Bad Credit Unsecured Loans vs. Debt Solutions: Money Problems? Write off Debt or a Debt Consolidation Loan?

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UK unsecured personal debt, such as unsecured loans, credit card debt and personal overdrafts, currently stands at a massive 0.7 trillion. This mountain of unsecured quick loan debt has reduced disposable income and made it difficult for people to cover their household bills.

Should someone tackle their money problems with a bad credit unsecured loan or a debt solution, such as a debt management plan, personal bankruptcy or an Individual Voluntary Arrangement? How will this affect someone’s credit rating?

Bad Credit Unsecured Loans vs. Debt Solutions

Deciding whether a debt solution or a bad credit unsecured loan should be chosen will depend heavily on a person’s credit rating. Whilst those with good credit can usually get a debt consolidation loan at 8-9%, this isn’t the case for those with bad credit.

Missed or late payments and loan default means that bad credit customers represent a huge risk to lenders like Cobra Payday Loans. Bad credit unsecured loans charge an APR of about 50-60%. A high APR bad credit unsecured loan will only serve to worsen money problems and should be avoided in favour of a debt solution.

Debt solutions can be utilised to fit unsecured loans, credit card debt and personal overdrafts around household bills. The decision someone with personal debts needs to make is whether they wish to manage debt with a debt management plan or write off debt with an Individual Voluntary Arrangement or personal bankruptcy.

Why Choose a Debt Management Plan?

A debt management plan is a voluntary agreement between a debtor and his creditors. It involves making a payment of at least £100 to an intermediary who, in turn, disseminates the proceeds to creditors on a pro rata basis. Although a debt management plan doesn’t write off debt, it can result in interest and further charges being frozen. It is normally suitable for debts of up to £15,000.

Why Choose an Individual Voluntary Arrangement?

Unlike a debt management plan, an Individual Voluntary Arrangement is a legally binding agreement with creditors for debts of over £15,000. Once 75% of creditors, in terms of value, agree to an IVA there can be no further creditor harassment. The debtor will need to make 60 monthly payments to an Insolvency Practitioner. Once this has been done the remaining unsecured personal debt is written-off.

Why Choose Personal Bankruptcy?

Personal bankruptcy is a debt solution used to deal with serious personal debts. It is possible to write off debt of most varieties, but not taxes, child support, student loans and money accrued as a result of fraud. Most debtors will be discharged after a period of 12 months, although there are a number of negatives, including loss of the family home.

Should someone struggling with high APR personal debt and bad credit be experiencing money problems, it is sensible to pursue a debt solution. Before deciding whether an Individual Voluntary Arrangement or debt management plan is the right option, it is advisable to consult a debt counsellor to discuss the situation.

The Department of Veteran’s Affairs (VA) Home Loan: A Great Perk for Service

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The Department of Veteran’s Affairs (VA for short) guarantees loans for qualifying veterans. This type of loan is referred to as a VA home loan. These loans are one of the best benefits available to men and women who have served in the US military. While the VA does not actually lend the money to veterans they promise or guarantee that the money will be repaid should the loan for some reason go into default. VA loans can be used for both new home purchases and the refinancing of existing mortgages.
If you are a qualifying veteran that is either currently serving in the military or who has been honorably discharged you can go into almost any lending institution that handles home loans and apply for a VA loan. Among the most attractive things about a VA home loan is that there is no down payment required for loans up to $417,000. This may not seem like such a bonus as other mortgage lenders offer this, however, you aren’t suffering a higher interest rate in order to skip the down payment with a VA home loan.

Another great thing about a VA home loan is the fact that your interest rate will be quite competitive if not lower than the average conventional loans that are currently available. Lower interest rates equal lower payments over time and that is always a good thing (assuming that the interest rates are fixed and not adjustable). For those with less than stellar credit records, some find that qualifying for a VA loan is easier than qualifying for a conventional loan, it is important to remember however, that you must still qualify based on your credit in order to receive this benefit.

Another great benefit to obtaining a VA home loan is the fact that you will not be required to take out private mortgage insurance (PMI). Private mortgage insurance is a type of insurance that lenders require should your home go into default (the lender reaps the rewards and the buyer pays the premium). Buyers are generally required to pay PMI until the principal owed reaches 80%. This can result in significant savings over time for those who take out a loan that doesn’t require private mortgage insurance.

Now that you know the good, it’s time you learn the not so good. First of all, there is a ‘funding fee’, which can be financed if cash is hard to come by at closing. However, it is important to keep in mind that you will be paying interest on the amount you financed and a relatively small funding fee now could have bought a new car by the time you finish paying for over a 30 year period. This fee isn’t much different from a loan origination fee that you would pay with other lenders and if you aren’t paying a down payment shouldn’t be too difficult to come up with.

There are also limits to the amount you can borrow that in some markets (particularly those in high demand areas such as California, Florida, and New York) might be more than mildly prohibitive. In addition to all of this, there is no such thing as money for nothing and you must still qualify for these funds according to your credit worthiness. If you qualify for a VA home loan, it is definitely worth considering as it could save you a lot of money over the length of your home loan.

What is Student Loan Consolidation?

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Most students could not afford to pay for their college or university education, thus, a lot of them secure a student loan which usually comes from public or private financial institutions or the school itself where the student is attending.

Since every year, tuition and other school-related fees increase, students have no choice but to resort to student loans. Eventually, students find it harder to repay loans that have piled up over time. And so, in order to lessen their burdens, most of them would opt to consolidate their loans.

Student loan consolidation is merging different loans into one

Student loan consolidation is combining different student or parent loans into one from either the same or different lenders. The result is easier payment terms and bills only come ones a month. Best of all, the interest rates are consolidated and fixed for the rest of the loan’s tenure.

In the United States, student loan consolidation is available to all federal student loan programs, including Stafford loans, Perkins loans, and Parent loans.

Paying student loan consolidation

Payment for loan consolidation is usually extended and takes longer time to pay. Borrowers could opt to pay up for up to 30 years. Paying monthly installment might seem a money-saver but if payments are totaled, including the interests paid, student loan consolidation is comparably higher than the other kinds of student loan.

For computing the interest of consolidated loans, all the interests accrued are added and the weighted average is computed. It is then rounded up to the nearest 0.125% and capped at 8.25%

For consolidating loans with different interest rates, the average is usually computed as the sum of the interests divided by the number of interests. Even though the interest of a consolidated loan is cheaper than the highest interest rate of your previously unconsolidated loans, when computed, the fixed interest on the other hand is slightly higher than the lowest interest rate of the earlier unconsolidated loans.

Consider the factors first before you consolidate your loans

Loan consolidation is not at all advisable for all borrowers because some of the incentives offered in ordinary student loans are not available in consolidated loans. Among the excluded incentives include the special forgiveness circumstances in case the borrower has defaults in payment and the six-month grace period.

Consolidating loans do not require a fee, though consolidating the loans of two individuals is not allowed. Married students cannot also consolidate their student loans after the repeal of the provision of the Higher Education Reconciliation Act in 2005.

The repeal was, in part, enacted to avoid conflicts in the future. When loans are consolidated by married couples, each one is responsible for paying the entire loan. When marriage breaks or when the couple divorces, the loan cannot be separated, worsening the conflict between the two.

Students are not allowed to consolidate their loans while they are still in college. Consolidation of loans is allowed only when the borrower has already graduated. Usually, the arrangement may take place anytime within six months grace period. On the other hands, parents who arranged a series of loans could consolidate them anytime.

Consolidating a loan is not at all the solution to for easy debt management. It is just a tool to make payments easier and more comfortable for the borrower. Whether the loan is a burden or an ease, it all depends upon the borrower. Proper and reasonable spending and efficient allocation of funds are some of the advisable steps that will help you repay a loan while still having something to spend for yourself.

How Chapter 13 Bankruptcy Helps Credit Card Debt: A Debt Solution to Reduce Monthly Payments and Become Debt Free

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Unmanageable credit card debt leads US consumers to search for a debt solution that genuinely works. Whilst some turn to debt settlement plans, others prefer the full court protection that chapter 13 bankruptcy provides. Individuals with non-exempt assets, such as rental properties, regularly choose to restructure their credit obligations over a 3 to 5 year period in order to reduce monthly payments. Whilst FICO scores will be adversely affected, it is possible for those with serious money problems to become debt-free.

The Difference Between Chapter 7 and Chapter 13 Bankruptcy

The principal difference between chapter 7 and chapter 13 bankruptcy is that the latter allows a consumer to keep non-exempt assets. A consumer would be expected to hand over any assets to a trustee if filing for bankruptcy under chapter 7 bankruptcy. Others seek chapter 13 protection with respect to home, car and student loans. In order to benefit from chapter 13, debtors are expected to make monthly payments towards the amount owed to creditors.

How Long Does it Take to Clear Credit Card Debt?

Depending upon the amount owed, chapter 13 bankruptcy (also known as wage earner bankruptcy) will allow a consumer to ‘restructure’ credit card debt over a period of 3 or 5 years. Monthly payments will be made to a bankruptcy trustee based upon the amount of disposable income available. Once this debt solution is complied with, any remaining liabilities are written-off and the consumer will now be completely debt-free.

Does Writing-Off Credit Card Debt Under Chapter 13 Bankruptcy Affect FICO Scores?

Filing for bankruptcy affects FICO scores for up to 7 years. The ramifications of chapter 13 bankruptcy are less serious than chapter 7 because creditors are receiving a regular monthly payment based on the amount of credit card debt owed. Provided repayments on other credit commitments are made punctually, FICO scores will start to improve after only a couple of years. Borrowing money will be more difficult, but mortgage refinancing will still be possible.

The Rising Cost of Chapter 13 Bankruptcy

Robert M. Lawless, a professor at the University of Illinois, conducted an analysis of court records. He claimed that, whilst 30 per cent of those willing for bankruptcy chose chapter 13, this number rose to almost 40 per cent. This appears to be the primary reason for the increasing cost of insolvency. According to an article in The New York Times, Judge Markell stated the fee for Chapter 13 bankruptcy in Las Vegas, Nevada is now approximately $4,300. It was just $2,700 before changes to bankruptcy laws took place.

Chapter 13 bankruptcy may provide a better debt solution than a debt settlement plan for a consumer seeking to eliminate credit card debt. Money problems are eased because chapter 13 provides a debtor with a restructured, affordable repayment plan. This affects FICO scores, but the implications aren’t as serious as filing for bankruptcy under chapter 7.