Get help with debt before seeking an auto loan
If you have plans to finance a vehicle anytime soon, it’s a good idea to get help with debt first to boost your credit score. Having weak credit could result in getting a higher dealer rate markup, according to the Center for Responsible Lending (CRL). As a result, people with lower credit scores are more likely to default on loans and have their vehicles repossessed.
Targeting people with low credit scores
The dealer rate markup is the hidden rate auto dealers add to a customer’s loan when they sell the note to a third-party lender. According to the CRL report:
In particular, on loans made through the dealership, the dealer can markup the interest rate above what the consumer’s credit would qualify for. This interest rate markup, also known as “dealer reserve” or “dealer participation,” is described by dealers as the way they are compensated for time spent putting a financing deal together. However, since consumers usually do not know what they can actually qualify for, the markup is often a hidden cost for the consumer.
The average rate markup in 2009 was $714 per consumer with an average rate markup of 2.47 percent (1.01 percent for new vehicles and 2.91 percent for used cars). Consumers who financed through dealerships can end up paying over $25.8 billion in interest rate markups over the life of their auto loans. You’re likely to get a larger rate markup if you:
Get a loan with a longer maturity
Purchase a used car
Finance a smaller amount for a vehicle
The CRL report also found that rate markups are strongly related to 90-day delinquency rates for finance companies that target borrowers with low FICO scores. Rate markups increase the odds of delinquency by 12 percent.
Find the right debt solutions
Hold off on purchasing a vehicle until you look for ways to deal with credit card debt and other bills that may be dragging down your credit score. Among the debt solutions you may want to consider are debt counseling, debt settlement, working with a debt consolidator or a combination of these methods.
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Loading ...Keeping your personal “debt ceiling” from crashing down
Your personal “debt ceiling” represents the amount of debt you are comfortable owing. FICO recommends keeping credit card balances below one-third of your credit limit. Higher debt levels lower your credit scores. Today’ economy can make paying off credit card debt difficult, but reducing your balances to less than one-third of your credit lines is a good start.
Managing credit card debt: 4 tips for success
Establish and keep a household budget: Being too busy, or fearful, or procrastinating aren’t excuses. A budget provides a basis for understanding how much money comes in, and where, why, and how it goes out. This information is essential for mending bad spending habits and converting to a cash-based budget.
Understand and reduce the cost of credit card debt: Federal law requires credit card issuers to report the annual percentage rate (APR) for each card on every statement. APR is the sum of finance charges including interest, penalty fees and membership fees calculated as a percentage of the balance on each account. An APR of 22 percent on a balance of $5000 carried for one year and unchanged would cost $1100 annually.
Compare credit card APR to savings and investment yields: Investments are iffy these days, and deposit accounts are paying zilch; if you have credit card debt, paying it off can provide the best return on your money, as you’re saving the APR amounts for each balance you’re carrying.
Maintain financial harmony: If you’re sharing a budget with a significant other, make sure you’re on the same page. Track spending and how you you’re paying for expenses. This helps with avoiding nasty surprises when you open credit card and financial statements, and helps with preventing even nastier arguments over money.
If you’re uncomfortable dealing with credit card debt alone, please contact credit counseling and debt consolidation services for assistance.
(No Ratings Yet) Loading ...Will debt ceiling deal lead more people to seek help with debt?
Will the government’s agreement on the debt ceiling result in more people struggling with student loan debt? While the deal keeps the Pell Grant program intact, loans subsidized by the government will take a hit in July 2012. That could result in students struggling to keep up with interest, ratcheting up their total debt.
Currently, subsidized loans don’t require payments on interest until after students leave school. But the government’s debt ceiling deal would require graduate students to begin paying interest on student loans while they are still in school. If they don’t make payments on interest it would accumulate, which could lead to more people struggling to afford student loan payments after graduating.
Get help with debt
There are some options for dealing with mounting student loan debt. Student loan debt consolidation could allow you to combine several loans into one monthly payment and interest rate. Federal student loans should be consolidated separately from private loans. When you consolidate debt that could you to avoid defaulting on loans and allow you to maintain your credit.
Debt counseling combined with a debt reduction plan also could help you manage student loans. A debt counseling firm can help you go through all your debts and set up a budget to handle everything. Look for a reputable debt counselor who gives you detailed information about all fees, policies and procedures. Never pay upfront fees before receiving services.
Bankruptcy won’t help
Some consumers mistakenly believe that if they file for bankruptcy that they’re student loan woes will end. Unfortunately, it is highly unlikely that your student loans would be discharged if you were to file for bankruptcy. Only if you were able to prove that student loans were an “undue hardship” on your financially would you qualify to have them discharged. However, the loans could be discharged if you were disabled.
(No Ratings Yet) Loading ...Is eliminating credit card debt a good investment?
Provide your own debt help program by directing money you’re investing in non-retirement portfolios toward paying off credit card debt. In general, financial advisers do not recommend accessing or terminating retirement investments for paying off credit card debt.
Paying off credit card debt is a good “investment”
Eliminate the high cost of credit card debt: Creditors are required by law to post the annual percentage rate of your credit card debt on each monthly statement. The APR includes the card’s interest rate, membership fee, and penalty fees calculated as an annual percentage of your account balance. Let’s say that your APR is 15 percent, and you owe $2,000. If your balance and APR don’t change over one year, you’ll pay $300 in finance charges.
No commissions: Stock brokerages charge commissions for buying and selling stocks. Paying off credit card debt is commission free, and eliminates the cost of carrying credit card debt.
Reduce financial risk: Paying off credit card debt saves money and reduces the risk or ruining your credit should you become unable to pay your debt. Investing in the financial markets can involve losing the amounts you’ve invested when markets decline. If you’re carrying high APR credit card debt, paying it off is a risk-free “investment” in financial security.
Improve your credit: Paying off credit card debt improves your credit scores and suggests to credit bureaus that you are in control of your finances and can responsible handle credit card debt. Don’t close accounts you’ve paid off as this reduces your total available credit and can reduce your credit scores.
If you’re struggling with credit card debt, please contact a consumer credit counseling and debt consolidation service for debt help.
(No Ratings Yet) Loading ...File your tax returns to avoid tax liens, other problems
If you owe a lot of tax debt you may be tempted to put off filing your return, but that is a huge mistake that can result in some serious repercussions, including tax liens.
Are you facing jail time?
While the Internal Revenue Service (IRS) doesn’t throw people in jail for not paying their taxes, you could end up in the slammer for not filing your tax return. (Actor Wesley Snipes is currently serving three years in prison for failing to file tax returns.) So even if your tax debt seem insurmountable, you need to prepare your return and get it filed by the appropriate deadline. Then, take steps to get the debt help you need to clean up your situation.
What if you can’t pay?
Keep in mind that the IRS isn’t trying to lock up everybody who can’t pay tax debt. Not filing a past due return usually results in one of the following actions:
Penalties and interest are assessed, which increases the amount of tax owed
The IRS may file a substitute return for you that may not accurately represent your situation. If this occurs, you should file a return anyway to make sure the information is correct.
Once a tax is assessed, the IRS may place a levy on wages or bank accounts, or file tax liens against your property.
Ultimately, you can’t avoid the IRS. Even if you choose to file for bankruptcy, any tax debt owed to the IRS takes priority over other debts you may owe. It’s better to contact the IRS to get help with debt than to keep avoiding your problems.
You may be able to set up a payment plan that takes into account your current income and other factors. There is a solution to your tax woes if you’re willing to face up to the problem.
(No Ratings Yet) Loading ...Student loan debt run amok
Student loan debt in America has ballooned by more than 511 percent since 1999 to about $930 billion, and that has many people sounding alarms about that debt potentially causing another bubble. During that same period, all other household debt rose 100 percent; that includes credit card debt, autos and mortgages.
Debt affects economy
A Fox News article quoted Mark Kantrowitz, publisher of financial aid Web site Finaid, as saying, “Student loan debt has become a macroeconomic factor; it affects the economy. Students who graduate with excessive debt are more likely to delay buying a car, buying a house, getting married, having children, saving for their retirement….They’re spending less because they first have to tackle their student loan debt.”
Because so many students are graduating with limited job prospects, there is a growing fear that even more people won’t be able to repay student loan debt if the economy continues to stumble. Because more people are defaulting on loans, some schools are even offering debt counseling and budgeting sessions before students can begin attending, like the program at Tidewater Community College.
Debt reduction plan
It’s a good idea to have a student loan debt reduction plan in place before even enrolling in college. While many students and parents choose schools based strictly upon the prestige of an institution, it isn’t necessary to attend the most elite or expensive colleges to get a good education. There are many successful people who attended less expensive state schools and community colleges without running up unmanageable student loan tabs.
When applying to colleges, do research on what people in your intended major do after graduation. You can get a good idea of how much income you might earn upon graduating by looking at career and salary Web sites. If you major in a field such computers or engineering, it’s likely that you will earn a higher salary upon graduating than someone majoring in the fine arts or humanities. Equip yourself with as much information as possible before even leaving college so you’ll have realistic expectations about dealing with student loan debt.
(No Ratings Yet) Loading ...Low mortage rates increasing 15 year mortgage affordability
Record low mortgage rates are making mortgage loans more affordable than ever. Evaluate your current financial situation along with your goals for future relocation and retirement. A fifteen year mortgage provides debt help with meeting your goal of retiring debt free.
Mortgage benefits from a 15 year plan
Use a free online mortgage calculator for estimating savings associated with a 15 year mortgage. Estimate and deduct closing costs from potential savings on interest. With this calculated figure in mind, consider these benefits:
- Pay off your mortgage faster: Refinancing might mean making higher payments with a 15 year mortgage, but the benefit of paying it off sooner is a great plus if you’re concerned about retirement assets and rising expenses.
- Lower mortgage rates: 15 year mortgage rates are typically lower than 30 year fixed rate mortgages. A shorter repayment term translates to less risk for mortgage lenders, and your ability to qualify for the higher monthly payment required of a 15 year mortgage suggests financial stability.
- Potential savings on interest: Estimate interest savings using an online mortgage calculator. Enter your current mortgage balance, interest rate, and repayment term for each loan. Subtract the lower amount from the higher amount; the result represents potential interest savings.
Drawbacks to a 15 year loan
- Higher monthly payments: Your monthly mortgage payments will likely increase. For example, a 30 year mortgage for $200,000 at 4.25 percent has a monthly principle and interest (P&I) payment of $983.88. A 15 year mortgage of the same amount and interest rate has a monthly P&I payment of $1504.56, a difference of $520.68. Meeting the higher payments for a 15 year mortgage might mean less money for other essentials and savings.
- Higher risk of financial hardship: Substantially higher mortgage payments can increase the risk of foreclosure or bankruptcy in the event of long term hardship.
Consult a financial advisor for recommendations based on individual circumstances and financial goals.
(No Ratings Yet) Loading ...File your tax returns to avoid tax liens, other problems
If you owe a lot of tax debt you may be tempted to put off filing your return, but that is a huge mistake that can result in some serious repercussions, including tax liens.
Are you facing jail time?
While the Internal Revenue Service (IRS) doesn’t throw people in jail for not paying their taxes, you could end up in the slammer for not filing your tax return. (Actor Wesley Snipes is currently serving three years in prison for failing to file tax returns.) So even if your tax debt seem insurmountable, you need to prepare your return and get it filed by the appropriate deadline. Then, take steps to get the debt help you need to clean up your situation.
What if you can’t pay?
Keep in mind that the IRS isn’t trying to lock up everybody who can’t pay tax debt. Not filing a past due return usually results in one of the following actions:
- Penalties and interest are assessed, which increases the amount of tax owed
- The IRS may file a substitute return for you that may not accurately represent your situation. If this occurs, you should file a return anyway to make sure the information is correct.
- Once a tax is assessed, the IRS may place a levy on wages or bank accounts, or file tax liens against your property.
Ultimately, you can’t avoid the IRS. Even if you choose to file for bankruptcy, any tax debt owed to the IRS takes priority over other debts you may owe. It’s better to contact the IRS to get help with debt than to keep avoiding your problems.
You may be able to set up a payment plan that takes into account your current income and other factors. There is a solution to your tax woes if you’re willing to face up to the problem.
(No Ratings Yet) Loading ...New York City goes after debt settlement firms
Be careful who you go to for credit card debt relief. There are a lot of debt settlement companies out there who don’t deliver on all the promises they make but get paid anyway. Fraudulent credit card debt settlement programs have become such a problem in New York that the city’s Department of Consumer Affairs (DCA) is warning consumers about using them.
Debt settlement firms offer ‘false hope’
The DCA recently issued subpoenas to 15 debt settlement companies that were the subject of complaints by city residents or are based in the New York area. DCA Commissioner Jonathan Mintz said in a statement:
These so-called ‘debt settlement’ companies bombard New Yorkers with ads that fraudulently offer false hope, but instead deliver nothing but added fees and long-lasting financial ruin. Today we are issuing subpoenas to 15 debt settlement companies that are using such aggressive and deceptive tactics to prey on vulnerable consumers here in New York so that we can reveal the full extent of their wrongdoing and harm. I urge those struggling with debt to resist these too-good-to-be-true offers and instead take advantage of the City’s free, professional one-on-one financial counseling at one of more than 20 Financial Empowerment Centers.
Some debt settlement programs have come under fire for charging upfront fees to consumers without actually helping them find credit debt relief. In some cases consumers struggling with thousands of dollars of credit card debt are left worse off than before they signed up to get help with debt.
You can get help with debt
If you’re struggling with credit card debt, there is help available. But keep in mind that you don’t have to pay someone a lot of money to settle your debt. While there are legitimate debt settlement programs out there, you may be able to negotiate directly with your creditors to set up a plan.
(No Ratings Yet) Loading ...Debt relief: managing your own “debt ceiling”
Here are some debt management tips helpful for controlling credit card debt.
Debt management 101: Don’t increase credit limits
When you’re short of cash or have unexpected expenses, opening another credit card may seem like a good option. Instead, be realistic about how digging deeper into debt helps with your goal of effectively managing debt. Don’t fall for offers of deep discounts for opening a new credit card. Unlike the federal government, consumers can damage their credit by opening new accounts and maxing out credit cards.
Reducing finance charges: Can balance transfers help?
Finance charges, or the cost of using credit, are calculated as an annual percentage (APR) of the amount of debt you owe. Your credit card statements show your current APR for each monthly billing period. Take a deep breath and check out the APR for each of your credit cards. Variable interest rates, penalty fees, and card usage cause the APR to change.
Credit card companies promote transferring balances to their card in exchange for a low or no interest rate introductory period. Read the fine print; there is usually a 3 to 5 percent transfer fee tacked on to each transfer. This may be worthwhile under the following conditions:
You can transfer balances with double-digit APRs and pay them off within the introductory period. Failure to pay them off during the introductory period means that balances remaining after the introductory period expires will accrue interest at a new and usually much higher rate.
Controlling spending/card usage: If you practice retail therapy, or buy big ticket items that cannot be paid off in one billing cycle, please think twice about balance transfers, especially if you’re opening a new credit card account.
Consult a financial advisor or credit counseling and debt consolidation program for help with reducing and managing credit card debt.
(No Ratings Yet) Loading ...- This blog covers a wide variety of debt consolidation and loan topics.
We rely on a large network of financial experts and leading authors to write the content for the DebtHelp.com Blog.
Get help with debt before seeking an auto loan
Keeping your personal "debt ceiling" from crashing down
Will debt ceiling deal lead more people to seek help with debt?
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Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score.
Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management.
He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others.
He can be contacted by visiting his personal site, GoodCreditLiving.com.
Francine L. Huff is the Publisher and Editorial Director of Super Savvy Publishing, LLC, which provides editorial and publishing services. She is a gifted author, freelance journalist, and motivational speaker who has entertained and motivated a variety of audiences through workshops, panels and keynote addresses. Francine is the author of The 25-Day Money Makeover for Women, which has inspired and motivated many readers to rein in poor financial habits, become good stewards over their money and work toward a debt-free life. She has appeared on a variety of TV and radio shows. Francine previously worked for the Wall Street Journal, where she was the spot news bureau chief, a news editor and a copy editor. She has interviewed a variety of financial professionals about financial issues and strives to present information about managing money in an easy-to-understand format that is accessible to people of all backgrounds and income levels.
Karen Lawson is a freelance writer with more than 15 years of experience working in mortgage banking and loan servicing. She holds BA and MA degrees in English from the University of Nevada, Reno. She enjoys writing informative articles about debt management and personal finance.
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