepare now by getting a realistic picture. A starting point is to list all of your financial obligations. Consider all kinds of debt and regular commitments including amounts, payment schedules and the duration of the debt.

Non-mortgage debt:

If your mortgage interest rate is three…four…or even five percent, it might be advisable to not pay off the loan by a certain date or with extra payments. Given the range of mortgage interest rates, you have the potential for higher returns with your investments. However, non-mortgage debt can add up to substantial obligations. As you approach retirement, you need to make a complete list of these other debt. Examples include:

1. Credit card debt as well as balances you carry over from one month to the next.
2. Auto and other installment loans, such as for appliances or home improvements.
3. Loans you have co-signed for children or others and could be called upon to pay.
4. Business or farm loans you have taken out personally or co-signed.

Avoid too many obligations

Avoid too many obligations

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The Basics of Credit Card Debt Consolidation

For credit card debt consolidation to be effective, the consolidation loan should have a lower interest rate and lower repayment time than you would have had with otherwise. Average out the interest rates on your credit cards and compare that to the interest rate on your consolidation loan.

 

Ideally, you’d want your monthly debt payments to decrease after consolidating. However, some debt consolidation loans lower your monthly payment by increasing the total repayment period. If you spread your payments out for a longer period of time, you could end up paying way more interest in the long run.

To qualify for many credit card debt consolidation loans, you need to have agood credit score. Unfortunately, if you’re having trouble making your credit card payments, you might not have the good credit you need to qualify for the best interest rate on a debt consolidation loan.

Credit history will be checked once you apply for a credit card.  Image taken from: Wall St. Cheat Sheet

Credit history will be checked once you apply for a credit card.
Image taken from: Wall St. Cheat Sheet

 

Even with an excellent credit score, you might find that you can’t get a loan large enough for credit card debt consolidation, especially if your debt load is over $20,000. Instead, lenders will ask if you have an asset, like a car or house, that you can use as collateral for the loan.

Borrowing from your home equity is another option for credit card debt consolidation. This can work if you have enough equity in your home to pay off your credit card debt. Otherwise, paying off some debts and not others won’t eliminate your problem.

 

There’s no doubt about it, dealing with debt can be a struggle. When your debt load is overwhelming large, the only thing you can think about is a solution. If you’re like most people you want to ease the debt burden, but don’t want to ruin your credit with bankruptcy.

 

Many people in debt have overextended themselves, lived without money for emergencies, and used debt to fund a lifestyle they couldn’t afford. Debt consolidation just masks the effects of these problems. It doesn’t actually solve them. You must fix the habits that led you to debt in the first place. Otherwise, you can easily find yourself back in the same situation.

Pros and Cons of Debt Consolidation

You could still clear off your debt, little by little. Image taken from: Make Money in Life

You could still clear off your debt, little by little.
Image taken from: Make Money in Life

 

When you consolidate your debt, you take out a loan to pay off several other debts. This allows you to consolidate the money you owe into one payment. A debt consolidation loan could be helpful if you ran up your credit cards while you were in business school, or if you have a number of high interest installment loans (student loans, car loan, etc.) This will allow you to roll this high interest debt into one manageable payment. If you have an easier time making your payments, you can avoid late fees, extra charges, and the bad credit that will inevitably result when you can’t afford to pay regular bills. For some people, debt consolidation may not be the answer. To start with, it can be difficult finding fair interest rates. If the rate on your new loan isn’t any better than the rate you pay on your current loans, consolidating your debt wouldn’t make much sense. It can also take longer to pay debts off. When you consolidate debt, you still end up owing the same amount of money. The main difference is usually the length of the term. This could leave you paying more in interest if the term is really long. If you are trying to decide whether or not debt consolidation can help you save money, you should contact a financial professional who can help you crunch the numbers. One of the largest dangers of debt consolidation is that you do not address the spending problems that caused you to go into debt in the first place. Often people will take out the consolidation loan, pay off their credit cards, and then start using the credit cards again. It can make it even more difficult to manage your debt and to make a difference in the way you are handling money. Imagine having your current credit card payments on top of another set of payments that are equal to it. You need to stop using your credit cards completely if you are considering this as an option to deal with your debt. Get on a written budget and pay off your debt as quickly as you can.

How to do Debt Consolidation?

  • GET A CREDIT REPORT

Any loan that you apply for a credit report will always be requirement so if you are planning on getting your debts consolidated then your first step is acquiring your credit report.  This will help decide the loan issuer of your approval.  If you have good credit reports then there shouldn’t be any problem of you being approved of a loan, however, if your credit report is just average or quite poor, then adjustments might be done for you to be approved of a loan.  Before you submit your credit report you also have to put effort in checking it and confirming that all the recorded data are accurate because mistakes and inaccuracies may greatly affect your approval for a loan.

Credit report will be checked. Image taken from: The Lenders Network

Credit report will be checked.
Image taken from: The Lenders Network

Before you decide into anything, you should at least understand these 3 ideas, the Consolidation Loan, Debt Management and Debt Negotiation.

Consolidation Loan is putting all of your loans or debt in one whole loan this way you only pay one loan.  Once you consolidate your loan, you now owe a new lender and usually this new loan incurs to a higher interest rate that those of your past loans but it extends the amount of time you can pay your debts.

Debt Management Programs work differently but it still reduces ones payments.  A debt management agency is present in this situation and they act as a “middleman” between your creditors and you.  Their job is to negotiate with your creditor about your interest rates and other fees inclusive in your loan.  You  pay the Debt Management Agency of the agreed amount and they will be the ones to pay your creditors.  You undergoing Debt Management Program will be seen in your credit report and this will affect your credit rating.

Debt Negotiation is when you settle a debt that is less than what you really owe.  Because of the negotiation done, you pay a part of your debt to your creditor while the rest is to be shouldered by your creditor already.  You will end up paying less and debt free but this process will damage your credit ratings really bad.  Although this process is not often approved and happens only in some cases.

  • RIGHT LOAN

Shop around for the best deal that there is and do not settle for the first offer you get.  You must also set a goal of paying off your loan quickly.

Choose the best loan offer. Image taken from: FastWeb

Choose the best loan offer.
Image taken from: FastWeb

Understanding Credit  

bus3zThe word credit stems from the Latin words Credo or Credere, which literally means to believe. In times today, credit is used in fields of banking, accounting, and finance. It denotes the trust that permits a party to provide resources to another party where the reimbursement procedure is not done immediately. Reimbursement is done on a pre-arranged date. The resources mentioned here usually refer to financial resources but also encompass this by including goods to be paid or services to be rendered. Any form of payment that is deferred will fall under credit.

The word credit is not used in finance and banking.

Image taken from: The Telegraph UK

The two parties involved in the transaction are called the creditor and the debtor. The creditor is the one who extends credit to the other party and the one receiving this credit is considered the debtor.

Some ideas regarding the credit card that is in practice now have been in practice even before. For one to continually be able to make transactions, he must have a good credit rating. This means that the consumer is able to pay back whatever the resource he owes at the time he or she promised to do so. This ensures that rapport is maintained between the contracting parties. If one fails to make good of his or her end of the transaction will taint his or her reputation. One may not easily obtain the further use of credit if that occurs.

Credit during the early times was mainly in use during small transactions between a few number of people. It is only in the 1900s that the use of credit expanded giving way to the tool we are all familiar with today, the credit card. It is in the advent of the credit card that the use of credit has been maximized and used to its full capacity. The creation of the credit card and its development allowed for a wider set of people to make use of it. More consumers had access to more credit while more businesses accepted this form of transaction. This allowed people to make their previous business processes more convenient.

The development of credit from its early times has made it less risky for its users. The consumers no longer face the risk of losing money either through crimes or ineptness by only making use of the credit card. Transactions also became easier and more verifiable for the merchants. The idea of credit is definitely a win-win situation for any two parties making a transaction.

 

Debt Consolidation: Good or Bad?

Debt consolidation is what it means to take out a loan to be able to pay the debt you owe because of the previous loans that you took. The people who need a way to secure a loan that generally has a lower interest rate and attain a loan that only offers a secured and fixed interest rate typically do this. When people think of debt consolidation, it is usually defined as or referred to simply as a number of loans that aren’t secured, that are carried over to cover other unsecured loans. But more often than not, there is another loan, this time secured, that is involved so that it will double what will go against the asset that serves as collateral. This is what usually happens when people take out home loans or mortgages for their houses. In this case, a mortgage is secured against the house, just in case the person who took out the mortgage is not able to pay his monthly dues, the bank or the lending company can seize the house in exchange for his debt. The collateralization of the loan is what allows the interest rate to lower rather than being without it. This is because through the collateralizing of the asset, the owner of the said asset agrees that he is allowing the forced sale, or the foreclosure, of the asset to pay back the loan that was taken out in the first place.

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The risk, which is mostly on the lender, is reduced so the interest rate offered can be lower than those with greater risk. Sometimes the companies that offer this type of debt consolidation care the ones that offer the discount when you apply a certain amount of loan. When the person that is interested to take out a loan to pay off his other loans, also if he is nearing the risk and dangers of bankruptcy, the debt consolidator is offered to buy the loan at a discounted price. Debt consolidation is typically advisable when someone is paying a credit card debt. This is because the nature of credit cards can carry a much larger rate of interest than even an unsecured loan from a bank. The debtors that here on out have properties like houses or cars may get a lower rate through the types of loans that they call secured loans by using the property that was previously mentioned, as collateral.3

Pros & Cons of Debt Consolidation Loans

Debt Consolidation is not the answer for some people. One point is that, interest rates a deadly high.  This might just get you into being more drowned in the debts that you already have.  If the rate of the new loan being offered is far from being the same or even incurs higher rates than the current loans you have, then it is not advisable to push through with it.

Consolidating debts will also take longer periods of time for you to fully clear off the money you owe.  Although, after consolidating, you still owe the same of amount of money, so it doesn’t change or lessens the amount of your debt, but instead, you were just given extension in paying it, thus giving you more interest rates to pay which is not good a deal unless it is your only choice.

Without you knowing it, you might end up you paying more than what originally you should have just paid because of the longer time the debt was cleared and the interest rate that came along with it have increased the debt by so much.

If there are other options you could opt for then try to look at those first before finalising on doing debt consolidation loans.

You might end up paying much more than what you were supposed to pay originally.  Image taken from: 101 Financial Lessons

You might end up paying much more than what you were supposed to pay originally.
Image taken from: 101 Financial Lessons

 

On the other hand, the basic benefit of consolidating debts is putting all your loans into one. From multiple payments to just one.  It is then easier, more systematic and organised. With this, you do not have to choose anymore as well which loan should be of priority because all of it are included in just one payment.

Through consolidating debts, you are also given lower monthly payments and a longer period of time.  Since you are repaying in longer terms, the amount was divided more thus giving you a lower month payables.  Since monthly dues are lower, there are better chances of you being able to settle your monthly loans.

Putting all your loans to just one loan.  Image taken from: Credit Loan

Putting all your loans to just one loan.
Image taken from: Credit Loan

Debt consolidation loan has it’s fair amount of pros and cons and it is always a case to case basis if one should get it or not.  Whichever way you decide on in getting to solve your debt issues, make sure that you have fully understood everything and be careful with the fine prints that we sometimes forget to take note of.  Think carefully on what you are about to do to make sure that you do not put yourself in a worse situation.

 

 

 

What is Debt Consolidation?

In simple terms, Debt consolidation is getting a loan to pay off others loans.  This will let you pay only one loan for all the others thus giving you convenience.  The reason of people opting for this is the systematised and organised way loans ends up to be.  Before, you would have multiple due dates and deadlines, you have different interest rates to remember, and different amounts to settle, but by consolidating your loans, you have joined them all together in one loan, with one payable, one interest rate and one deadline.  This way you are sure that no debt is forgotten to be cleared off and your attention is not divided anymore.

Your goal should be clearing off entirely your debt. Image taken from: Premier Debt

Your goal should be clearing off entirely your debt.
Image taken from: Premier Debt

There are available Debt Consolidation Calculator online that you might want to check out first before finalising your decision of getting one or not.  This calculator could compute for your new consolidated loan, the new interest rate, the new payment and how many terms you have.  The calculator will just ask for your credit card debt, other personal loans and other present instalment debts. You can then see the comparison of your current payment and the consolidated one.

By getting a consolidated loan, you are extending your loan term with less monthly payment and lower interest rates.  Although, this just might mean that you are going to pay more than what you were supposed to pay originally.

Before you finalised your thoughts on settling in this strategy, consider also the other ways you could do to fix your debts.  Sometimes getting a new loan would just incur more debts that is why you should be careful.  There are also several pitfalls that can come along with consolidating loans so it would be better if you read and research about these things.

There are many banks who offer this type of loan so even in that, make sure you consider the best deal that they will offer you.

Even banks suggest that you carefully consider whether consolidating your existing debts is the best choice for you.  By understanding how consolidation works, its purpose, pros and cons, you will be able to better decide for your situation.

As long as you choose the good offer of consolidation, then the chances of you getting more indebted is not at risk.

Just make sure you get the best deal that there is to maximise the potential of the loan and at the same time, be of favour for you.

Choose the best consolidation loan offer.  Image taken from: Neighborhood Loans

Choose the best consolidation loan offer.
Image taken from: Neighborhood Loans

 

Knowing if Debt Consolidation Loan is Right for You

If you are interested in availing a Debt Consolidated Loan then you must understand all sides of it.  From the pros to its cons and how it really works. An advantage of consolidation loans is that it is more manageable since all your debts are going to be transferred in one company.  With this, you only make one payment a month thus not making everything very confusing for you.  This means that you are able to close down other loan accounts thus giving you a better financial reputation for your credit ratings.  This will also reflect that you are starting to handle your finances and shows your intention of fixing your debts.  With all of these there is one great disadvantage of such, you end up paying much more than what you were just supposed to pay because of the summed up interest.

loan-consolidation

Image taken from: Nelnet

Although, there are instances wherein a person is left with this choice alone so if that happens the best thing he or she can do is just to take note of the things he or she should be remembering about Debt Consolidation Loan.

Just like any other loan, same goes with this type, the first thing you should do is check the interest rate and interest rates are usually dependent on how much you are going to borrow.  The more money you borrow, the lower the interest rate becomes.  Also, remember that the longer it takes for you settle your debt, the more interest amount you will have to pay.  Interest rates are always checked first because a lot of banks will offer you different rates so you have the freedom to choose the best deal offered out there.

It is important for you to be able to get the right consolidation loan for you.  There are a lot of different types available and be sure to get the one that is right for your needs.  Research online and ask around before you secure any deal.  Read articles about the different type of consolidation loan and see its purpose.

consolidation

Consolidation Loans will combine all your loans thus making it easier for you by settling just one account. Image taken from: Borrow Wisely Org

If you have loans here and there then it is suitable for you to acquire a consolidated loan for it will consolidate your debts into just one loan.  No more multiple payments needed making your life much easier.  Yes, in return you have to suffer a bigger summed up amount of interest but it is better than not being able to handle your finances because of it being overwhelming.