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Credit Card Debt: When to Seek Help
More Americans than ever need help with debt in these turbulent times. With chaos in the economic arena, unemployment creeping up, and inflation threatening, this is no time to be carrying the burden of credit card debt.
But who can help you out of the trap of high-interest card agreements when penalties and fees are mounting every day? A bank loan might let you breathe easier, but if your debt is substantial you’re just delaying the day when the other foot drops.
Perhaps the first thing to do is take a good hard look at how much debt you really have.
Calculate Your Debt Load
With a low debt load, all you need is discipline and a good budget to take control of your finances. But if your debt load is too heavy, no matter how much you sacrifice you will not be able to pay off your bills on your present income. In that case, you will have to start looking for a professional to help with debt.
So your first step needs to be finding a number called your debt-to-income ratio. This is a simple calculation:
Add up all your monthly debt: rent or mortgage, credit card minimum payments, car loans, etc. Do not include monthly expenses, such as utilities, groceries, or gas.
Add up all your monthly income: salary, bonuses or overtime, alimony, etc.
Divide your total monthly debt by your total monthly income.
Go It Alone?
If the result is less than 49% (.49), then it’s likely you can manage to start controlling your debt immediately, just by reducing your spending and increasing the amount you pay on credit cards each month.
The closer you are to that magic number, the more you’ll have to give up, though. Just for comparison, a ratio of 36% is considered affordable for most people. As that ratio increases toward 49%, the harder it will be to manage bills in the face of job loss, divorce or illness. And in times like these, it’s probably best to be as conservative as possible, striving toward a ratio between 25% and 35%.
And if your ratio is higher than 49%? Well, then you need to start considering who to turn to for help with debt.
I Need Help!
There are almost unlimited resources on the internet that you can contact for help with debt. Debt consolidators, debt settlement companies and debt relief agencies all work with credit card companies and banks to resolve their clients’ debt problems.
Each represents a niche in the credit relief industry. Some will try to reduce the total amount you owe, while others will simply try to get you better terms on existing debt. Either way, you’ll end up paying less interest and no penalties as long as you fulfill a new payment plan to reduce your debt.
It’s worth researching each type to find out which one can help most in your unique situation. Most have toll-free numbers you can call for an initial free consultation. Just remember to ask questions and demand full information about the services offered and the costs involved. Do not allow yourself to be pressured into using a servicea hard sell is a red flag in this industry. It is very important to also verify the organization’s standing with the Better Business Bureau and the Attorney General of your state and the state where the company is registered.
Personal Secured Loans – What to watch out for
Obtaining a secured loan on your home can indeed save you a lot of money by helping you consolidate debt or paying off your credit card debt. Before jumping and signing loan documents, be sure to watch out for personal loan ripoffs that can lead to more expensive loans or even losing your property. Below are things you should consider before signing loan documents
Personal Loan Interest Rates: The Interest rate determines how much money in installment payments you are going to pay, and the total cost of the loan. Few percentage points increase in interest rate can lead to thousands in additional payments. Before settling on a secured loan, consider interest rate shopping to see if you can getter a better deal. Consider inquiring from about three to five lenders to see if you can save.
Before signing loan documents, READ the fine print. Sometimes we ignore those 20-30 pages but some lenders like to slip some terms and conditions in there. Most common is Early payment fees. Some lenders will penalize you for paying off the loan early. This can be frustrating.
Look out for PPI – Personal Payment Insurance: PPI is one way to make sure that your loan does not turn into a financial burden. Its optional and you may substitute disability insurance if you have any. This is however not calculated into the total cost of the loan. Thus your monthly payments may be more than listed on loan agreement. PPI is great but the cost can be extremely high. Sometimes lenders will bundle Personal Payment Insurance into the cost of the loan without informing consumers about it. If you absolutely need PPI,research other sources to find out if you can get the insurance at a cheaper rate. Do not feel obligated to take out PMI with the lender, you can get insurance from somewhere else.
Monthly payments are not the only factor to consider when calculating your loan. Additional costs such as PPI, loan closing fees and ledger fees should be added to the total cost of the loan.
Introductory rates can also be deceiving. We have seen reduced interest rates for 6 months! What happens after that? Do the payments increase in an attempt to bring the loan to term? Reduced interest payments may end up accumulating interest which in turn bears more interest.
Watch out for unsolicited offers. Research such companies and brokers. Some loan officers will get paid more if they sign you onto a high interest loan. Door to door marketers should also be avoided. A loan officer should not pressure you for an immediate decision. If he does, that raises a red flag. You should take time to discuss the loan documents with a qualified person. You should not at any time be forced to make an immediate decision. Most of the time a hurried decision leads to mistakes that can lead to hundreds in payment costs.Any company or broker that asks for a deposit/security is obviously a fraud.