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Methods of Debt Relief

June 3, 2010 by · Leave a Comment 

If you are trying to find a way to settle your debts, it means you have taken the first positive step in getting your finances in order. The next step is to choose one of the three main methods that can help you in this endeavor.

1. Debt Management –Debt management companies are usually non-profit outfits. They work with you in an effort to manage your finances and help you organize it in a way that is beneficial for you. They will not offer you any loans or talk to any of your creditors on your behalf. What they give you is knowledge – how to create a budget, payment plans, etc. Although this method might be frustrating at the start, the lack of any financial commitment towards the debt management company is a major advantage for anyone in debt.

2. Debt Settlement – Companies that offer this service will negotiate directly with your creditors. They are often able to get massive reductions in the amount owed (from about 20 to 60 percent), thereby enabling you to repay your creditors. All you have to do thereafter is pay the debt settlement company in installments and they in turn repay your creditors. However, this method has a lot of pitfalls in terms of hidden costs, complicated fees and fraudulent companies.

3. Debt consolidation – The idea of getting a debt consolidation loan is to help you pay off multiple creditors at once. Thereafter you are left with one big amount to be paid off. The goal here is to find a loan that has an interest rate that is lower than the ones you are paying right now. That way your monthly payments will be a lower amount, enabling you to make them on time.

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Keeping a Healthy Credit Score

June 3, 2010 by · Leave a Comment 

A person’s creditworthiness is determined by their credit score. The FICO scoring method is widely used in this regard. Lenders resort to using a scoring system to determine the risk in giving a loan to an individual. The score ultimately decides if the loan can be given or not, how much the interest rate will be and how much the credit limits will be. So you can see why it is important to have a healthy score.

The easiest thing to do to maintain a good score is to pay your credit card bills on time. By not missing any payments and staying current on all credit cards, you will build a good score. Do not for any reason miss a payment or ignore it. If you know that an item on your bill is incorrect, dispute it immediately. Not disputing it and not paying will only harm you. Details such as this go on your report, so as long as an item is marked as disputed, your score will not be affected for non-payment.

Another thing you can do is maintain a good balance on your cards. If your limit is $25,000 then try not to take the outstanding amount past $15,000. The difference will be very beneficial for you. You should also not get rid of any old cards in your possession. Settle the outstanding amount but do not close them. Long credit histories really help your score. Getting lots of new cards will impact badly on your score.

Is a Credit Score Really Important?

June 3, 2010 by · Leave a Comment 

As you move on in life, you tend to discover new things which were never really causes for concern before. A credit score is one -very important- such thing.

The generally accepted and used method of credit scoring is the Fair Isaac Corporation (FICO) method. By analyzing your credit history and current financial status, the FICO method will come up with a score. This score lets lenders know if you are a credit risk and how much so. For example, if your credit score is in the lower levels, you may be refused a loan or credit card. In the event that your request is accepted, you will be slapped with high interest rates and heavy penalties for missed payments.

Therefore keeping a healthy FICO score is in your best interests. A couple of things to keep in mind to improve the score are making payments on time and keeping a sizeable margin between the amount owed and the total credit allowed in a credit card. These two things may sound simple, but it is surprising how many people simply fail to follow them.

The other thing people constantly fail to do is to report and dispute incorrect information on their credit reports. Ignoring them and not making any payments towards them are cardinal mistakes. For example, if the report shows that you made a $500 purchase somewhere which you didn’t you should dispute it immediately. Not paying it until the dispute is settled is fine because it won’t adversely affect your credit score. But not paying and not disputing it will hurt you badly.

Getting a Debt Consolidation Loan

June 3, 2010 by · Leave a Comment 

Debts have a habit of getting out of control if you don’t pay much attention to them. In the unfortunate event that you have to face a situation like this, a debt consolidation loan can be a convenient way out.

Paying out several different bills every month can be a big hassle. This also leads to payments or payment dates being forgotten. By getting a debt consolidation loan, you can pay off all your debts and focus on paying one. It is also easier to work towards paying a single bill and it is also not easy to forget the payment date. This is why debt consolidation can seem so attractive.

However, debt consolidation can become a problem if you dive into it blindly. Firstly, you must read all the terms and conditions thoroughly. You cannot afford to get caught out on any hidden clauses, especially when you are fighting to clear your debts. The next thing to do is to compare the interest rate. The rate you get from the debt consolidation firm must be lower than the combined rates of all your other debts. For example, if you are paying a combined total of $500 every month towards your debts, a debt consolidation loan that requires you to pay $500 plus interest is completely out of the question.


All in all, debt consolidation is a handy method to settle your creditors if you are on the verge of bankruptcy. But it is also a method fraught with pitfalls if you are not careful; so study the subject very carefully before you engage in any deal.