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 ...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 ...Ultimate debt relief: Understanding the psychology of debt
You’ve dug yourself into a hole with credit card debt and wonder what’s next. Digging out of debt is important, but first you may have to dig deeper for understanding psychological factors leading to credit card debt.
Devil in the details: discover what you’re buying, where and why you’re using credit
Financial anthropologist and money coach Denise Hughes identifies factors contributing to problems involving credit card debt:
- Having a different “money-style” than your spouse or partner: Using credit cards for funding purchases you want to keep secret, or revenge shopping when you’ve had a domestic spat are examples of how conflicts over money can create credit card debt.
- Compulsive shopping: Rewarding yourself with a plastic-funded shopping spree after a bad day at work may seem therapeutic, but it can lead to family problems, divorce and bankruptcy.
- Entitlement and deserving: Do you treat yourself because you “deserve it”? Do you over-spend when you’re angry, depressed or lonely?
- Making purchases using revolving credit: Buying things that you cannot pay for within one billing cycle causes credit card debt to increase and can lead to penalty fees and lower credit scores.
Using credit cards in place of meeting deep-seated psychological needs such as feeling loved and appreciated, having fun, having an influence over your own life, and enjoying personal freedom can lead to financial problems.
Attempting to replace vital emotional needs with over-spending using credit cards suggests that you’re attempting to fill a vacancy in your life by buying things. Consulting with a financial advisor or consumer debt counseling service can help with improving your finances and quality of life.
(No Ratings Yet) Loading ...Want a student loan? Where’s your budget?
Student loan defaults have become such a concern that one community college is now requiring students to complete personal budget worksheets in order to receive loans. Tidewater Community College, based in Norfolk, Va., wants students to outline a realistic picture of their financial situation before and after graduation, including a repayment plan for student loans, according to Inside Higher Ed.
Making students accountable
The move goes beyond requirements set forth by the U.S. Department of Education for receiving federal loans. The school hopes making students more accountable will help them make more responsible decisions about borrowing money for education expenses. Deborah DiCroce, president of Tidewater Community College, told Inside Higher Ed that student loans are “not a handout.” She went on to say:
It’s not something that goes away when the college experience is completed or not completed. There’s a commitment to repay a loan that has as much weight to it as any other kind of borrowing one might do. My concern, as we are ramping up our financial aid program, is keeping a close eye on our default rates, as one of our measures of accountability. It just became clear that we needed to take a step beyond what the feds require. Where is our responsibility to educate a borrower on this type of investment?
Looking for debt solutions
Many students need debt help because of high student loan balances they can’t pay back. Not only are many recent graduates having a tough time finding jobs that allow them to afford student loan payments, but they are also carrying high levels of credit card debt.
Tidewater Community College has the right idea with having students put together a financial plan that involves paying back any money borrowed. More students need to be educated about the consequences of taking on student loan debt and combining it with high-interest credit card debt, auto loans, etc.
(No Ratings Yet) Loading ...Get debt help to avoid IRS wage garnishment
Don’t expect the government to let you get away with not paying your tax bill. As many high-profile cases involving celebrities such as Wesley Snipes and Al Pacino and have shown, the Internal Revenue Service (IRS) expects to get paid no matter what your sob story may be. If you don’t set up some type of payment plan with Uncle Sam, don’t be surprised if the situation escalates into an IRS wage garnishment.
What is wage garnishment?
The government can legally deduct a portion of your wages–up to 25 percent–to pay back what you owe. A wage garnishment usually results after repeated warnings and letters about unpaid tax debt. The IRS would rather work with you to set up some other type of agreement for paying your tax bill, so do whatever you can to avoid having a levy placed on your paychecks.
The biggest problem with wage garnishment is that you are likely to struggle even more to pay household bills and other expenses. If you are already having a tough time financially, you may end up in the position of having to take on a second job to boost your income.
Get help with debt
If things have really spiraled out of control and you have a big tax bill and other financial obligations hanging over your head, it’s probably time to get help with debt. A debt counseling firm may be able to help put together a debt reduction plan to get you moving in the right direction. A debt counselor may also be able to help you navigate the IRS system for setting up some type of payment plan.
If you have already received a wage garnishment, consider finding a knowledgeable tax attorney. The attorney may be able to help you get a wage garnishment released or set up some type of installment agreement to pay back what you owe.
(No Ratings Yet) Loading ...Should you consider debt settlement to save money?
Yes, some creditors may be willing agree to a debt settlement, but doing so isn’t always the right strategy for everyone. Make sure you weigh all the pros and cons to get the best results for your situation.
DIY vs. debt settlement programs
Most people consider signing up for a debt settlement program because they aren’t sure where to begin with wiping out credit card debt and other bills. Using one of these services usually requires you to make payments into an account with the firm for a period of two to three years, and the funds that accumulate are used to pay off debt.
While some debt settlement programs do exactly what they advertise, there are many accounts of consumers being duped and left with unpaid bills. Research any debt settlement program you are considering to make sure it is reputable and has a good track record.
Savvy consumers should be able to skip the middleman–a debt counseling firm–and negotiate a debt settlement directly with creditors. It may take several attempts to reach the individual who is authorized to approve a deal, so it pays to be persistent. Also, don’t expect to get a debt settlement unless you are at least two months behind on your payments.
Pros and cons for debt settlement
The upside to settling debt is that you can get a portion of your credit card debt wiped out. In some situations creditors may be willing to waive up to 50 percent or more of your debt. Generally, you’ll need to offer up some sort of lump sum payment, but there may be situations where a payment plan might be set up. But paying off a smaller percentage of debt can lessen the amount of interest paid out over time.
The downside to striking a deal is that you may still owe taxes on the forgiven debt. If you owe a significant amount of debt, talk with a tax adviser to get an idea of how big the tax hit may be.
(No Ratings Yet) Loading ...Should you cosign for a student loan for Junior?
Many young people are unable to get private student loans without a cosigner. Their parents may step in to help them get the loans the need, but end up putting their own financial security at risk. Here are some things you should think about when weighing the pros and cons of co-signing for student loans.
Federal vs. private student loans
Your kid should always apply for federal student loans before turning to private loans. Federal loans such as the Perkins or Stafford are not based on credit scores, so there is no credit check. Students also do not need a cosigner to qualify for federal aid. However, private student loans do require a credit check, and your student probably won’t qualify without a cosigner. Depending on the lender the borrower may be required to get a cosigner even with a healthy income and credit score.
Parents’ financial profile
As a parent you should ask some questions about your financial situation–now and in the future. Use the following questions as a starting point:
- Do you have a lot of credit card debt and other bills?
- Are you having trouble making your mortgage payments?
- Are you worried about your future job security?
- Have you experienced a recent drop in income?
- Is it difficult to make your income stretch between paychecks?
- Have you saved a substantial amount for retirement?
Do you need debt help?
If you are already struggling to handle all your household expenses, co-signing for a student loan is probably not a good idea–if you can even qualify. If Junior defaults on a loan, as the cosigner you would be responsible for paying it back. Many recent graduates are coming out of school with no job prospects in sight, and that could happen to your kid as well. So think about whether heaping a student loan payment on top of all your other obligations would push you to a financial breaking point. If your finances are too out of control, it may be time to get help with debt from a debt counseling firm.
(No Ratings Yet) Loading ...Consumers in the U.S. are still in financial distress, but their overall financial situation seems to be improving. The CredAbility Consumer Distress Index tracks the financial condition of the average U.S. household each quarter. CredAbility, a nonprofit credit counseling firm, measured employment, housing, credit, how households manage budgets and net worth.
Index score rises
U.S. households had a score of 68.1 on a 100-point scale in the first quarter of 2011, which was up from 67.2 the previous quarter. It was the highest score since the financial crisis escalated in the third period of 2008. A score below 70 indicates that households are experiencing financial distress.
Debt management
However, many consumers are getting their acts together and improving their finances. For instance, many people are doing better at managing their household budgets. They also are showing some improvement in debt management, reflected in the fact that there were fewer bankruptcy filings, which fell 6 percent from the year-earlier quarter.
“The good news is that the full-time labor force grew by more than 540,000 people in the first quarter and consumers with stable incomes have a handle on their credit and household budgets,” said Mark Cole, chief operating officer for CredAbility and author of the report. “While the housing category continues to deteriorate, a gain of four points in the index during the past five quarters indicates that the majority of consumers are on the right track.”
Distressed southern states
Some areas of the country fared better than others. North Dakota (82.35) and South Dakota (81.23) were the states with the highest individual scores. Overall those two states have not been hit as hard by the economic crisis as some other parts of the country. Six states in the Southeast were among the 10 most distressed states in the country.
Help for your household
If you find yourself feeling overly stressed by credit card debt and other bills, it may be time to get help with debt. Consider finding a reputable debt counseling firm to work with you to better manage your household budget.
(No Ratings Yet) Loading ...Government cracks down on more student loan defaulters
The government is going after more student loan defaulters and suing to recover the money. The Education Department referred 5,393 loan defaults to the Justice Department last year, compared with 2,596 in 2009, according to USA Today. There were 918 referrals in 2006.
Too much debt
Many people who used student loans to pay for college have found themselves struggling to pay the bills along with credit card debt and other financial obligations. In many cases defaulters go for years with unpaid loans without the government coming after them. But now the government is filing lawsuits against more people with large amounts of unpaid debt.
“The most important thing to remember is we want the loans repaid,” Education Department Spokesman Jane Glickman told USA Today. “Borrowers can work on repayment plans ranging from deferments to extended grace periods. We try to do everything possible to come up with a repayment plan before taking the step of seeking a lawsuit.”
Ask for help with debt
If you find yourself juggling too many student loans, here are four things to try to get help with debt:
- Contact your student loan company and ask for debt help. Avoiding the problem will only make it worse.
- Ask for a loan deferment, which would allow you to postpone repaying it for a period of time. Depending upon the type of loan, you may still have to make interest payments.
- Ask for forbearance on a loan. This would allow you to suspend or reduce loan payments for a period of time. Interest would continue to accrue during the forbearance.
- Look for loan forgiveness programs if you work in select fields in certain types of communities, such as medicine, teaching or the military. Read through program guidelines carefully to determine eligibility.
Get help with student loan debt before it gets out of control and you end up defaulting. Also remember that having larger amounts of debt could also increase the odds of a lawsuit being filed against you.
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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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