Creeping debt – how to cope with it via debt consolidation

Creeping debt is an unfortunate problem because it subjects people to worse financial situations than necessary. The debt keeps on creeping, until it accumulates to an amount to make us worry about it.

Many of us are left regretting that if we had only realized sooner what was going on, we could have done something about it before it got so bad.

The first time is always difficult
You will probably feel guilty and bad, when you have to let a credit card payment slide for the first time. However, you might not even take notice when you do it for the second and the third time. It becomes easy for you to ignore any responsibility felt and you become immune to the affect of guilt that can be caused by any debt.

Most of the people are somewhat aware of the trouble they’re getting themselves into, but they feel helpless as there’s little they can do. After all, if they had the money to make the problems go away, they’d be paying their bills in the first place. Thus, when they can’t afford to pay their bills, then why worry about them.

Ignoring your creeping debt will not make it go away
The problem is, that such an irresponsible attitude just makes the issue worse. You cannot make your debt disappear by trying to ignore it. Ignoring it will only add to the problem until one day you finally do wake up and realize that the damage has been done to your financial credibility.

What can you do to stop the problem
First of all, recognize the fact that interest is the debt holder’s worst enemy. The longer you are going to wait to pay off your debts in full, the more interest you’re going to have to pay. Many people get to the worst situation possible where they are only paying the interest each month, and not the principal amount; that’s literally a situation that will NEVER end!

Consider Debt Consolidation
Consider talking to your lenders about the process of debt consolidation, before your debt gets out of hand. Debt consolidation will enable you to reduce all your debts into a single monthly payment. You will still have to pay the interest, but this time it will be one account, not half a dozen, which is much more manageable.

Moreover, this will make you realize that you do have a debt problem, so that you can take control of it before it takes control of the rest of your life.

Payday loans – a financial solution in the nick of time

A $1,500 payday loan may be a quick solution to your financial problems. Imagine you see an electronic item, which you always wanted, on sale at a store. You have never seen that item on sale for so low a price, and now you feel you need to buy it. But you are currently out of money and payday is a week away. A payday loan may be a quick solution to your problem.

When can I expect to get the money in my checking account?
By taking a payday loan, you can have the money within an hour. It is possible to have up to $3,000 deposited into your checking account, in mere 60 minutes.

Are credit checks run by payday loan lenders?
Unlike other loan services, payday loans don’t usually check your credit history. Even if you have ever been denied a loan, don’t hesitate to take the payday loan. So even if you have to pay your creditors, you can do so by taking a payday loan.

Requirements for a Payday Loan
Some lending companies may have requirements that should be fulfilled in order to get the loan. They may require you to be employed at the same place for at least 3 months. Depending on different lenders, there is certain a salary requirement too.

While some require that you make at least $1,000 each month in order to qualify, others may set the standard higher, requiring that you make a minimum of $1,500 each month. You may also be asked to present any proof of employment such as a salary slip.

Repayment of Payday Loans
Some lenders may require you to give them a postdated check so that they can draw out the money when your pay comes. If you want, you can also go to their office pay them directly.

Interest Rates on A Payday Loan
Different lenders charge different fees for the loans. Also, depending on the amount borrowed and the borrower’s income, the fee may vary from customer to customer. Generally, it is around $100 to $500 for every $2,000 borrowed. If you have bad credit, you should expect higher fee. Also, if you’re unable to payback in time, the fee may increase.

It is possible that you may not be able to get the first loan for more than $400. The lenders may want you to prove your repayment willingness and ability before they trust you with the larger numbers.

But the good news is that many payday loan lenders offer the first one without any interest. This may be a great opportunity for you, if you want to fulfill a sudden financial requirement.

Credit card cash advances

Most of the credit card companies allow you to have access to cash advances as well. Cash advances allow the cardholders to withdraw cash out of ATMs in the same way as they would with a check card or ATM card. This is the reason why you’re given a pin number when you open a new credit card.

Difference Between Cash Advances and ATM’s
When you withdraw cash from an ATM, the amount is deducted from your bank account. On the other hand, cash advances are deducted from your credit line instead of your bank account, and carry costly fees and high APR.

There is no grace period in cash advances either, and so the interest begins accruing the minute you withdraw the cash. In fact, cash advances are probably the most costly credit option available.

Cash Advance Fee
Most credit card cash advances come with an APR of 20% or above, along with a cash advance fee which is typically 3% for each cash advance, starting from a minimum of $5.
cash
Thus, not only do you have to pay an extremely high APR, you also have to pay a fee each time you take out a cash advance. Not to mention the ATM fee if you don’t use an ATM from your card issuer’s network.

Also, if you are already carrying additional balances on the credit card, lower APRs will be paid off first, so you may be stuck paying 20% APR or higher on those cash advances until all other debt is paid off in full. This could lead to an accumulated amount that is much greater than you actually took out or spent, which is the main reason behind discouragement of cash advances.

Use Cash Advance Only In Case Of Emergency
A cash advance should be used only in case of an emergency, when you don’t have any other choice but to withdraw cash using a credit card. But if you use cash advances frequently, you would simply be throwing away your money to fees and finance charges.

Convenience checks are also treated as cash advances by some issuers, although some do come with an introductory 0% APR, so they may serve a better purpose than a cash advance.

But it is better to use cash advances only in case of an emergency, when urgent cash is required, so that you can avoid paying enormous amount of fee.

US Loan Demand Still Anemic

According to the central bank and government studies, the US demand for loans fell in the second quarter for every major category bar prime residential mortgages due to tightened credit standards set by the banks making the borrowers cautious.

The US Federal Reserve observed in its quarterly survey of senior loan officers, conducted between July 14 and July 28, that the percentage of banks that tightened loan standards for business and households was slightly lower than in the first quarter.

According to the report published on Monday, the majority of institutions maintained the previously tightened standards, and virtually none eased standards over the previous three months.

The Fed has pumped hundreds of billions of dollars in liquidity and lending support into financial markets in the past year in order to bring the worst financial crisis since the 1930s Great Depression to an end. More than $200 billion has been given as direct capital from the US Treasury.

The Fed had announced earlier on Monday that it would extend an emergency lending program in order to support the commercial real estate market until mid 2018.

But the survey showed that the public sector support has done little to spur demand for loans in the face of a deep recession.

The only major category to show an improvement in loan demand was of Prime mortgages, but the pace of the improvement has also slowed from April, when interest rates were lower.

Some of the domestic banks name lower customer funding needs as the reason for the reduced demand, whereas some foreign owned banks quote the top reason as a decline in borrower creditworthiness.

Another US Treasury Department survey considering the top 22 banks who are receiving government assistance showed that their total average loan balance fell $45.7 billion, or 1.1% in June to $4.295 trillion.

The treasury stated that the economic uncertainty has caused borrowers to downsize, cut costs, reduce inventories and delay capital expenditures, thus slowing down the economic recovery process.

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Don’t Be Misled by Debt Consolidation Scams

About a year ago, when my debt was spiralling out of control, I heard an ad about a debt consolidation program that sounded too good to be true. Well, you know the old adage – “If it sounds too good to be true, it probably is.” It was.
My first clue that all was not well with this program was that it was the second one I had tried. The first one said they could not help me because one of my creditors would not agree to the program. The second one, the one I used, said there would be no problem. That should have tipped me off, but, unfortunately, it didn’t. They were honest about the fact that my credit would take a hit; they just weren’t honest about why.

The idea of a debt consolidation program is pretty logical and appealing. Take all your unsecured debt payments(credit cards)and consolidate them into one affordable monthly payment. While doing this, the company I worked with also promised to get my creditors to accept less than what I owed them and to have me out of debt in a little over three years. Well, compared to the sixty years it was going to take me, at the rate I was going with making only the minimum payments, that sounded wonderful! When they asked for a small fee up front, another clue, I readily gave it to them.

What they didn’t tell me is how their program actually works. The reason it works at all is because the company patiently waits for the creditors to lower the debt people owe. Sounds simple enough, but it is really misleading. I made my payments (about the same amount that I had been paying to creditors) to the debt consolidation company instead of to my creditors. I had a lot of misgivings about this, another clue, because I couldn’t imagine that my creditors were going to like not being paid. They didn’t. The company I was paying sent me a schedule of payments, after I became a member (as they called it) and I then found out that the first several payments only went towards paying their fee – a considerable sum of $10,000 and a huge clue- over the next few years. The monthly fee would go down as time went on, and money would begin to accumulate in a trust fund to eventually pay my creditors. Well, in a nut shell, my creditors were going to be paid nothing for several months and some of them not for years. They were not going to receive any money from me until they could be paid off in full, and they were going to have to accept far less than what I owed them if the “plan” was to work out.

As you can imagine, my creditors were not too happy with this arrangement, and neither was I. I had mailed them all letters at the beginning of this fiasco asking them not to contact me by phone. These letters were sent at the debt consolidation company’s request, another clue, and nothing was sent asking them to participate in this program. In other words, this company was not officially contacting my creditors or making any type of legal arrangements with them. No wonder my credit was going to take a hit!

The letters I sent did stop most of my creditors from calling me, but it did not stop them from sending me threatening letters or statements showing late fees and larger minimum payments (My balances were actually going up because of lack of payments, late fees, and interest). When I talked to my representative at the debt consolidation company about this, she told me not to worry because my creditors were just trying to get their money. I had only been in the program for a couple of months, mostly because I felt I had come too far to give up on it, when I received a phone call from one creditor who had sent my account to a collection agency. He said my letter tipped him off that I was using an unreliable debt consolidation company who had no agreement with them. He explained everything I now know, including the fact that this type of company only works for about 2% of the people who sign up with it. This is because very few creditors are willing to wait indefinitely for any type of payment, and very few people can stand the pressure of threatening letters and being turned over to a collection agency. I couldn’t, and I also couldn’t get over the fact that if I could afford to pay this company over $10,000, why couldn’t I use that money to pay off some of my debt?

What I found out later that day was even more interesting to me. Many people may know, but I did not, that if you call your creditors directly and tell them you are having problems making your payments, they will put you on a payment plan. They will lower the interest, or get rid of it all together, and lower your minimum monthly payment. No one will be charging you any fees, and you will not be receiving anything threatening in the future. I also found out that no matter how good your intentions are, once something is turned over to a collection agency, it stays in the collection agency until it is paid off in full. Collection agencies are not as willing as creditors to be forgiving and help you with a lower payment.

As this point, it was too late for me. I had already put out a few thousand dollars, that I could ill afford, to a company that only succeeded in getting me into more of a mess than I already was. I also found that I could not “quit” the debt consolidation company and had to close my banking account and start over because they would have continued to automatically withdraw the same amount every month for the next three years.

This has been an expensive lesson for me. I know that many of you are experiencing similar problems in this economy and with so many people out of work, there are bound to be those of you in a situation like I was. While there are probably reputable debt consolidation companies out there, beware. Find out what the small print says and just how much this will cost you – both financially and to your credit. Start with your creditors if you are having difficulties paying them. They will try to help you, because no matter what a debt consolidation company says, they really do just want their money back.