Debt Service Uk

Posts Tagged ‘Car Loan’

When you decide to consolidate your debt, the obvious first question is “how?” – and that’s a question that isn’t easy to answer right off the bat.

Sure, you can go to your bank and ask them to consolidate all of your debts. You could get a new credit card with a 0% interest rate on debt transfers. You could call a credit-counseling bureau, many of which were recently taken off ‘tax exempt’ status by the IRS, because rather than working to help you, they work to earn a huge profit off you…

Every option has a downside, and there are more options besides. But let’s go through these three possibilities and break down the advantages and disadvantages.

1.GETA BANK CONSOLIDATION LOAN
Banks love it when their customers decide to get smart with their debt burden, and they love it even more when they do so with that bank. When you transfer £10,000 of credit card debt (at 19% interest), a car loan (at 15% interest), and a retail charge account (at 18% interest) into a single bank loan at 9% interest, both you and the banks win. The downside of this is that banks can be tougher to get credit from than other lending institutions, and that means if you’re in real debt trouble, they might not view you as a good bet.

2.CREDIT CARD WITH 0% ON DEBT TRASFERS
Some credit card companies send out special offers to try to entice you to bring your business to them. For example, one is the offer where they’ll give you a new credit card with a sweetheart rate, and any debt you transfer from an existing credit card, they’ll let you pay zero percent interest on. That’s not a bad deal, but the devils in the details – after a certain amount of time, your account reverts to above-standard interest rates, sometimes as high as 29%. In this instance, using a credit card to consolidate debt may actually see you with more debt burden in six months time.

3.CREDIT COUNSELING BUREAUS
These outfits claim to be non-profits that are only there to help you get out of debt, but the reality is the industry has been taken over by people who earn big money from your creditors by getting you to pay them back in a prompt fashion. For example, let’s say your best option is bankruptcy – hey, sometimes you just need to start over. A credit-counseling bureau, which gets paid, based on how much you pay back, will be much more inclined to tell you to NOT go for bankruptcy, because they make more if you spend three years eating noodles and sending all your money to Visa. Avoid.

In the end, your best bet, if you can manage it, is to have your bank set you up with a debt consolidation loan. The rate will be better, the payment structure easier, and you can cut those credit cards into pieces at last!

Debt Consolidation is a procedure that a number of different people follow nowadays and ultimately what it means is that the person that is swimming in debt that happens to be far above what they have the ability to pay back is going to be the person that goes through a procedure that combines all of those different loans into one source of debt and therefore allows themselves to pay back the consolidated debt in a much easier and less stressful manner. Now, this is perhaps a definition that you’ve been exposed to before and while it sounds good on the top, ultimately it needs to be explained so that more people understand exactly what it is that is being talked about. We will break down a typical debt consolidation case over the rest of this article.

The Problem

The financial situation for the hypothetical person here has become very bleak. They have $10,000 left on their car loan, their mortgage still has a balance of $80,000 and when you toss in all of their other credit card debt, you get to the point where they are in debt up to $100,000 all things said and done. Now, $100,000 is a lot of money and in the case of a typical family it might even be more than three years worth of their wages, so ultimately when you take a look at the $100,000 of debt, you would want some plan that would allow you to deal with it.

The Solution

When you look at all of the different solutions, the first thing that you need to do in all of them is get your bearings. While the car loan and mortgage only represent two different sources of debt, the remaining $10,000 might come from as many as five or six other sources and that can make it very difficult to keep track of. So what you want to do is consolidate those debt sources into one debt source and the way to do that is to take out a home equity loan of $20,000 to pay off everything else and combine that $20,000 with the $80,000 mortgage that you already might have.

The Benefits

Aside from the convenience factor of only having one source of debt instead of several as was discussed above, there is also the interest rate factor. While the average mortgage will have an interest rate between 5% and 7% and most car loans will as well, credit card debt is usually going to be two to three times that amount and likely four or five times that amount if the debt is because of cash advances. So the interest rates would get lowered whenever you take a look at it that way.

Now, credit card minimum monthly repayment amounts are such that you are going to usually be paying at least 5% of your balance each month; in other words, credit card companies expect that any balance you happen to generate on your credit card can be cleared up in less than two years. Mortgages, as many people are aware, have 20 to 25 year terms and therefore the monthly repayment amount of consolidated debt will also be lower and therefore easier to manage.

The first principle towards settling your debt and moving towards a debt-free existence is in prioritizing your debt. What you must hold on for now to and what you must clear immediately is the first step towards debt management. A good debt management and prioritization of you loans settlement will get you out of debt. This article will give you some information guide on your debt management.

Which loans to prioritize?

Logically, the one with the highest rate of interest is the one that should be cleared quickly.

Two types of loans that should be cleared as soon as possible are personal loans and credit card loans.

The interest rate on these loans is the highest. On credit cards, it amounts to around 24% per annum (at 2% per month). A personal loan should be around 18% onwards. Even if you get the personal loan at a discount, it would be around 14% per annum.

Which loans can be serviced over time?

In your debt management process, there are loans which you need to prioritize to pay them off first, but there are loans which you could service them over time to reduce your loan repayment burdens. These loans can be serviced over time:

• 1. Loans with low or no interest rate
• 2. Loans with tax benefits

Home loans and education loan offer tax benefits and can be settled over time. Same for loans to family or friends, which are either interest-free or carry a low rate of interest.
The loans which you can close now

If you are in the bad debt situation, it is critical for you to close as much of loans as possible in the short period of time. Look at your asset list and see whether you have loan on these assets. For instance, you take a car loan for an asset - which is the car. In such a case, you can sell the car and close the loan.

If you are really struggling to pay your home loan, shifting to a smaller home or more economic location is solution for it.

Switch to Other Loans

As you know credit card interest rate is high and you might not able to clear it in short period of time; then, look for an alternative and switch it to a financier who will charge you a lower rate of interest.

For credit card, there is service call balance transfer. Say you are paying 2% or 2.25% per month on your card. You can go in for another credit card. They will pay back the bank and transfer your loan onto the new card. For the first six months, they will give you a lower interest rate. Say 1.5% or 1.75% per month. This lower rate of interest will help you pay back more.

For home loan, there are home loan packages which offer a very loan interest rate in the first 3 to 5 years; some even offer 0% interest rates in first 1-2 years. Take up these benefits by refinancing your home loan.

Summary

Almost all people have debt in somehow or rather and debt is the worst poverty. Being in debt is bad enough and not managing it well is worse. Know your debt and manage it property and you will get out from debt one day.