Tag Archives: debt
Balance Transfer Credit Card – Debt Consolidation
Balance transfer credit cards can provide an excellent option for debt consolidation. Many Americans are currently in debt and struggling for a way out. Some choose to use a home equity loan to help get themselves out of debt, but not everyone has a home with built up equity to use for this purpose. In addition, putting your home up as collateral for debt consolidation can be a bit nerve-wracking and many banks enforce annual maintenance fees and monetary penalties if you try to close the equity line before a specified period of time.
Rising Interest Rates
Anyone that has been a credit card holder for some time or who pays attention to the financial marketplace knows that credit card rates on many cards have been on the rise. Often, credit card companies are more than happy to increase interest rates when the prime rate is raised, but they are not so quick to bring the rates down when the prime rate decreases. By consolidating your debt with a balance transfer credit card, you can remove your debt from your high interest cards and place it on your card with a lower interest rate. The best balance transfer credit cards offer low introductory rates or low fixed rates on balance transfers, making them a great option for debt consolidation.
What to Look For
When looking for a balance transfer card for debt consolidation, you generally want to find the card with the lowest long-term rate. More than likely, you will be consolidating a debt that you will be unable to pay in a short period of time. If this is the case, your low interest introductory period may be over long before you are done paying off the debt.
You also need to be cautious about fees when looking to consolidate debt with a balance transfer credit card. Many credit cards charge a fee for transferring balances from another card onto theirs. The best balance transfer credit cards will not charge an additional fee. In addition, some balance transfer credit cards require transferred balances to be requested at the time of application for the card in order to be eligible for the special introductory offer. While this may be fine for some people, you might want to have the flexibility to transfer balances. In this case, you will want to select a card that allows you to transfer balances any time throughout the introductory period.
For the very best balance transfer credit cards, you will want to find one that maintains the low APR throughout the life of the balance you have transferred. In other words, a balance you transfer on a card may have a 0.00% APR for the first six months, but then rocket to 19.99% when the period is over. On the best balance transfer credit cards, however, the low introductory offer remains in place until you pay off the entire amount you have transferred.
Self-Discipline
Obviously, a balance transfer credit card cannot do all of the work for you. While you can consolidate all of your bills onto just one card, you will need to be disciplined enough to pay the balance off. If your introductory period expires after so many months, you should create a budgetary plan that will have the balance paid off by the time the period is over. You might need to cut out some of the extras, such as the cup of fancy coffee you grab every morning, to help create a little extra cash flow. It will be well worth it when you find yourself out of debt. In addition, the money you are saving in finance charges should be paid toward your credit card debt
Loan Modifications: More Harm than Good?
In 2009, millions of United States homeowners learned that modifying their existing home loans served only to expedite foreclosure rather than prevent it. A U.S. Treasury report released in early December of 2009 revealed that only 4% of applicants under the federal governments Home Affordable Modification Program (HAMP) have been able to successfully modify their loans on a permanent basis. Further, of those 4% that were able to modify their loans, an amazing 40% went into default within the following 6 months. The unfortunately reality exposed by this report is that while many homeowners allowed their homes to go into default to initiate a time consuming modification process, they effectively disregarded their most viable option for debt relief: a short-sale.
As many homeowners across the country became enticed with the prospect of reducing their monthly payments and loan balances via the HAMP loan modification process touted by government officials, borrowers began contacting their lenders in droves. Banks often instructed borrowers that they must discontinue making their mortgage payments in order to qualify for a modification. Homeowners also found that allowing their home to go into default provided them increased leverage to expedite modification negotiations with their lenders. It is at this point in the modification process that an agonizingly slow train wreck was initiated as seemingly endless unreturned phone calls, requests for more documentation, and transfers to various bank representatives were experienced across the country. All the while the normal 6 to 8 month window between default and the foreclosure sale was closing steadily.
The vast majority of homeowners ultimately learned that the bank would not reduce their principal loan balances and that their monthly mortgage payments would only be reduced nominally or temporarily. Often times this realization didnt come until after the notice of trustees sale was received by the homeowners when the debt relief window was only still barely open a crack. The unsubstantiated hope that the HAMP modification program created in millions of financially distraught borrowers served only to prevent them from taking advantage of what has become the most reliable and effective way to avoid foreclosure.
The short-sale process initially started out on rocky ground before banks had time to set up adequate systems and procedures to accommodate large numbers of applicants. However, the year 2009 saw the short-sale process grow increasingly more expedient as the average bank processing period for a completed application rapidly dropped from 4 to 6 months down to 2 to 3 months by years end. Further, most borrowers are no longer required to default on their monthly payments prior to attempting to sell their homes for amounts less than what is owed. Apparently realizing that short-sales represent the most effective method to stave off mass foreclosures, the federal government has also acted to eliminate income tax penalties for short-sales until 2012. Not surprisingly, all of these events have led to an increasingly large amount of successful short sales in 2010.
Many will contend that loan modifications are more appealing since they permit borrowers to remain in their homes while short-sales only serve to sell their homes to others. However, it is essential to remember the large percentage of borrowers that are foreclosed upon even after they have successfully modified their loans. Not to mention the incredibly small number of applicants who are actually able to modify their loans to agreeable terms. Furthermore, is it unreasonable to assume that financially troubled borrowers would be better served selling their properties short and moving into more reasonable accommodations until better suited to take on increased debt?
Short-sales represent the conservative option for borrowers looking to get out of increasing debt and into a position where they can begin saving for the future again. Alternatively, loan modifications have become a long-shot gamble on the part of the borrower with only a limited amount of time between default and foreclosure. If the goal is to reduce debt and monthly payments while avoiding foreclosure, there is no doubt that a short-sale is the most reliable and effective course of action.