Credit Crisis Reduces Debt Consolidation Options
Bloomberg.com reported today that Federal Reserve Chairman Ben Bernanke hinted that the Federal Reserve is ready to lower interest rates at their next meeting before the end of this month. Some analysts are predicting a cut will come before then.
The article goes on to quote Bernank as saying, “Even households with good credit histories are now facing difficulties obtaining mortgage loans or home equity lines of credit.” He continued with, “Banks are also reducing credit card limits, and denial rates on automobile loan applications reportedly are rising.”
It has become increasingly difficult for consumers to borrow money. If you are currently exploring debt consolidation, you may need to get creative.
The most common debt consolidation loan has traditionally been the home equity line of credit. It provided for the highest loan amounts and the most aggressive terms since it is secured by your primary residence. Most Banks have dramatically reduced the number of equity lines of credit they are offering and have reduced the lines of credit for existing customers. As housing values continue to drop across the country, the underlying collateral of these loans becomes less valuable resuling in a riskier loan for the bank.
Get Creative
Money is difficult to borrow, home values are declining, and the Dow Jones Industrial Average is down just under 800 points over the last 5 trading days. Now may be an excellent time to approach a friend or family member and ask them for a debt consolidation loan. They may have cash that they’ve pulled out of the market or they may have money in a savings account that could be making them more money.
You first need to determine how much debt you have, how much interest you are paying, and how much you can afford to pay every month. The goal of debt consolidation is to lower the interest cost of the debt and/or accelerate the payoff of that debt.
Armed with that information, you can come up with terms that would be beneficial to you an would be appealing enough to a friend or family member.
Borrowing from friends and family isn’t a strategy that should be taken lightly. Personal relationships can be strained when one person owes another money. The more formal you make the process the less likely there are to be issues. Consider drafting up a promissory note and have both parties sign it. You should also set up an automatic payment from your bank account so there are no issues with forgotten payments.
Sell Stuff
If you don’t want to borrow from someone you know and are having problems obtaining a debt consolidation loan from a bank, explore selling some personal items to raise money to pay down your debt. Perhaps you have some old exercise equipment you no longer use or some consumer electronics you could go without.
The current credit crisis may be making it more difficult for you to consolidate your debts, but you still have options. With a little creativity you may just find a way to reduce the amount of debt you have or the interest you are paying.
Sources:
Bloomberg.com
About the Author:
Chris Rocks is the Founder and Executive Director of the Credit Advisory Alliance (CAA), a membership based organization helping those who have suffered a financial crisis restore their credit and reinsert themselves back into the credit-driven economy. Prior to founding CAA, Chris had successfully helped consumers achieve their financial goals as both a Financial Advisor and the Vice President of a Mortgage Origination Firm.
Post written by Chris Rocks
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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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October 7th, 2008 at 7:08 pm
[…] Go here to read the rest: Credit Crisis Reduces Debt Consolidation Options […]
October 8th, 2008 at 7:20 am
Hi there, not sure this is the most appropriate location to post this, but hey ho. It’s interesting to see the parallels ‘across the pond’ to what’s going on over here in the UK - our government is about ot pay out £50Bn ($100Bn approx) to bail out our banks. We’re a UK-based debt help charity who provide completely free online tools, advice and practical support to those who cannot afford (or don’t want to pay for) commercial debt help. Over the last 3-4 months, we’ve had an increasing number of enquiries on the site from people living overseas (mostly US, but Europe also) Therefore, we’re keen to get a bit of feedback from potential overseas visitors as to whether the content is relevant enough for those outside the UK. We’re currently working on multiple currencies for the site (funds depending!) - any feedback would be great.
Thanks in advance, Bill
October 9th, 2008 at 7:31 am
Everyone’s situation is unique but, if you do as much research as you can and use debt consolidation articles and other tools you find as a general guide, you can customize it to fit your situation.
October 16th, 2008 at 11:51 am
It is very sad that the current crisis in the United States has reduced the debt consolidation options open to Americans. When we most need to consolidate our debt due to the rising prices of literally everything, it has gotten harder to do so. What a sad state of affairs.