Debt ConsolidationWritten by B Hunter
There are many reasons why people get into debt - some of them self inflicted and some of them way outside of our control. Losing a job, illness or accidents, all of these can suddenly plunge one into unexpected expenditure, and often only way to deal with emergency is to use debt. There is a tendency, however, to keep on borrowing once you start. This is because process becomes so easy - credit card companies and banks seem keen to throw cash at you, and interest payments, when regarded individually, often seem insignificant. Before you know it, you are deep in debt, owing money to several institutions and card companies, and bills are mounting. This is stage when one starts to notice infomercials and TV ads for 'debt consolidation'. Put simply, debt consolidation involves replacing a number of smaller debts at varying rates and conditions with one single 'super' debt at a single (often lower) interest rate and set of conditions. For some people, consolidating debt may be a good thing - for other people it may be bad. It all depends on an individual's circumstances. To explore this, lets look at types of debt. Some debts are 'good'. Mortgages and student loans are good debts because firstly they have funded purchase of a valuable asset (a home or education) and secondly because they are usually tax-deductible. Aside from loan-sharking (which you should, of course, NEVER consider!) running up debts on credit cards is worst form of borrowing, as interest rates are frankly usurious, and card companies actively try to encourage you only to make minimum payment, thus keeping you in debt for longer, and maximizing amount of interest they suck from you. So is debt consolidation a good deal? It depends. If you are really under pressure, and need a breather, sometimes consolidation can be only way to get yourself some space in which to sort out your life and finances. The downside is that consolidation payments, while appearing to be smaller than sum of your previous debts, usually last for a longer term, meaning that you effectively pay more over life of loan. And this, of course, is how consolidation companies make their money - they have to profit in some way, otherwise why would they bother?! One VERY important point to note is that your debt consolidation company must allow you to 'overpay' - pay more than standard monthly payment if you wish. You may have a sudden windfall, or a payrise, and paying down debt makes perfect financial sense. If they WON'T let you overpay, look elsewhere - there are plenty of debt consolidation firms out there who want your business!
| | Debt FactsWritten by Ian Young
In 2003, almost one and a third percent of US househoulds (about 1,650,000) filed for bankruptcy, indicating that bankruptcy may not have quite stigma attached to it as in other parts of world.Somehow, USA, with a population of about 294 million, managed to have over a billion credit cards in issue. That's over 4 cards for every man women and child. About 20,000 different cards are on offer from suppliers. Those credit cards, together with debit cards, account for a quarter of ALL personal expenditure in US. Debt is a fairly recent phenomenon. Before 1930's, most people couldn't borrow, even to finance property, and either rented homes or built them from scratch. Nowadays, mortgage debt runs in trillions. Personal debt excluding mortgages is about $19k per household on average, over half of which is on credit cards, a figure that is triple statistic of 1990. Nowadays, over 40% or US families routinely spend more each year than they earn. The difference? Financed by debt. Convenient to use? That credit card convenience ends up costing average Joe 12% more than paying by cash. If you only ever pay 2% minimum monthly payments, each $1000 you owe will take nearly 22 years to repay and will add a further £2,300 to bill, meaning you effectively pay $3,300. Despite this being common knowledge, almost 60% of credit card users DON'T pay their credit card bills in full each month. This reliance on high interest credit cards means that average US family pays about $1,200 in interest on their cards each year, at an average APR of 18.9%.
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