Monday, October 19, 2009

Payday Loans

A payday loan (also called a paycheck advance or payday advance) is a small, short-term loan that is intended to cover a borrower's expenses until his or her next payday. The loans are also sometimes referred to as cash advances, though that term can also refer to cash provided against a prearranged line of credit such as a credit card (see cash advance). Legislation regarding payday loans varies widely between different countries and, within the USA, between different states.
Some jurisdictions impose strict usury limits, limiting the nominal annual percentage rate (APR) that any lender, including payday lenders, can charge; some outlaw payday lending entirely; and some have very few restrictions on payday lenders. Due to the extremely short-term nature of payday loans, the difference between APR and effective annual rate (EAR) can be substantial, because EAR takes compounding into account. For a $15 charge on a $100 2-week payday loan, the APR is 26 × 15% = 390% but the EAR is (1.1526 - 1) × 100% = 3,685%. Careful reporting of whether EAR or APR is quoted is necessary to make meaningful comparisons.

source: http://en.wikipedia.org/wiki/Payday_loan

Monday, October 12, 2009

What to do when you are on a Debt Management Plan


Reputable credit counseling organizations employ counselors who are certified and trained in consumer credit, money and debt management, and budgeting. Those organizations that are nonprofit have a legal obligation to provide education and counseling.
But not all credit counseling organizations provide these services. Some charge high fees, not all of which are disclosed, or urge you to make “voluntary” contributions that can cause you to fall deeper into debt. Many claim that a debt management plan is your only option before they spend time reviewing your financial situation, and offer little or no consumer education and counseling. Others misrepresent their nonprofit status or fraudulently obtained nonprofit status by misrepresenting their business practices to regulators.
The Federal Trade Commission (FTC), the nation’s consumer protection agency, and some state Attorneys General have sued several companies that called themselves credit counseling organizations. The FTC and the states said these companies deceived consumers about the cost, nature, and benefits of the services they offered; some companies even lied about their nonprofit status. Several of these companies are now going out of business. Similar companies also may be shutting their doors, even though they haven’t been sued by the FTC or the states. That could be of special concern if you have a debt management plan with one of these companies.

Must-Dos for Anyone With A Debt Management Plan

Organizations that advertise credit counseling often arrange for consumers to pay debts through a debt management plan (DMP). In a DMP, you deposit money each month with a credit counseling organization. The organization uses these deposits to pay your credit card bills, student loans, medical bills, or other unsecured debts according to a payment schedule they’ve worked out with you and your creditors. Creditors may agree to lower interest rates or waive certain fees if you are repaying through a DMP.
The FTC has found that some organizations that offer DMPs have deceived and defrauded consumers, and recommends that consumers check their bills to make sure that the organization fulfills its promises. If you are paying through a DMP, contact your creditors and confirm that they have accepted the proposed plan before you send any payments to the organization handling your DMP. Once the creditors have accepted the DMP, it is important to:
  • make regular, timely payments.
  • always read your monthly statements promptly to make sure your creditors are getting paid according to your plan.
  • contact the organization responsible for your DMP if you will be unable to make a scheduled payment, or if you discover that creditors are not being paid.
You need to be aware that if payments to your DMP and creditors are not made on time, you could lose the progress you’ve made on paying down your debt, or the benefits of being in a DMP, including lower interest rates and fee waivers. Although creditors may have forgiven late payments that you made before you began the DMP, the creditors may be unwilling or unable to do so if payments are late after you have enrolled in a DMP. If you fall behind on your payments, you may not be able to have your accounts “re-aged” again (reported as current), even if you start a new DMP with a new counselor. That means your credit report will have “late” marks and you will rack up late fees, which, in turn, will lead to more debt that could take longer to pay off.

Wednesday, October 7, 2009

Debt Relief-By a government grant


During this financial crisis, the rate of unemployment is increasing every day. So many families in the USA are heavily indebted and bills are continuously piling up which the meager income cannot take care of. The more you delay paying the debt, the higher interest you are required to pay. Clearing off the debt is an impossible task in a situation like this when you are barely able to buy the basic necessities. You certainly have had a normal situation paying off the bills while you had a steady income but for the recently unemployed, it is a matter of great stress.
Luckily, the government recognizes the problems faced by the common man due to the recession. That is why the government has introduced grant programs to provide as much assistance as possible to the people in debt in particular. Most of the grant applications can be found online on the government websites and can be filled out and sent. Most of the grants are for some specific purposes like for paying your house rent, hospital bills, tuition fees and etc.
As obvious as it is, the grant money is not unlimited. With such a huge number of people applying every day, not all the applications can be approved. In case you apply and do get approved you should consider yourself lucky because you receive an amount of money as a "gift" which you do not have to pay back. You should be grateful and plan to spend that money as frugally as possible so as to make the best out of it. For the people who still have not applied and are worried about their debts, they should apply immediately and be financially stable once again.

Tuesday, October 6, 2009

Bankruptcy:Various Chapters


It is a good practice to try all methods of debt repayment. However sometimes when there is no chance of salvation you have to opt for bankruptcy. There are various bankruptcy chapters meant for different situations and they are Bankruptcy Chapters 7, 9, 11, 12, 13, 15. You can either file for the bankruptcy chapter 7 or bankruptcy chapter 13 which is meant for individuals. You also need to be aware that filing for bankruptcy charges could affect your credit scores adversely which could hamper your chances of availing any future loans thereafter.
Bankruptcy Chapter 7- In this clause the officials who are entrusted with the responsibility of assessing your  property meant for bankruptcy, sell the assets which fall under the jurisdiction to repay your creditors based on the amounts that you owe to each one of them. The bankruptcy chapter 7 is meant for the benefit of individuals, couples who are married, partners and corporates. Chapter 7 is applicable to only unsecured debts such as personal loans and credit cards.
Bankruptcy Chapter 13 has been set up for individuals who are earning a steady income and have some unsecured and secured debt within the prescribed limits. Here you are allowed to retain your assets but need to make your repayments from the income that you would be earning in the future over a time span. This chapter is also meant for prevention of foreclosure while you repay your dues. 


This site can guide you to further steps to take.

Monday, October 5, 2009

Debt Consolidation

Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.
Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.
Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.
Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest.

Friday, October 2, 2009

Debt Settlement

Debt settlement is a good option to ease your financial burden. There are many companies who talk to your lenders and agree to bring down the amount that you need to pay back to almost half. This makes it easier for you to repay all your dues and be free from any further debt. This method also helps you to save some amount of money because you don’t have to pay the original amont that you had to pay.
You can learn more about the topic here.

Comparison of debt related terms,what Google trends shows



Now now,no need to panic! I'm going to explain what this weird picture above means.The red line is for "Bankruptcy",the blue line is for "Debt Consolidation" and the lowest orange line is for "Debt Settlement".This is a Google trends chart,the original of which you can see here.
What I'm trying to show is that highest number of search is directed towards bankruptcy,next comes debt consolidation and debt settlement comes last.
But the way you should move is actually reverse.
First,you should assess you options to see if you can go for debt settlement, then debt consolidation, and finally, when all options are exhausted, you should go for bankruptcy.
What these topics mean, we shall discuss in later posts.