Debt Service Uk

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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.

Did you know that there are 44% of Americans who have debt that they can’t pay? A study from conducted by the Federal Reserve shows that outstanding debt in 2007 has remained steady at £2.5 trillion. If we divide this amount to the total population of the United States, that’ equivalent to £8,200 debt for every man or a woman, an adult or a child.

In a recent study conducted before the passing of house bill 2669, it was found that 60% of all college graduates leave college with debt. The main reason for this was said to be the high cost of education. This is a big problem for a lot of students as they haven’t been able to start a life yet but they are already burdened by the complications caused by their decision to continue schooling. The government has already tried to address the issue of education but what remains is the personal capacity of an American to manage his finances.

Everywhere around the world, countries are getting bothered with the number of people who are spending well above their capacities and are thinking of filing for bankruptcy. In the United States, the number of people filing for personal bankruptcy has reached record highs in recent years. This might seem the best solution for most people as it immediately causes lenders to cease their endless calling to collect money but credit counselors believe that it is the worst situation that anyone can find themselves in. When one files for bankruptcy, this affects his long term credit rating and in effect, forfeiting a lot of options that are otherwise available when he was in bad credit.

Creditors already find it bad for business to lend money to people who are credit risks, giving a loan for someone who has nothing to pay you with for a few years is much more unbelievable. Because of this, people who are in a state of bankruptcy find themselves in more trouble and their only hope is aid from the government – something which is not readily available since there are thousands in the same situation.

As such, credit counselors suggest going through the bill consolidation route before anything of impact occurs. Most people can get bill consolidation loans from private companies or from non-profit organizations. Although debt and bill consolidation is the best solution, borrowers need to deal with a few issues so as to effectively minimize their debts. Before you decide to consolidate bills, you need to understand that this strategy is most commonly done by getting secured loans, which offers higher loan amount at lesser interest rates, but are requiring collateral. Most people take out a mortgage on their homes. If you are unable to manage your finances well after the money from the bill consolidation loan is released, you might find yourself in more trouble than you originally started with.

It is a must that you prioritize repayments on essential services such as utility bills. When all is said and done, allot every spare penny to the repayment of your mortgage as you might end up losing your home if you forget to pay the monthly installments.

(Note:  this is not to be considered legal advice, and it is dealing with the hypothetical “average” elderly andor disabled person.  Each case is unique and to determine the legal ramifications of your individual scenario you should consult an attorney.)

Debt settlement, also known as debt negotiation or debt reduction, is a relatively new way for dealing with your debt problems.  In a debt settlement program, by negotiating with a creditor, a client can reduce their debt by as much as 50 percent and be debt free in as little as 12 months.  In order to accomplish these savings, however, a client must voluntarily stop paying their creditors.  By doing this, a creditor is forced to confront the following question:  How can I collect the most money from this past due debtor with the least amount of effort and the least total expense to my company?  Typically the answer to this question in the minds’ of creditors is accepting a lump sum settlement for less than the full balance owed.

Although the vast majority of cases work out according to this framework, as anyone who has ever read a debt negotiation contract can tell you—it’s impossible for a debt settlement company to guarantee that a client won’t be the target of any legal action by their creditors.  After all, creditors are always reserved the right to sue debtors to collect a past due account, regardless of whether the consumer is taking any action to resolve the outstanding debt.

That being said, thanks to highly favorable state and federal debtor laws, the elderly and the disabled are very difficult to collect a past due debt from relative to the average American consumer, even if a creditor has sued them in court and won a judgment.

Consider the following situation.  Let’s say a creditor has just sued you and won a judgment in court.  They now have to execute the judgment in order to actually start collecting the debt.  One way a creditor executes a judgment is through wage garnishment.  When a creditor garnishes someone’s wages, they automatically (and legally) withdraw a certain percentage of that person’s wages every paycheck (25% after taxes in most states) until the debt is paid off.  Fortunately, creditors cannot garnish Social Security, disability, and most pensions (unless the “creditor” is the mother of your children and she’s collecting alimony).  This being the case, the creditor would probably look for another way to collect the debt.  Levying a bank account is another common method for executing a judgment.  Again the elderly and the disabled are protected, presuming the bank account’s funds are made up of the deposits from social security, pension, andor disability benefits.

A creditor is always reserved the right to pursue legal action to collect a past due debt, even if the debtor is elderly or disabled.  However, it only makes sense that they’d prefer to accept a settlement for less than the balance, especially if the debtor has no assets or lives in a debtor-friendly state like Texas, Iowa, Florida, Arkansas, Massachusetts, or Oklahoma.

When approaching your lender to make an offer of reduced debt repayments, it’s best to be completely honest and offer them as much as you can realistically afford to pay month by month.

Whatever happens, don’t try to call their bluff.
You might think that the best thing to do is to become ballsy about your situation. After all, you know that they dont want to take legal action (because they stand to recover less of their money), and they know that you know this.

So you brazenly call your lenders bluff. You ask for interest to be suspended and then offer them a ridiculously low monthly repayment, backed up by the threat if you want any more then Ill file for my own bankruptcy and youll get nothing.

Great idea? Not quite!

Most lenders will have heard this type of threat every day of their working lives. Its just defensive bravado that will make your position worse.

Do you know how most lenders will respond to this type of macho posturing? Well first theyll stop being so understanding and then theyll reply go ahead and do it!

Now bear in mind that most lenders (e.g. banks, building societies, insurance companies etc) are massive organisations, with vast amounts of money at their disposal. So as much as you might like to think that your business is vital to their continued survival, it isnt! Even if they received nothing from your bankruptcy, it would make less of an impact on their balance sheet than a fly hitting an express train head on.

So they double bluff you.

And then what do you do? Do you back down and look weak (in which case further negotiation will be.difficult, to say the least), or do you follow through with your threat and do something (i.e. file for your own bankruptcy) that you dont really want to?

Nasty!

You should avoid this at all costs. Dont even put yourself in that position!

As I said earlier, they dont want to start legal action, but they will if they have to! So dont even test them with this little bluff.

Dealing with ones finances is never easy, especially when you have a debt problem. A debt problem is created when you end up spending more money than you spend on a consistent basis. It is certainly possible that one might be forced to operate on a negative cash flow for a short period of time, but if you are unable to turn it around by increasing your income and/or cutting your expenses then having a debt problem is inevitable. Some simple steps can be followed that will help you get your finances back on track and out of the red.

1. Spend Less Than You Make

Financially savvy individuals do not spend everything they make. At the top of their financial priorities is savings. These people are wealthy for a reason. They didn’t spend every last dime they made. Don’t overlook this principle.

2. Make a Budget

The first step to eliminating your debt problem involves creating a budget. A budget is a lot like a diet – neither does you any good if they are not followed. When creating your budget you should map out your monthly cash flow. The cash flows will include both your expected sources and uses of money, also known as your income and expenses. If you do not have a good understanding of where your money is coming from and where it is going you will never be able get on top of your debt problem. Thus it is also important to implement a budget as a tracking mechanism. You should record and track your expenses each month.

Towards the end of each month you should analyze your financial situation. Did you spend more then you made? Where were your biggest expenses? Can these expenses be curbed? As you are analyzing your budget, you have to look for the fat that can be cut away. For instance, if you find you spent a lot of money eating out then you can easily curtail that habit and eat in more. That will save you money and help your bottom line. Your budget should be repeatedly reviewed and fine tuned in this manner each month. Slowly but surely you will notice your monthly expenses decreasing below your monthly income level, creating some extra income.

3. Form a Debt Repayment Schedule

e you have created extra income, you can begin to address your debt problem. Typically you will want to apply your excess money to the highest cost debt first. Say you have debt on 3 credit cards with rates of 20%, 18%, and 12%. To begin with you will want to pay the minimum monthly amount on each card, and apply all the extra income you have each month to the highest rate card (20%). Once you have paid this card off, you will then take the monthly minimum amount you were paying on the 20% interest rate credit card plus the monthly surplus of money and apply it to the next highest interest rate card (18%). Continue on till this card is paid off, and then do the same with the last card.

Make Saving a Habit

When you have paid of your debt problem the next step is to begin saving your extra income. At this point it would be wise to begin taking the amount of money you were applying to your credit card payment and put it into savings. You can continue to live the lifestyle you have grown accustomed to as you create a nice little nest egg for yourself. The key to saving your extra income is being disciplined, and making saving both a priority and a habit.

As you probably know financial stability is priceless. If you want to avoid a debt problem then you must remain in control of your spending habits, ensure that you are saving money each month, and continue to work hard. Overcoming a debt problem isn’t always easy, but it can be done with hard work and discipline.