Thursday, April 16, 2009

Reduce Debt to Achieve Financial Freedom

For consumers who have accumulated debt, researching potential solutions is the first step in the right direction. While seeking out a debt relief option may not be the ideal situation in the mind of the average consumer, it may very well be entirely necessary in order to achieve financial freedom.

Stop Debt in Its Tracks In order to reduce the likelihood of making your financial situation worse, the first step is to make sure you aren’t accumulating additional debt. What does this mean? This means that you should stop using your credit cards, stop allowing your overdrafts to increase, and to stop receiving personal loans from family and friends that will only increase the stress you feel from these obligations.

Analysis First, calculate what your income to cost ratio is for one week. If you are spending more money than you earn, you will have to adjust your spending habits to a more appropriate level. In addition, generate ways that you can save money each week, as well as ways you can cut unnecessary costs from your budget to improve your situation. In some instances, people have to sell their cars, move into more affordable housing, and make a lot of drastic decisions in order to get there selves out of debt. While this may be a potential solution, the important thing is to realize that in the end you still must have enough money left over to live off of and pay back your outstanding debts. Once you have developed a strategy to make the books balance, you can take the next step and begin to assess what debt relief options are available to you.

Consult a Specialist When you are trying to clear your debt, there is nothing more important than seeking professional advice. While you may not be able to afford professional help, you will be surprised to know that there exist many debt consolidation organizations that offer free consultations. A consultant will be able to offer you suggestions on your best debt relief options considering your circumstances. Debt settlement companies can settle credit card debt on your behalf to reduce the total debt that you owe. In addition, these companies offer improved repayment terms and other solutions to accommodate your situation financially. Professionals working for these organizations are also familiar with state debtor laws, ensuring that their clients are not mistreated or taken advantage of in any sense legally.

Bankruptcy Bankruptcy should be the last option for consumers seeking debt relief. The consequences on your credit report are catastrophic, not to mention the strain that bankruptcy puts on you and your family. While some people view bankruptcy as a chance to “start with a clean slate” the majority of consumers are not informed of the consequences. Typically, you will have to turn over all your non exempt property, in many cases this includes your home and any vehicles you may own. In addition, filing Chapter 7 or 13 bankruptcies stays on your credit report for 7-10 years and on your public records for 20 years. As a result, receiving future loans and getting better jobs becomes extremely difficult as you are considered unreliable in the eyes of potential lenders and employers





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Monday, April 13, 2009

The Growing Debt Problem - Has It Gone Too Far?

The majority of financial professionals have known for some time, yet a few have been hesitant to read what it says. Many residents of the United States are getting deeper into debt. Part of this problem likely comes from the cost of owning a home. For a rising segment of homeowners, the financial burden of owning a home is forcing a difficult situation into an impossible one; creating a “foreclosure crisis” that will likely last many years more.

Earlier this year, current numbers released by the Government are showing an alarming growth in the rate of foreclosures. In some areas, of all homeowners who were extended sub-prime loans, the foreclosure rate is as high as 14-20% when 4-6% is considered “healthy”.

This information has been all over the news — the stock market has been in upheaval. Sub-prime lenders traditionally specialize in extending financing to borrowers with credit issues, unable to verify income, employment or other factors that make them a poor fit for conventional loans. In the past few months, many major players in the sub-prime market have sought additional investors or in some cases simply closed their doors and gone out of business. Just as their borrowers were unable to afford the escalating home ownership costs, many sub-prime financial companies found it impossible to absorb the rate of default we are now seeing.

The problem doesn’t stop with the sub-prime market. Even traditional lending institutions are increasing requirements and placing more scrutiny on the loan approval process. This makes us wonder: how did this issue ever happen in the first place?

A fair amount of the responsibility can be laid at the feet of the borrowers themselves. In this age of “bigger is better” many Americans see a large home as an indicator of success. This pushes many buyers into trying to own a bigger, more expensive home without enough thought to the financial burden of owning one. Often buyers push the levels of affordability and end up in a “house-poor” situation or worse.

Blame can also be attributed to some financial professionals. Who is better qualified to know how much debt a borrower can afford? The current debt-to-income ratios are either being ignored, or the types of loans that lenders are providing are poor choices. Loans like 28/2 and 27/3 loans with fixed teaser rates that adjust after 2 or 3 years with a balloon or margin are just a few of the loans that have presented problems for borrowers.

Of course the end result of this mess will be better qualified and better educated borrowers but did things really have to go so far? We've seen foreclosre problems hit most of the large regions we work including Plano real estate, Montgomery real estate and Yorkville real estate. Frankly, I sometimes think they did. Lately it seems like it takes a big shock to get some things back on track. In the mean time, if you are thinking of buying a home in the next few years, it’s important that you start speaking with your local REALTOR or loan officer and make sure your finances and credit scores are in order before you continue with applying for a loan.

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