Consolidation Loan, Part 1
For many people a consolidation loan is the first strategy they seek when trying to get out of debt.
Debt consolidation loans can be very attractive, since they typically offer lower monthly payments. In addition, most people find that making one monthly payment can give them a better sense of where their money is going, and how much they have left to pay off.
While learning to earn more can go hand in hand with getting out of debt, it works only if you use the extra money you earn to improve your financial situation, rather than just to spend more. As you’re getting out of debt, don’t count on a big raise to take care of all your money problems. Ultimately, the hard work you do to learn to live on what you earn now will pay off in more ways than one. More money just means more money problems, if you don’t know how to handle it.
Keeping detailed records of your spending for one month will help you see where you may be frittering away your money. It won’t, however, provide you with all the information you need to develop a realistic spending plan. You may have quarterly tax or insurance payments, for example, that didn’t show up in last month’s spending.
To get a better idea of what’s realistic for each spending category, pull out old check registers, receipts, and credit card statements from last year. Tax records can also be useful. Try to figure out approximately how much you spent monthly in each of your budget categories. Don’t be judgmental here; simply total the amounts you spent. (It’s likely you will find that some of your money just “disappeared.” Don’t worry about that money. Just document as much as you can.)
Foreclosures
Those added to your report before December 29, 1997, can be reported for seven years from the date of foreclosure. Those reported after that date can be reported for seven and a half years from the missed payment that led to the foreclosure.
Repossessions
Both voluntary (where you turn in the car or property) and involuntary (repo man) repossessions added to your report before December 29, 1997, can be reported for seven years from the date of repossession. Those reported after that date can be reported for seven and a half years from the missed payment that led to the repossession. Again, it’s up to the lender to report that original delinquency date along with the repossession listing to the credit bureau.
There are ways to repair and rebuild your credit and put the past behind you. Here’s how:
Face the Music
Get a copy of your credit report, preferably from all three of the major credit reporting agencies. You’ll need all three to find out what each is reporting and to learn where you need to make corrections or improvements.
Know the Ground Rules
You’ll no doubt find information on your report that you think is inaccurate or incomplete. Here are some common areas of concern:
If you have “bad credit” you are not alone. Literally millions of Americans have less-than-perfect credit ratings—but not all because they are deadbeats who just aren’t responsible enough to pay their bills on time. Many people with bad credit ran into tough financial situations that set them back for a while. Some have bad credit because they went through a messy divorce or a temporary period of unemployment. Others may have faced credit difficulties because of a serious illness, a new child in the family, or a small business that didn’t make it. The trouble is, bad credit ratings usually hang around long after financial problems are over.
The following questions are often used by financial counselors to help people identify habits that may indicate a debt problem. Be honest with yourself as you read and answer the questions on this list.
While an attorney can better help you evaluate whether or not you should file, here are some guidelines for when bankruptcy may not be your best option:
You Are “Judgment-Proof”: In the financial industry, this is a term for consumers who have little money, little property, and no joint debts. If a person who is judgment-proof were to be sued, the creditor would have little chance of ever collecting the debt. If you have nothing to lose, why bother going through bankruptcy?
What Happens in a Chapter 7 Bankruptcy Proceeding?
First you file for bankruptcy. You fill out a petition and several other forms that ask about your income, debts, and property and file them with the court. It costs about $150 to file (single or a married couple). If you can’t afford the fee, you may be allowed to pay it in installments, or may even get it waived. Attorney’s fees will typically run anywhere from $500 to $3,000, depending on your case. Shortly after you file, you are given a court date, and your creditors are notified that you have filed.
Every year, hundreds of thousands of Americans declare personal bankruptcy. Let’s face it—with large corporations, multimillionaires, and many average people declaring bankruptcy every day, it just doesn’t carry the stigma that it used to.
Creditors have been alarmed in recent years by the dramatic increase in the number of personal bankruptcies. They insist that one of the main reasons consumers are filing for bankruptcy in unprecedented numbers is because the bankruptcy laws are lax. In other words, some bankers think that consumers take on too much debt knowing that they don’t really have to pay it back.