consumer loans

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CONSUMER LOANS

I am the first to admit that consumer loans are not my specialty. My real life involvement with consumer credit is limited to a couple of car loans and the mortgage I got on my first house a couple of years ago. My approach to consumer credit has always been pay it quick and try to take on as little as possible. On the other hand, I am not above using the offers that credit cards throw at me in order for me to subscribe. For example, my primary card is a GM Gold Card, which I have been using for the last eight years just for accumulating rebate dollars. It truly works as I got $1,700 off my car back in 1996 and have already accumulated $3,900 for my next one.

Having said that, I used to work right behind the consumer loans department a while back and if I can give you a piece of advice is to keep your credit healthy. Your credit report will determine to a great extent (almost an overwhelming extent) what you can borrow, how you can borrow and the terms under which you can borrow.

The following is a group of articles written by Scott Bilker that address common questions regarding consumer loans and credits. This is just a sample of his writings. If you are interested in the topic of personal finance and credit I suggest you visit his website by clicking here

Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmartŪ E-mail Newsletter (http://www.debtsmart.com). Sign up today!


Debt Negotiation
by Scott Bilker

Question:

I need to know if this will really work. It makes me very nervous in not paying my bills so they can be negotiated. I talked to DEBTCO and I got very excited that I could be out of debt in 3 years but when I got the papers (contract) I felt a little uneasy. Should I be uneasy? Should I think more about consolidation? Please help me make the right choice. I really need help with my debt. Thank you. --Jackie

Answer

Jackie,
Thanks for writing!

I do not know all the details for DEBTCO however, I'm certainly familiar with negotiating for payoff terms with credit card banks. It's been my experience that credit card banks will negotiate settlements with customers who are having trouble. And "having trouble" does include not being able to make their payments.

My impression is that you're a good money manager and can find a way to pay your bills by using your credit options. You don't want to be late because you know that would really hurt your credit history. Worst of all, paying late may increase the cost of your outstanding balances if banks penalize you by raising your rates--not to mention all the late fees and other penalties.

My guess is that they (DEBTCO) want you to stop paying so you'll fall into the category of being in trouble and, therefore, it will be much easier for them to settle your accounts. Even if they can settle your accounts for less, which is probably the case, the settlement will be reported in your credit history and will certainly not look pretty to future lenders.

Okay, so I've written a lot of words so far but really haven't reached a conclusion. This is because there's always a trade off. You can do what DEBTCO says and probably (not definitely) have them settle your accounts for less thus saving you money.

BUT you risk the consequences of not paying your bills on time which can be further-reaching than the penalties on the accounts you want to settle. Lately, many banks have changed their policies to include clauses that give them the right to raise your rates if you're late paying other creditors!

Here's an example of that from my Citibank card: "If you default under any Citibank Card Agreement because you fail to make a payment to us or any other creditor when due, you exceed your credit line, or you make a payment to us that is not honored by your bank, we may increase the ANNUAL PERCENTAGE RATE (including any promotional rate) on all balances to a default rate of up to 24.99%."

What to do?

I never want to tell people what they should do. Ultimately you should base your decision on what you have learned. Speak with people that you trust to help you make our decision.

However, I can tell you what I would do if I were in your position.

I would call each bank that you want to settle with and ask to speak with their "settlement department." Tell them that you're going to be having trouble paying your bill and that you may even be considering bankruptcy (which you may have to sometime), but you want to find out your options for paying off the account in full if they reduce how much you need to pay to "settle" the account. For example, if you owe $5,000, tell them that you can pay it off in full for $2,500.

They may say that you must pay it off in full or they may offer other payment plans or even reduce the interest rate to zero. They will need to be convinced that you really need help otherwise they won't consider settling the account for less than the outstanding balance.

Just make it clear to them that you'll be talking to a bankruptcy attorney to explore that option. Tell the bank that if they can offer you something reasonable you'll work with the bank, or else you'll be forced to consider the bankruptcy option.

What I'm suggesting is that you try to settle the accounts yourself first. You may not be able to get better payoff numbers than DEBTCO but it's possible that you can. Also, you may be able to avoid the problem of not paying your accounts on time.

I'd be happy to look at your contract with DEBTCO and give you my opinion on what they're promising. You can send it to me by email or fax to (609) 660-1412.

Good luck and please let me know what happens!

Regards, Scott


Saving for a Down Payment
by Scott Bilker

Scott, How do you save money to buy a home when you are swamped with credit card bills that just seem to suck every last bit of savings?--Darryl

Answer

Darryl,

I know exactly how you feel since I was in that very same position at one time.

First of all you need to be sure that your credit card interest rates are as low as possible. By "low" I mean below 11.9%. There are many excellent credit-card offers available from numerous banks, which make the rates very competitive. Look through your junk mail and read the fine print in some of those offers. Start using the 0% offers and track the dates when they expire so you can be sure to transfer your balance before the rate is increased.

Once you've minimized your interest cost, you need to make saving for that house a priority. The way I saved while paying my credit card bills was to make minimum payments. That's right, it's one of those exceptions to the pay-the-most-to-your-credit-cards- first-rule.

In this case, to save for the down payment of your house, you make the minimum payments to your credit cards and bank the difference. The reason is that you need to save your own money to use as a down payment; you cannot cash advance money from your credit cards to buy a house. Well I guess, technically you could, but most likely you won't be given a mortgage if the bank learns that you're buying a house with your credit cards.

The strategy here is that you're going create extra money by paying less each month to your credit cards. Many times banks will give you an opportunity to skip a payment. That's the perfect time to save that extra payment in a bank account toward your down payment.

Many people would criticize me for suggesting that you pay less to your credit cards because you're going to pay a little extra interest. However, this interest cost is the fee you pay to be able to get the cash for the house. It was worth it for me and everything turned out just fine.

Good luck and please let me know how things go!


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