What happens in debt settlement?

In debt settlement you are required to negotiate with your creditor about the financial hardship you are in. If the creditor thinks that there is no other way in which they can get back their money, they may agree to lower the debt amount. As a result, you are required to pay only the negotiated amount. The creditor cannot come after you for the total amount later. In order to secure yourself, you should get the settlement agreement in writing whatever may be the case.

Other than that, it is also important for you to check your credit report after you pay off the debt. Otherwise, you may not be able to know whether or not the account status is getting updated rightfully. In case of any discrepancies, you may be able to show the written settlement agreement to dispute the wrong listing (if any).

In addition, you should also know that debt settlement though popular, hurts your credit. This is because, you have to have missed payments before the creditor agrees to your settlement request. Now, as you miss payments, it hurts your credit as your payment history weights heavily on your credit score. The creditors need to see missed payments before considering  the settlement, as they won’t believe that you really are in great financial crisis if you’re making regular payments.

So, if you really don’t have the money to manage your payments and if the debt amounts are really very high,  debt settlement may be the best solution. However, if you can still make the monthly payment and want to protect your credit score debt consolidation may be a better option.

If you already have missed payments then some more missed payments won’t hurt your credit much. Yes, it is true that your credit score will lower all the more, but in a state of financial crisis when you already have missed payments no other debt relief option may help you so much as debt settlement.

“The total number of insolvencies (bankruptcies and proposals) in Canada increased by 11.2 percent in February 2011 from the previous month. Bankruptcies increased by 10.2 percent, whereas proposals increased by 12.9 percent. Over the past 10 years, there was only one year when the total number of insolvencies filed in the month of February was lower than the total number filed in January…”

Read Full Report:  http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br02598.html

If not managed properly a consolidation loan may increase your debts and financial difficulties.  An improperly managed consolidation program may have hidden fees, high rates, expensive add-ons, and could damage your credit rating.

There are two primary disadvantages of consolidation loans:

1. Generally, the loan does not address issue which may have caused the financial problems initially.

1. Some loans may be more costly than the debts they are repaying and may have hidden fees, costly insurance and other add-ons.

Important Information

• Borrowers with a good credit score are usually charged interest rates of 8 – 13%.  However, those with a poor credit score may be charged higher interest rates such as 15- 20%.
• Insurance costs may be added to the monthly payment, resulting in the borrower paying interest on it every month and this could create a higher monthly payment.
• Sometimes people get deeper in debt byusing paid off credit cards. This can actually create more financial difficulties over time.
• Borrowers may be able to lower their interest rates without obtaining a consolidation loan
• Consolidation may hurt your credit rating under some circumstances

While debt consolidation can help to manage your debts, it cannot simply eliminate them without hard work on your behalf. It is advisable to keep in mind that while one monthly payment is much easier to manage it is still a good idea to research all of your options carefully to find a solution that works best for you.

Problems can occur when the payments on multiple loans begin to add up every month, making it difficult for the borrower to meet the payments.  This can create financial instability over time and cause stress for the borrower.  Debt consolidation loans may be one way to solve this dilemma.

So what is debt consolidation?  If a borrower has multiple debts from various lenders, he/she may be able to obtain a loan from another lender to pay the existing debts in full.  This eliminates the existing debts and leaves only one lender to whom the borrower is responsible to make payments to.  The new lender directs the money from the loan straight to the existing creditors, relieving the borrower of the need to have any further contact with them.

At first glance it may that consolidation loans may create more paperwork, confusion, or other problems.  There are, however, several benefits associated with obtaining a consolidation loan.   These can include but are not limited to:

• Interest rates may be lower on a consolidation loan than on existing loans.
• Dealing with a single creditor allows a borrower to establish a working. relationship with that creditor much easier than with multiple creditors.  A single creditor may be more aware of the borrower’s situation than multiple creditors.
• There are two types of debt consolidation loans which a borrower can choose from:  secured and unsecured.
• Terms of consolidation loans may be better suited to the individual borrower.
• Borrowers with a poor credit history may be eligible for consolidation loans.  In such cases it can be an effective way to improve one’s credit rating.

Keeping these advantages in mind, borrowers who are considering consolidation loans are advised to apply for one sooner rather than later.  The quicker you take control of your finances, the quicker you achieve peace of mind.

In some situations consolidation loans may not be suitable for the debtors, in these situations programs like Consumer Proposals, Debt Settlements or Bankruptcy maybe a  better choice.

Secured debt consolidation loans require you to provide collateral as security. Collateral is generally in the form of personal property such as vehicles, homes, boats, jewelry, or other valuables.  The amount of a secured loan generally ranges from $5000 – $100,000.  The amount of loan that you can obtain depends upon your ability to repay the loan, your credit history, and the value of items you provide for collateral.

A good credit history, ability to repay the loan, and suitable collateral may help you to obtain a consolidation loan.  Consolidation loans usually have a lower interest rate than other types of loans.  Borrowers who do not have a good credit history may also be able to obtain a consolidation loan but the interest rate may be higher and the term of the loan may be shorter.

Remember that secured debt consolidation loan must be repaid like any other loan.  Also keep in mind that there may be some risks involved with this type of loan.  If you miss a payment you could not only incur late payment fees but the property you placed for collateral may be endangered as well.

Determine how much money you need to pay off your current debts prior to applying for a secured consolidation loan.  Online lenders may be able to help you decide how much money is needed to consolidate your debts.  They can also provide you with a quote which contains details such as the interest rate you may expect, the amount and term of the loan, and any other pertinent information to help you make an informed decision.

“

Should you be holding Credit Card Debt, or worse, Store Credit Card debt, that you have not paid off and are incurring interest charges, how can you even ask what you should do with this found money? If you think you deserve something nice from this money, you are correct, the nice thing is to pay off, or pay down a debt which will eventually crush you and your family (if you don’t pay for it), so pay the debt down.

Any other debt that you might hold which is even riskier (owing money to finance companies, pay day loan places, or non-standard loan firms (i.e. loan sharks)), you need to help yourself escape the vicious cycle, and pay them off now….”

Read Full Post:

http://www.canajunfinances.com/2010/06/01/found-money-trap/

“He and his wife had “multiple” credit cards; he won't say how many. When forced to confront the debt, he was “absolutely shocked” to find they owed $109,000 — almost as much as they earned in a year.

“When I added it up in my head,” he says, “it was always around $60,000 or $70,000.”

A shocking money realization is often triggered by a crisis, such as job loss or a change in interest rates. It may also develop as a feeling that something isn't right: “I make a decent salary, so where did it all go?”…”

Read More:

http://money.ca.msn.com/savings-debt/insight/article.aspx?cp-documentid=28038087

”

OTTAWA – Canada’s housing market is reaching the limits of sustainability and could tumble if there is no moderation, the Bank of Montreal says.

The bank notes Canada’s hot housing market is still not in the red zone for prices, but it’s getting there.

And unless there is some moderation in sales and prices, the market could be setting the stage for a major correction, it adds in a report set for release Friday.

“While we do not expect a significant correction nationwide, the risk of such would increase, especially in some regions, if prices were to continue to outrun incomes or if interest rates were to increase rapidly,” economist Sal Guatieri says….”

Read Full Post:

http://money.ca.msn.com/savings-debt/yourmoney/article.aspx?cp-documentid=27882484

“The September jobs pick-up of 30,600 was five times larger than the economist consensus forecast of 5,000 and – along with a slight decrease in the number of workers looking for jobs – helped drop the national unemployment rate by 0.3 percentage points.

This was the second consecutive month of employment gains.

There was more good news – actual hours worked increased by 1.6 per cent.

More impressive, the agency said 91,600 full-time jobs were added in September, more than offsetting the 61,000 loss in part-time employment….”

Read more:

http://money.ca.msn.com/savings-debt/insight/article.aspx?cp-documentid=22166474

“Family Finance asked Caroline Nalbantoglu, a financial planner with PWL Advisors Inc. in Montreal, to work with Alain and Danielle. Their goal: find a way for the family to get a larger home, fund the children’s education savings, build up retirement savings and find a way to maintain the family house in the event of Danielle’s death or incapacity….”

Read Full Article:

http://www.financialpost.com/increase+your+debts+when+your+income+uncertain/4296165/story.html