Debt Consolidation vs. Bankruptcy

Excessive debt obligations have been an ongoing problem in this country for generations. The stagnant economy has certainly made it a more widespread issue than in recent decades. More individuals and families are finding themselves under staggering debt with no conceivable way to recover from the magnitude of their obligations. Unfortunately, attempting to hide from creditors and third-party debt collection agencies, and standing by while a tough situation continues to spiral out of control only makes the problem that much more difficult to resolve. A more positive and proactive approach to managing debt, such as debt consolidation, can provide financial and emotional reprieve from the escalating problems that outstanding bills usually cause.

The Bankruptcy Option

Debt consolidation is an effective and very responsible alternative when anyone is forced to handle their debt obligations aggressively. However, filing a petition for bankruptcy is usually the most popular method. A vast majority of the population have no real idea just how harmful declaring bankruptcy can be with regards to their future financial security. Bankruptcy has quite a few drawbacks when compared to a well-designed debt consolidation program.

Loss of Assets
Many of an individual’s assets and property are not protected by state or federal laws. If they file for a Chapter 7 bankruptcy petition, they may be forced to liquidate any property or assets they are not exactly entitled to, such as those pledged as collateral, in order to pay off their creditors.

Credit ratings are affected for years
Filing for any of the various chapters of bankruptcy can damage an individual’s chances or opportunities for qualifying for future credit or loans because it dramatically and negatively affects their credit ratings. A negative credit rating as a result of filing for bankruptcy can remain on their credit reports for up to ten years.

Bankruptcy is filed in a federal court
In order for an individual to come under the protections that bankruptcy allows, they must do so within the federal court system. This also means having to engage the services of a qualified bankruptcy attorney for a substantial fee, along with other filing and credit counseling expenses.

Retirement savings are not automatically protected
Protections provided by filing bankruptcy do not always automatically guarantee the money in an individual’s 401k is exempt, nor any funds up to $1 million in an IRA account. However, any other monetary assets that may have been allocated for the future can be taken by the bankruptcy court to satisfy debts to creditors.

Filing a petition for bankruptcy is certainly one method to try and manage debt. Nevertheless, it is a very extreme measure. But it is not the only avenue to consider.

Debt Consolidation is a Suitable Alternative

A debt consolidation program can allow any individual a viable alternative to eliminate the heavy burden of debt, and provides far more control over their economic situation than filing for bankruptcy can. Debt consolidation programs are designed by taking existing debts and gathering them into a single, far more manageable loan. The debt consolidation company or agency then applies that loan toward all of the individual’s monthly payment obligations, while working with their creditors to negotiate lower interest rates. There are many advantages to using this type of program to effectively manage high debt.

Monthly Payments are Lower
A debt consolidation program can significantly reduce an individual’s total monthly payment amount to provide them the flexibility and security to pay what is owed each month without having to undergo so much financial stress. By using one larger loan to pay down or eliminate a multitude of smaller debts, individuals are then granted much more time to create a workable budget and eventually become more financially stable and responsible. In addition, there is no longer the need to worry about paying on time or managing several different due dates every month.

More Funds are Applied Toward the Principal
Specifically, credit card consolidation loans enable individuals to apply much more of their payment towards debt reduction instead of paying most of it towards the interest. Higher debt usually causes the minimum payment on credit balances to actually be lower than the finance charges being applied. Once this occurs, the credit balance may increase despite the credit card no longer being used. By negotiating and eventually acquiring lower interest rates from an individual’s creditors, a debt consolidation counselor can ensure that their monthly payments are more effective in getting them out of debt more quickly, instead of having them applied toward these higher interest charges.

Credit Rebuilding
Bankruptcy can significantly damage an individual’s credit rating. On the other hand, a debt consolidation program can actually help those scores considerably. These plans guarantee that an individual’s bills will get paid on time, therefore allowing a substantial and measurable improvement in credit scores. Improved credit scores allow much better interest rate availability on future loans and credit needs once they have successfully managed their finances enough to not only get out of debt, but to stay out of debt.

Utilizing Payday Loans Online

More than likely, if you are reading this article, you are also one of millions of Americans looking for a little monetary assistance in the form of a temporary ‘bail-out’ of your own. With the economy keeping most of us standing somewhere between that rock and the hard place, coming up with a viable option when the checking account balance hits zero between paychecks is getting tougher to manage. When the money runs out in the middle of a pay period, that doesn’t mean the bills stop coming in, or the car won’t need a new transmission, or the kids won’t outgrow their clothes before the school year runs out. However, there is a small but helpful light at the end of the tunnel, and it comes in the guise of a personal loan, and it can even be found on-line. It is a simple and very convenient solution to those temporary cash flow problems that arise when the next paycheck is just too far off to do any good.

Privacy and Convenience with Online Loans

In the simplest terms, a payday loan on-line is a short-term fix for those funding short-falls that happen when the money is going out faster than it’s coming in. As the name implies, it covers the unexpected emergencies that nearly everyone faces in a tight economy, allowing a borrower to get their hands on some quick cash without much hassle, and it’s as easy as finding a keyboard with internet access. A search on Google will provide a large listing of payday loan companies and lenders quite willing and able to extend some financial assistance to cover just about any circumstance, and to just about any type of borrower in need of these services. The payday loan industry has grown very popular as a means of quick cash assistance, specifically because of the extra convenience of completing the entire transaction on-line. The days of heading on down to the local payday loan office in the strip mall, and then waiting in line are long gone. Getting the cash you need these days is just a few clicks away from a reality.

Easy Approval Even With Bad Credit

Obviously, qualifying for a standard loan at the local bank or credit union has proven difficult for all kinds of reasons, especially with credit restrictions being so stringent. With an on-line payday loan, you apply right on line. The application process is fast and uncomplicated. Generally, the procedure involves providing the lender with verifiable information such as a checking or savings account, which is used to permit the electronic transfer of the loan funds via direct deposit. You will also have to provide information regarding proof of steady employment for at least 3 to 6 months, along with having a minimum net income of at least $1,000. If you happen to be negotiating with a lender from the U.S., you must provide evidence of citizenship, and be at least 18 years of age in order to satisfy all the requirements.

Credit Scores are not critical with Payday Loans

With this information provided to the lender, loan amounts in a range of anywhere between $100 to as much as $1,500 can be made available in as little as 24 to 48 hours, and transferred right into your account once approved. One of the best aspects regarding payday loans is not having too much attention paid to credit scores, which also greatly the reduces loan processing time, along with vastly improving the loan approval chances for potential borrower’s with below-average credit ratings. The interest rates may be higher than most standard loans, but the convenience more than makes up for the extra cost. When all is said and done, there is nothing quite as reasonable, affordable, fast, or efficient as getting a payday loan on-line. Any temporary financial set-back can be quickly overcome by accessing these handy cash-assistance tools. As long as the loan guidelines, terms, and repayment conditions are met, having to wait for that next payday can be a thing of the past.

Bad Credit Loan Options

The are quite a few individuals in this troubled economy that are certainly struggling to make their maxed-out budgets go a little further, and keep their repayment obligations as current and up to date as much as possible. Unfortunately there are those who have reached the end of their viable options, and consequently have fallen into the tarnished or bad credit score category. There are, however, certain options available today through which these consumers can indeed acquire loans, even with bad credit histories appearing on their credit reports.

If a consumer has a bad credit history, it goes without saying that when the time comes to try and get the funds that they need, there are far fewer options available. But, once the loan is secured, and the borrower is prepared to pay higher interest rates than normal, there is always the great benefit of raising their current credit rating if the repayment schedules are strictly adhered to – on time, and for the entire duration of the loan commitment.

The different types of loans for bad credit available to this type of borrower are generally offered as either secured loans, or unsecured loans. Secured loans are defined as the type that are ‘secured’ with some form of collateral as protection for the lender should the borrower default on the obligation. The unsecured loan usually involves a detailed credit history examination by the lender, is not ‘secured’ with any form of collateral, and invariably has a very high interest rate associated with it. In addition, these loan classifications can be viewed as personal loans, and most often are in the neighborhood of a few thousand dollars with a term of one or possibly two years.

The following is a brief outline of the types of personal loans available for anyone with a bad credit rating.

  • Secured personal loan – This type of loan is an good option if the borrower has a major asset or personal property such as an automobile or a home that can be offered or pledged as security to the lender, and is usually offered with an acceptable rate of interest as a result.
  • Unsecured personal loan with a co-signer – This type of loan is also a very good option because the borrower can request a family member or close personal acquaintance with great credit scores and a long credit history showing stable financial behavior to act as the co-signee for the loan. This is turn could also result in the borrower getting much better interest rates, along with more flexible repayment terms.
  • Unsecured personal loan – If the borrower has a bad credit rating, and has no personal property or assets available to offer as collateral to the lender to absorb the risk involved with the loan, the result will generally be much higher interest rates applied to the loan.
  • Payday loans – This option is generally viewed as the option bearing the highest cost to the borrower, and is usually limited to a much smaller amount of funds, such as $1,500.00. The procedure also usually requires the borrower to post-date a personal check to cover the funds to be borrowed from the lender, as well a substantial fee for the service which can run as high as 15% or more of the funds being borrowed. New fees are applied every time the loan is extended beyond the repayment date, which, as the name suggests, is the next ‘payday’.

It is good for the borrower to remember to research wisely and diligently for the best offers available, and only with reputable lenders in good standing. Only plan to borrow exactly what is needed, and an amount that is applicable for maintaining the best budget strategy for repayment. Once the loan is finalized with the best possible rates and terms, the process of getting those bad credit scores to a more acceptable level begins, which is exactly what makes borrowing money in the future a much easier task.

Understanding Your Credit Score

When a consumer decides to apply for any type of loan or credit card there is the compulsory task of completing the required application documents. However, the process goes far beyond the preliminary form-filling procedure. Lending institutions are going to delve deeper into the consumer’s background to ascertain their ability to make the required payments on any credit purchases, or determine their capacity to pay back what funds the lender is deciding to loan them. This is accomplished by investigating the borrower’s credit ‘worthiness’ prior to any loan approval or extension of credit through a careful examination of the borrower’s credit standing via an official credit report.

What is a Credit Report? The Basics

The information contained in a credit report is a detailed summary or breakdown of a borrower’s entire credit history.  This report is made available to any lending institution or potential creditor upon request, and is statistically compiled by any one of three individual credit bureaus – Equifax, Experian, and TransUnion. Approval from any lender for any type of funding, whether it is a home mortgage, credit card, car loan, gas card, or even student loan is entirely dependent on the lender’s evaluation of the data contained within the credit report, and the bottom-line factor determining a favorable credit approval is the credit score.

The fundamental element of a credit score is a 3-digit number compiled from the borrower’s complete credit history, which is calculated to establish a numerical value indicating not only the risk factors involved, but the ability of the borrower to pay the debt, and in what time-frame. These computations balance the previous financial performance of the borrower against the estimated future debt repayment behavior. Therefore, the lender is able to actually measure the ‘potential’ repayment activity of the borrower to make the payments in a timely manner, and eventually repay the entire debt as agreed to in the terms of the loan.

How is the Credit Score calculated? The Math

Typically, the credit reporting bureaus use a breakdown of percentages to determine the final credit score, which are grouped into five areas of concern and importance when determining the overall ‘picture’ of a borrower’s worthiness as a credit risk. These percentages are the payment history, the amounts owed, the length of credit history, new credit issued and inquiries, and types of credit used by the borrower.

The Payment History (35%) – This is the most important criteria, which describes how and when the borrower made payments to his or her various creditors – credit cards, mortgages, car loans, retail accounts, health insurance premiums, and even utility bills. Factors such as delinquencies or late payments reflect in the credit score unfavorably, while loan pay-offs, and a timely payment history will naturally keep a credit rating in good standing or improve it over time.

The Amounts Owed (30%) – This percentage is determined by the total debt owed by the borrower, as well as the comparisons between the proportions of what was borrowed against the original loan amount. This is what is referred to as the all important ‘credit-to-debt’ ratio. The more the borrower owes, the more of a risk the borrower will appear to the creditor.

The Length of Credit History (15%) – This percentage simply translates into ‘the longer the better’ in any lender’s evaluations. All creditors prefer to see a borrowers credit activity for a long period time, that it was used intelligently, and that it was used frequently. The longer a ‘good’ credit history is, the better the credit score.

New Credit Issued and Inquiries (10%) – This percentage is a general picture of all recent credit activity, whether it reveals any new loans or accounts issued, or any recent credit inquiries done by prospective lenders or even employers. The more inquiries there are, the greater the likelihood of a credit report being negatively impacted.

Types of Credit Used (10%) – All lenders prefer to see a wide variety of activity over a good cross section of loan types – a few credit cards, a car loan, a mortgage, service and utility bills  – and all with timely payment histories.

What is a Good Credit Score?  The Bottom Line

Credit scores are tabulated into a range of 300 to 850. Of course the higher the score is, the more favorable the borrower will stand in getting approval, simply because there is less risk involved to the lender, and therefore the lower the interest rates. A score above 700 is viewed as excellent, while a 680 is considered very good. Scores in the middle range categories like 560 to 600 will naturally be charged much higher interest rates, and certainly face more careful scrutiny from the lender. It is important for the borrower to understand that every lender or employer is different, as are the factors used by each of the credit bureaus in weighing the final outcome of a borrower’s credit status. Additional considerations such as employment history and income also play a major role in a favorable loan or credit decision.

Getting a Loan with Bad Credit

If you are among the many Americans suffering in the throes of having bad or less-than-perfect credit scores, take comfort in the fact that you are far from being alone. While it is certainly a given that getting your credit back on an even keel is a rather long and tedious voyage, especially after having been turned down for approval time after time, for those looking for assistance there are quite a few reasons to keep their hopes alive. There are plenty of resources and institutions out there willing to be cooperative and help anyone secure the funds they need, regardless of their current credit status. It just takes a little hard work, a sharp eye, and a good amount of patience in order to succeed. Not only will you get the funds you need, but you will just as likely start to rebuild or boost your credit rating in the process.

As mentioned, establishing that even keel with these lending institutions does have its consequences for those with bad credit status, since it does involve the inherent risks for the lender in cooperating with applicants with poor standings. More than likely they will have to incur higher interest rates, along with the related finance charges, and even a much longer repayment term. Yet, as common sense will dictate, if due diligence is kept in maintaining the proper repayment schedule, in full and on time, chances are the lender will eventually extend more favorable terms. As time goes by, once a reasonable amount of financial responsibility is demonstrated, the lender may present an opportunity to reduce the interest rate on the loan, and perhaps eliminate some of the prior fees associated with the loan.

Remember, that regardless of the poor credit rating, there are numerous institutions or lending agents quite adept in the somewhat complicated approval process associated with providing a loan for people with bad credit. While they are certainly willing to assist those consumers in need, it is important to realize that fulfilling the obligation is up to the consumer’s integrity and willingness to cooperate with the payment terms. If not, then the ramifications will result in seriously damaging the credit rating even further.

For people with bad credit,  there are two or three types of loans available to consider. The first is the secured loan. This type is designed around the borrower placing something of value into the lending formula as a form of collateral, such as an automobile, the home, or other property or real estate in the borrower’s name. This form of security allows the lender the flexibility in claiming the collateral property should the borrower wind up defaulting on the loan.

This type of secured loan is usually viewed quite favorably within the approval process, and more than likely will yield a much lower interest rate on the loan as a result. The second option is an unsecured loan, which, as the name suggests, is certainly much harder to acquire by virtue of there being no ‘security’ for the lender to access. In addition, the unsecured loan approval will depend heavily on the applicants past and current credit history.

One more option for people with poor credit ratings is the use of a co-signer when seeking a loan. This individual will of course have to have a good credit score to be considered a viable asset to help obtaining the loan, since they will become liable for taking over the payments should the primary borrower default on the loan. However, the positive side of this arrangement is that most lenders will consider releasing the co-signer from the loan responsibility if the primary borrower keeps up a continuous and consistent record of payments on the loan over an extended period of time, and usually after the first year of exceptional repayment history.