If you have trouble managing your debt on your own, you’re not alone. Many people go to a debt consolidation company to help deal with creditors and lower their debt payments. Before you hire a company, make sure you get some information to help you choose.
Look at the company’s reputation. Check with the Better Business Bureau (www.bbb.org) to find out if other consumers have made complaints against the company. Several unresolved complaints against a company is a sign that they don’t follow through on their promises to customers. No matter how much you may want to go with a company, it’s best to move on when their BBB standing isn’t acceptable.
Make sure the company offers different services. A good debt consolidation company will do more than combine your debt payments; it will also give you sound money management advice. Look for a company that will help you learn to budget and stay out of debt as well as work with your creditors to reduce your debt.
Choose a company with reasonable prices. Debt consolidation companies should charge reasonable fees for the services they provide. They also should be upfront about the fee. If a company hides details about the cost of their services, be suspicious. Ask about having your fee waived or reduced if you will have a hard time paying it.
Watch out for scams. Unless you have a lot of money, debt management will not be a quick fix. Stay away from debt consolidation companies that offer those “too good to be true” solutions to your debt. Expect to send affordable monthly payments for two to five years to get your debt paid off. Anything other than that is a watch-out.
A lot of debt consolidation companies take advantage of vulnerable consumers. Take your time and look for a good company to keep from becoming the victim of a scam.
Monday, December 29, 2008
The Trouble With Mortgage Loan Modification
In some cases, mortgage loan modification only postpones the inevitable. Rather than helping you afford your mortgage payments, a modification can put your monthly loan payments out of reach and leading you to foreclosure anyway.
What Is Loan Modification?
Once you’ve become 2-4 months behind on your mortgage, you likely qualify for mortgage loan modification with your lender. If you’re approved for loan modification, your lender freezes your interest rate for a period of time to keep it from continuing to adjust upward. Then, your delinquent payments are added into your loan balance and your payments are recalculated. The loan is reset and you’re no longer behind. You continue to pay your loan off at the new terms.
How Can Loan Modification Hurt?
In some cases, interest rates don’t decrease with a modified loan, meaning your monthly payments would remain the same. However, once your delinquent amount is added back into the loan and your payments are recalculated, you end up with a higher monthly payment. You ward off foreclosure in the near future, but unless you increase your income, your mortgage payments remain unaffordable.
Choosing a Good Modification
Don’t make a loan modification decision based on desperation. Before you agree to a loan modification, make sure you understand how it will impact your monthly payments. If your payments are going to go up, ask your lender about other options.
Negotiate a lower interest rate as part of your modification terms. Unless your interest rate goes down, your monthly mortgage payments will remain the same or even increase. Sure, you avoid foreclosure for a little while, but without lower payments, the risk remains. You can also ask your lender to waive some of the late fees charged on your missed payments.
Get foreclosure-prevention counseling from a local consumer credit counseling. Advocates can sometimes help you negotiate better terms with your mortgage lender.
What Is Loan Modification?
Once you’ve become 2-4 months behind on your mortgage, you likely qualify for mortgage loan modification with your lender. If you’re approved for loan modification, your lender freezes your interest rate for a period of time to keep it from continuing to adjust upward. Then, your delinquent payments are added into your loan balance and your payments are recalculated. The loan is reset and you’re no longer behind. You continue to pay your loan off at the new terms.
How Can Loan Modification Hurt?
In some cases, interest rates don’t decrease with a modified loan, meaning your monthly payments would remain the same. However, once your delinquent amount is added back into the loan and your payments are recalculated, you end up with a higher monthly payment. You ward off foreclosure in the near future, but unless you increase your income, your mortgage payments remain unaffordable.
Choosing a Good Modification
Don’t make a loan modification decision based on desperation. Before you agree to a loan modification, make sure you understand how it will impact your monthly payments. If your payments are going to go up, ask your lender about other options.
Negotiate a lower interest rate as part of your modification terms. Unless your interest rate goes down, your monthly mortgage payments will remain the same or even increase. Sure, you avoid foreclosure for a little while, but without lower payments, the risk remains. You can also ask your lender to waive some of the late fees charged on your missed payments.
Get foreclosure-prevention counseling from a local consumer credit counseling. Advocates can sometimes help you negotiate better terms with your mortgage lender.
Is a Credit Card Cash Advance a Good Idea?
When you’re strapped for cash and still have some available credit on one of your credit cards, a credit card cash advance is one way to temporarily make ends meet. Considering the cost of a cash advance, you might question whether it’s such a good idea?
A cash advance fee is one of the costs of a credit card cash advance. Cash advance fees can be a percentage of your advance – typically between 1% and 4% of the amount you take out. Or, the fee could be a flat rate. Some credit cards use a combination of the two to come up with your cash advance fee. For example, you might pay $15 or 4% of the cash advance, whichever is greater.
When you use an ATM to take out a cash advance on your credit card, you’ll also pay an ATM fee to the bank who owns the machine.
The highest costs of all are the finance charges that are applied to cash advance balances. Different types of credit card balances typically have different interest rates. You might have one interest rate for purchases, another for balance transfers, and yet another for cash advances. Of all the interest rates, cash advance rates are the highest. This means you’ll have the highest finance charges on your cash advance.
Unlike purchases, you don’t get a grace period for cash advances, so interest starts accruing the day you take it out. You’ll pay interest on a cash advance even if you pay off the balance when your statement comes. Until you pay off the cash advance in full, your balance accrues monthly interest, making it harder to repay.
The way credit card companies apply payments to your credit card could mean your cash advance balance increases rather than decreases. When you have multiple types of balances on your credit card, your issuer probably applies your payment to the lowest interest rate balance first. Meanwhile, the highest interest rate balance (your cash advance) isn’t credited any payment at all until it’s the only balance you’re carrying.
If you want to take out a cash advance on your credit card, make sure you understand the cost. Use a credit card that currently has a $0 balance to keep your cash advance from growing out of control.
A cash advance fee is one of the costs of a credit card cash advance. Cash advance fees can be a percentage of your advance – typically between 1% and 4% of the amount you take out. Or, the fee could be a flat rate. Some credit cards use a combination of the two to come up with your cash advance fee. For example, you might pay $15 or 4% of the cash advance, whichever is greater.
When you use an ATM to take out a cash advance on your credit card, you’ll also pay an ATM fee to the bank who owns the machine.
The highest costs of all are the finance charges that are applied to cash advance balances. Different types of credit card balances typically have different interest rates. You might have one interest rate for purchases, another for balance transfers, and yet another for cash advances. Of all the interest rates, cash advance rates are the highest. This means you’ll have the highest finance charges on your cash advance.
Unlike purchases, you don’t get a grace period for cash advances, so interest starts accruing the day you take it out. You’ll pay interest on a cash advance even if you pay off the balance when your statement comes. Until you pay off the cash advance in full, your balance accrues monthly interest, making it harder to repay.
The way credit card companies apply payments to your credit card could mean your cash advance balance increases rather than decreases. When you have multiple types of balances on your credit card, your issuer probably applies your payment to the lowest interest rate balance first. Meanwhile, the highest interest rate balance (your cash advance) isn’t credited any payment at all until it’s the only balance you’re carrying.
If you want to take out a cash advance on your credit card, make sure you understand the cost. Use a credit card that currently has a $0 balance to keep your cash advance from growing out of control.
Keep Your Credit Cards Active
Credit card issuers are on a rampage – cutting credit limits, increasing interest rates, and closing inactive credit card accounts. Though you don’t have much control over rising interest rates and decreased credit limits, you can keep your credit cards open by using them every once in awhile.
Why are creditors closing inactive cards?
Credit card companies don’t make any money on accounts that aren’t used. In fact, it costs them money. During this credit crisis, it’s risky for credit card companies to have unused credit cards on their books, because it’s hard to predict what you’re going to do with the credit card. You could decide to max out the card one day and never pay back the balance. In this case, it’s cheaper for the credit card company to just let you go.
Why should I care?
Having a credit card closed could lower your credit score. First, part of your credit score calculation considers the age of your credit – an older credit history is better. If your oldest credit card gets closed, it won’t be factored into your credit score. Your credit will seem younger, and your credit score will drop.
Another part of your credit score measures your level of debt by comparing your total balances to your total credit limits. The higher your credit card balances in relation to your credit limits, the lower your credit score will be. Having a credit card closed raises your ratio of balances to credit limits – your credit utilization – and lowers your credit score.
What can I do?
If your credit card has recently been closed, call your credit card issuer and request to have your account reopened. It helps if you’ve been a long-time, timely-paying customer.
Keep your credit card open by using it periodically and paying the balance off when the billing statement comes. By doing this, you’re letting your credit card know that you still appreciate and use the credit card.
Why are creditors closing inactive cards?
Credit card companies don’t make any money on accounts that aren’t used. In fact, it costs them money. During this credit crisis, it’s risky for credit card companies to have unused credit cards on their books, because it’s hard to predict what you’re going to do with the credit card. You could decide to max out the card one day and never pay back the balance. In this case, it’s cheaper for the credit card company to just let you go.
Why should I care?
Having a credit card closed could lower your credit score. First, part of your credit score calculation considers the age of your credit – an older credit history is better. If your oldest credit card gets closed, it won’t be factored into your credit score. Your credit will seem younger, and your credit score will drop.
Another part of your credit score measures your level of debt by comparing your total balances to your total credit limits. The higher your credit card balances in relation to your credit limits, the lower your credit score will be. Having a credit card closed raises your ratio of balances to credit limits – your credit utilization – and lowers your credit score.
What can I do?
If your credit card has recently been closed, call your credit card issuer and request to have your account reopened. It helps if you’ve been a long-time, timely-paying customer.
Keep your credit card open by using it periodically and paying the balance off when the billing statement comes. By doing this, you’re letting your credit card know that you still appreciate and use the credit card.
3 Things to Check On Your Credit Report
Your credit report is one of the most important documents of your life. It’s like your financial permanent record. Nearly everything you do with money follows you around on your credit report for future creditors and lenders to see and judge you by. You should look at your credit report at least once a year to make sure everything’s being recorded correctly. Here are three things you should check when you review your credit report.
It’s your report. Check the name, current and previous addresses, and current and previous employers. Confirm that the correct names are associated with your social security number. Married women may see their maiden names on their credit reports. But, if you’re a Jr. or Sr., make sure the correct one appears on your report.
The accounts are yours. Look through each account to be sure it’s yours. Mistakes have been known to happen, putting the wrong credit card accounts on the wrong credit reports. If you find an account that doesn’t belong to you, dispute it with the credit bureaus. If you find multiple inaccurate accounts, you may have been a victim of identity theft. In that case, you should file a fraud alert with the credit bureaus.
Your payment history is correct. Each account lists the number of delinquencies you have in your payment history. For example, one of your accounts might say “30 days late, one time” or “charged-off.” Delinquent payment history is negative and can only be reported for seven years. If the late payments are inaccurate or the reporting time limit has passed, you can dispute the information with the credit bureau.
When you order your credit report, it will have instructions on disputing negative information. Make sure you send your dispute in writing and save a copy for yourself. Expect to receive a response from the credit bureau within 30-45 days.
It’s your report. Check the name, current and previous addresses, and current and previous employers. Confirm that the correct names are associated with your social security number. Married women may see their maiden names on their credit reports. But, if you’re a Jr. or Sr., make sure the correct one appears on your report.
The accounts are yours. Look through each account to be sure it’s yours. Mistakes have been known to happen, putting the wrong credit card accounts on the wrong credit reports. If you find an account that doesn’t belong to you, dispute it with the credit bureaus. If you find multiple inaccurate accounts, you may have been a victim of identity theft. In that case, you should file a fraud alert with the credit bureaus.
Your payment history is correct. Each account lists the number of delinquencies you have in your payment history. For example, one of your accounts might say “30 days late, one time” or “charged-off.” Delinquent payment history is negative and can only be reported for seven years. If the late payments are inaccurate or the reporting time limit has passed, you can dispute the information with the credit bureau.
When you order your credit report, it will have instructions on disputing negative information. Make sure you send your dispute in writing and save a copy for yourself. Expect to receive a response from the credit bureau within 30-45 days.
Friday, December 19, 2008
Mortgage Rates Fall: Should You Refinance?
After Feds cut interest rates to below 1% on December 16th, mortgage rates fell to the lowest point since 1976. Many homeowners rushed to refinance their mortgages effectively lowering their monthly payments by hundreds of dollars. Should a mortgage refinance be in your future?
The Cost of a Mortgage Refinance
The biggest thing standing between you and a new mortgage is the cost. Remember the fees you paid when you closed on your home, those are the same fees you’ll pay when you refinance your mortgage. So, refinancing your mortgage will cost thousands of dollars – 3% to 6% of your loan amount, according to National City Mortgage, headquartered in Miamisburg, Ohio.
Whether the cost outweighs the benefit depends on how much you save each month on your mortgage payments and how long you plan to stay in your house. For example, if you pay $2,500 in fees to refinance your mortgage and lower your monthly payment by $200, it will take you just more than a year to break even. It only makes sense to refinance your mortgage if you plan to stay in your home longer than the time to break even. If you’re in it for the long haul, refinancing your mortgage is definitely something you can consider.
Who Can Refinance Their Mortgage?
For more information on refinancing, please click here.
While mortgage refinancing is perhaps just as attractive, it’s not as easy as it was during the height of the credit boom. First, refinancing options are far more limited with only 15-year and 30-year fixed-rate mortgages available. It makes sense though, since most homeowners want to refinance their way out of the unpredictable adjustable rate mortgages that played a major role in the current economic crisis.
Not only are there fewer choices of loans for refinancing, qualification is also more difficult. Borrowers need to have 10%-20% equity in their homes or a down payment of that amount.
As always credit history plays a major role in qualifying for a mortgage refinance. Borrowers should have good-to-excellent credit scores to get the best rates on a new loan. Subprime refinance loans are rare, perhaps even impossible.
Watch Out for Prepayment Penalties
If your current mortgage has a prepayment penalty, it could cost you more to get out of your current mortgage and into a new one. Work with your lender to negotiate an elimination of the penalty.
The Cost of a Mortgage Refinance
The biggest thing standing between you and a new mortgage is the cost. Remember the fees you paid when you closed on your home, those are the same fees you’ll pay when you refinance your mortgage. So, refinancing your mortgage will cost thousands of dollars – 3% to 6% of your loan amount, according to National City Mortgage, headquartered in Miamisburg, Ohio.
Whether the cost outweighs the benefit depends on how much you save each month on your mortgage payments and how long you plan to stay in your house. For example, if you pay $2,500 in fees to refinance your mortgage and lower your monthly payment by $200, it will take you just more than a year to break even. It only makes sense to refinance your mortgage if you plan to stay in your home longer than the time to break even. If you’re in it for the long haul, refinancing your mortgage is definitely something you can consider.
Who Can Refinance Their Mortgage?
For more information on refinancing, please click here.
While mortgage refinancing is perhaps just as attractive, it’s not as easy as it was during the height of the credit boom. First, refinancing options are far more limited with only 15-year and 30-year fixed-rate mortgages available. It makes sense though, since most homeowners want to refinance their way out of the unpredictable adjustable rate mortgages that played a major role in the current economic crisis.
Not only are there fewer choices of loans for refinancing, qualification is also more difficult. Borrowers need to have 10%-20% equity in their homes or a down payment of that amount.
As always credit history plays a major role in qualifying for a mortgage refinance. Borrowers should have good-to-excellent credit scores to get the best rates on a new loan. Subprime refinance loans are rare, perhaps even impossible.
Watch Out for Prepayment Penalties
If your current mortgage has a prepayment penalty, it could cost you more to get out of your current mortgage and into a new one. Work with your lender to negotiate an elimination of the penalty.
Year-End Credit Report Review
By federal law, you’re able to receive a free annual credit report from each of the three credit bureaus – Equifax, Experian, and TransUnion. If you haven’t looked at your credit report all year, now’s a good time to order it. You can start the year off on the right credit foot.
The credit report won’t come to you automatically. Instead, you can check your free annual credit report at www.annualcreditreport.com without a credit card and without signing up for any kind of subscription service. Your credit reports will be available for download the same day you order them.
Once you get your credit report, you should review it thoroughly to make sure all the information included is accurate.
Make sure all the accounts that are being reported actually belong to you. Transposed social security numbers and other identity mix-ups can put someone else’s account on your credit report. You can have those removed. If you believe you’ve been a victim of identity theft, you should take extra steps to correct the situation.
Make sure each account’s payment history is accurately reported. Payment history has the biggest impact on your credit score. Inaccurately reported late payments will undeservedly cost credit score points.
Make sure the current balances and credit limits are correct. Your level of debt is the other big player in your credit score. As your balances get closer to your credit limit, your credit score starts to drop. Inaccurately reported credit card balances and limits could have the same effect.
You can have errors removed from your credit report by writing to the credit bureaus and providing proof of the errors.
The credit report won’t come to you automatically. Instead, you can check your free annual credit report at www.annualcreditreport.com without a credit card and without signing up for any kind of subscription service. Your credit reports will be available for download the same day you order them.
Once you get your credit report, you should review it thoroughly to make sure all the information included is accurate.
Make sure all the accounts that are being reported actually belong to you. Transposed social security numbers and other identity mix-ups can put someone else’s account on your credit report. You can have those removed. If you believe you’ve been a victim of identity theft, you should take extra steps to correct the situation.
Make sure each account’s payment history is accurately reported. Payment history has the biggest impact on your credit score. Inaccurately reported late payments will undeservedly cost credit score points.
Make sure the current balances and credit limits are correct. Your level of debt is the other big player in your credit score. As your balances get closer to your credit limit, your credit score starts to drop. Inaccurately reported credit card balances and limits could have the same effect.
You can have errors removed from your credit report by writing to the credit bureaus and providing proof of the errors.
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