No 'Squid Game': South Korea's real-life debt trap

SEOUL - Many small business owners in South Korea recognize themselves in the cash-strapped characters of the wildly popular Netflix drama 'Squid Game', who vie desperately for a chance to win $38 million, exposing a debt trap that is all too familiar.

Nearing retirement at 58, Yu Hee-sook paid off her debts long ago, but still gets calls from collection agencies threatening to seize her bank accounts, as the loans got securitized and sold to investors without her knowledge.

"In Korea, it's like the end of the world once you become a credit delinquent," said Yu, who got by on small jobs, such as writing for movie magazines, during the 13 years it took to pay off the debts she incurred over a movie that flopped in 2002.

"All I wanted was chances to repay debt, but banks don't let you make money," added Yu, who feels trapped in an unforgiving life-long ordeal, just like the 456 game show contestants of the 'Squid Game'.

While foreigners may associate South Korea with the boyband BTS and sleek Samsung smartphones, the drama points to a dark flipside of rising personal borrowing, the highest suicide rate among advanced nations, and the rarity of getting free of debt.

Record household borrowing is fueling private investment and housing growth, but unforgiving social mores about debt often blur the line between personal and business loans, burdening those who run small businesses.

Personal bankruptcies soared to a five-year high of 50,379 last year, court filings show.

The proportion of those falling behind on more than one type of personal debt payment has risen steadily to reach 55.47% by June from 48% in 2017, figures from the Korea Credit Information Services show.

"If Donald Trump was a Korean, he probably couldn't have become the president, having been bankrupted many times," said a lawyer in Seoul, who specializes in personal bankruptcy.

"In the United States, corporate debt is more separated from personal debt."

An inadequate social safety net for small entrepreneurs and the lack of a rehabilitation program for failures spell risks that could drive some South Koreans desperate, and banks often ignore a five-year limit to destroy insolvency records.

"Due to traditional practices in the banking industry, business owners in South Korea face high likelihood of taking the debt burden from the business they run," said bankruptcy judge Ahn Byung-wook.

Banks often demand that business owners stand as joint surety for the firm's borrowing, a practice the government banned for public financial institutions in 2018, although three owners told Reuters some providers persist.

Applicants for business loans who have poor credit ratings or a history of default need guarantees from state-run financial institutions in South Korea.

"Culturally, failed entrepreneurs are socially stigmatized, so starting over is hard, as people don't trust them," added Ahn, who has spent four years at the Seoul Bankruptcy Court.

"On top of that, those who file personal bankruptcy face a long list of restrictions on employment."

The numbers of South Korea's self-employed rank among the world’s highest, forming a quarter of the job market, making it vulnerable to downturns. A central bank study in 2017 showed that just 38% of such businesses survive three years.

Still, as economic prospects dwindle, with South Koreans chasing fewer good jobs amid surging home prices, many are betting that speculation is the only route to wealth, and have taken on more debt than ever to buy stocks and other assets.

Household borrowing is roughly equivalent to GDP at a record 1,806 trillion won ($1.54 trillion) in the June quarter.

"The government encourages startups but they don't take care of the failed businesses," said Ryu Kwang-han, a 40-year old entrepreneur who exited the debtor rehabilitation program in 2019 but still struggles to get loans.

"How is this different from 'Squid Game' if there's no second chances?"

The global sensation has been watched by 142 million households since its Sept. 17 debut, the world's largest streaming service has said, helping Netflix to add 4.38 million subscribers.

-reuters

More than 200 groups urge G20 to back IMF issuance to help poor countries in pandemic

WASHINGTON - Jubilee USA Network, Oxfam and 215 other civil society groups on Wednesday urged Group of 20 finance officials to back an issuance of $3 trillion of the IMF's own currency, or Special Drawing Rights, to help countries weather the COVID-19 pandemic.

In an open letter to the International Monetary Fund and G20 finance ministers, the groups said a new allocation of SDRs would boost the reserves of all countries and avoid pushing low- and middle-income countries further into debt distress.

G20 finance ministers and central bankers will discuss a possible SDR issuance - a move akin to a central bank printing money - when they meet by video conference on Friday. Proponents note that such a move will not add cost for the IMF members.

Italy, which leads the G20 this year, is pushing for a smaller $500 billion allocation of SDRs, which can be converted to hard currency by IMF members - a move backed by France, Germany and others, but still lacking support from Washington.

The United States had opposed such a move under former President Donald Trump, but has not yet communicated a firm position on a new SDR allocation under President Joe Biden.

Treasury has declined to comment on the issue.

IMF Managing Director Kristalina Georgieva on Wednesday also called for the G20 to take strong policy action to reverse a "dangerous divergence" that she said threatened to leave most developing economies languishing for years.

In a blog ahead of Friday's meeting, Georgieva said a new SDR allocation would substantially boost countries' liquidity without increasing their debt burdens. It would also expand the capacity of donor countries to provide new resources, she said.

Religious groups have also weighed in. On Tuesday, the US Conference of Catholic Bishops and Jubilee USA Network urged President Joe Biden to back a $3 trillion allocation to help poor countries bolster US trade with the developing world.

Anti-poverty group ONE on Wednesday backed an allocation of $650 billion.

-reuters

Argentina in default but creditor negotiations continue

Argentina defaulted on Friday for the second time in less than 20 years after failing to pay $500 million of interest on its bond debt, but it continues to negotiate a restructure with creditors, Finance Minister Martin Guzman said.

"There is still a significant distance to go but, more importantly, all sides remain at the table to find a solution," he said.

The default -- Argentina's ninth overall -- was widely expected after the economic ministry announced on Thursday that it was extending, for a second time, talks with international creditors on restructuring $66 billion of its debt. The new deadline is June 2.

President Alberto Fernandez's government is expecting to come to an agreement before Argentina suffers the full effects of its default.

Thursday's announcement of the extension "provides flexibility in case the Republic decides to make modifications in the coming days to ensure a sustainable agreement with our creditors," Guzman said.

The crisis-wracked South American country, which has been in recession for two years, currently owes $324 billion, amounting to around 90 percent of its GDP.


The crisis was aggravated when its economy was hit -- like others all over the world -- by the coronavirus pandemic.

Though it is one of the world leaders in food exports, Argentina has already defaulted eight times in its history, most recently in 2001 when it owed $100 billion.

That triggered a painful social and economic crisis.

- 'Significant losses' -

Ratings agency Moody's said the default would provoke "significant losses for investors."

"Moody's expects that the panorama for the restructure of Argentina's debt will very probably become more complicated," said vice president Gabriel Torres.

Argentina's main group of creditors is demanding "a direct and immediate discussion" on its restructure plans.

"The group is happy to see that Argentina has expressed its intention to work with the creditors, but actions speak louder than words," said the Ad Hoc group made up of investment funds including BlackRock and Fidelity.

"Over the last month, Argentina has communicated virtually nothing of substance to its creditors."

The Merval index on the Buenos Aires Stock Exchange was down 1.03 percent at the close on Friday to 40,962.76 points. Stocks had risen 3.99 percent throughout the week as negotiations between the governor and creditors continued.

Guzman has taken an aggressive stance on debt, in part driven by a need to free up resources to fight the novel coronavirus pandemic.

Argentina asked bondholders for a three-year grace period on debt repayment, a 62 percent reduction on interest amounting to $37.9 billion, and 5.4 percent on capital -- or $3.6 billion.

That was rejected with a counter offer that the government says it is studying.

"If the majority agrees to the exchange, the default will be very short. I don't think there will be a reduction in the letters of credit" that would impede essential imports, economist Marina Dal Poggetto from EcoGo told AFP.

"But if negotiations take a long time, we'll pay dearly."

The International Monetary Fund, which is supporting Argentina in its restructuring plan, says it has been encouraged by the "willingness of both sides to continue discussions to reach a deal," spokesman Gerry Rice said.

But analysts Capital Economics said "there is a growing risk that the restructuring talks drag on into next year."

- 'Waterfall of bad news' -

Yet more bond interest payments are due at the end of June, which could be delayed by a month.

If by then there is no restructuring agreement, "bondholders will probably consider it more convenient to litigate given they think it unlikely that Argentina will be able to reach a short-term agreement," Ignacio Labaqui of Medley Global Advisors told AFP.

If bondholders take Argentina to court in the United States, it would be "a waterfall of bad news for the country," said Sebastian Maril, from the Fin.Guru consultancy.

Now that Argentina has defaulted, it also runs the risk of its debt being bought at a cut-price deal by speculative funds that could then choose to pursue much bigger rewards through litigation.

Such funds, known as "vultures" in Argentina, did so successfully in New York courts in 2014.

Agence France-Presse

HOW TO SET FINANCIAL GOALS FOR 2020

We are almost through the first month of 2020, and I’m betting you’ve put your money aside while you recovered from the holidays and settled into the new year. But it’s time to start thinking money, so let’s talk about how to set financial goals for 2020.

SETTING FINANCIAL GOALS

Setting financial goals is incredibly important.

Without financial goals, you don’t really know where you’re going, how much money you’ll need and where that money is coming from. You’re essentially driving into the future with no money roadmap.

So, let’s make that roadmap. Let’s set some great financial goals so that you can:

Achieve your goals
Reduce your debt
Up your savings game
And, most importantly, work towards financial freedom.

HOW TO SET FINANCIAL GOALS FOR 2020

FIGURE OUT WHAT’S BEHIND YOUR FINANCIAL DECISIONS

If you read anything by Simon Sinek, you know that knowing your “why” is imperative to success in life and business. And money is no exception.

You can have all the grand financial plans you want to, but if they have no substance behind them—if there’s no “why” then you’ll be unlike to achieve them.

PLAN FOR YOUR FUTURE

When you set financial goals for 2020, you need to think about your future. Not your right now but what happens down the line. For those goals to meet your needs you need to figure out where you’re going and how much money you’ll need.

So, where do you see yourself in one year? How about 2? 5? 10? There’s no wrong answer, but you do need to know what it’s going to be.


SET SOME GOALS

If you know where you’re headed and how much you’re going to cost, you need to set some goals that are related to how you’re going to make your future happen.

Make sure that your goals are meaningful to you, the need to be related to your “why.”  They also need to be goals that you can actually achieve (aim high but not too high) and you need to be able to measure them to know if they’re working or not.

FACE YOUR DEBT

Debt reduction should be one of your top goals, mostly because when it comes down to achieving financial goals your debit is one of the biggest things that stands in your way. You need to aim to reduce debt so that you can pursue other goals.

GET TO KNOW YOUR CREDIT

Your credit score matters, and you don’t have to be afraid of it. If you want to set financial goals for 2020 and be successful, one of those should be getting in touch with your credit and working to improve it.

CREATE A BUDGET

Finally, when it comes time to set financial goals for 2020, you want to put it all together in a fancy little budget. Budgets don’t have to be complex and you don’t need them to be robust enough to pass a board inspection. Go for simple, achievable and do what works for you!

everybodylovesyourmoney.com

How to Reduce Your Credit Card Interest Rate

One of the most depressing things about having credit card debt is the fact that the high interest rate can mean that most of your monthly payment (if you carry a balance) goes to paying interest, rather than reducing your principal. This can mean a long, slow slog as you try to pay off debt.

However, you might not have to keep paying that interest rate. In some cases it’s possible for you to reduce your credit card interest rate… just by asking.

Steps to Reduce Your Credit Card Interest Rate

Is your credit card interest rate 18% or higher? Call the number on the back of your card, tell them you have seen lower rates and chances are that you can get them to lower it. It’s not always that simple, of course, but it’s a start.

Call and ask to speak to someone about your interest rate. In some cases, representatives are allowed to drop your interest rate by as much as 3% in order to retain you as a customer. If the first representative can’t help you, ask for someone who can help you lower your interest rate.

Your best leverage during the is if you have a recent offer in the mail with a low introductory rate of 0%-10%. Many credit card issuers are willing to drop your rate if there is the chance that you will take all of your money elsewhere. They’d rather have you pay some interest than ditch them and pay no interest at all.


If you don’t have a recent offer, check out the best current offers on low interest credit cards and balance transfer credit cards. Anytime you can offer a concrete possibility for switching to someone else, you have a bit of leverage during the phone call.

If you have been paying your minimum payment on time and they consider you a good customer, they will likely be willing to work with you to negotiate a lower rate. If, even after you have mentioned that you will switch your business, and they still refuse to lower your rate, remain polite and make ready to transfer your balance.

Tips for Speaking with Representatives on the Phone

If you want to reduce your credit card interest rate, you will need to make sure that you have it together on the phone. Here are some tips for speaking with credit card companies:

• Be polite: Don’t get rude. Remain polite and calm throughout.
• Ask for what you want: Be straightforward about how you want a rate reduction. Be clear that is what you want, and ask the representative to connect you with someone who has the authority to make it happen.
• Be prepared: You can create a script, or jot down some talking points. Also, be prepared to carry through on your threat to transfer your balance elsewhere.

If you phone your credit card company and get your rate lowered, please leave a comment and let us know what your rate was and what it’s at now!

source: canadianfinanceblog.com

Sweden limits mortgage loans to...105 years

STOCKHOLM, Sweden - Swedish lawmakers adopted Wednesday a law limiting mortgage loans to 105 years as the Scandinavian nation seeks to come to grips with high property prices and debt levels.

There had previously been no legal limit on the duration of mortgages, and in fact many Swedish homeowners have been taking loans which only their grandchildren would have a chance to pay off.

The practice developed as a strategy to cope with high property prices as a longer term means monthly payments are lower. But inheritors are left with repaying the balance of the mortgage, often by selling the home.

Swedish regulators calculated in 2013 that the average mortgage term was around 140 years.

Nearly one-third of mortgages issued in 2014 allowed borrowers to repay only interest.

New mortgages will have a 105-year repayment limit as borrowers will be required to reimburse a minimum amount of the loan capital each year, after a five-year grace period on loans for new homes.

"It is important that we have a solid culture" of repayment, the chairman of the parliament's finance committee, Social-Democrat Fredrik Olovsson, was quoted as saying by the Aftonbladet newspaper.

Swedish banks opposed the law.

"It isn't good for the finances of households as it will make mortgages more expensive and the terms not as good. And it isn't good for financial stability," the head of Swedish Bankers' Association, Hans Lindberg, told the financial daily Dagens Industri.

Housing price inflation has resulted in Swedish households being among the most indebted in Europe. Mortgage holders on average have a debt that is 366 percent their annual income.

source: interaksyon.com

Asia shares edge up, Greece uncertainty lingers

SYDNEY - Most Asian share markets were fractionally higher on Monday following a record close on Wall Street, with investors cautiously optimistic the European Union would make progress this week on a debt deal with Greece.

Oil prices extended their bounce as Brent topped $62 a barrel, while the major currencies stayed locked in recent tight ranges.

Data from Japan showed the economy emerged from recession in the final quarter of last year, though growth of 0.6 percent was short of market forecasts.

Investors still seemed encouraged and the Nikkei firmed 0.6 percent in early trade.

MSCI's broadest index of Asia-Pacific shares outside Japan recouped a small initial loss to inch ahead.

The index boasted its highest close since late October on Friday but is bumping up against a major band of chart resistance in the 484 to 486 area.

Australia's main index eased 0.2 percent, while South Korean shares rose by a matching amount.

Holidays will be a feature this week with the United States off on Monday and much of Asia celebrating the Lunar New Year. China's markets are off from Feb. 18 right through to the 24th.

The Eurogroup of finance ministers meets in Brussels later Monday to try to find common ground with Greece' new government, in talks that could drag on for some time.

Greece said on Sunday it was confident of reaching agreement in negotiations with its euro zone partners, but reiterated it would not accept harsh austerity strings in any debt pact.

Markets have generally assumed a compromise would eventually be found, given the alternative might be a disastrous Greek exit from the euro.

The S&P 500 ended at a record high on Friday, as energy shares gained with oil prices, while the Nasdaq hit a 15-year high helped by technology stocks.

The Dow gained 0.26 percent, while the S&P 500 added 0.41 percent and the Nasdaq 0.75 percent. The FTSEuroFirst index of 300 leading shares closed up 0.64 percent, helped by upbeat growth data from Germany.

Without a clear outcome on Greece, there is little conviction to buy or sell the euro. As a result, the common currency has been drifting in a slim $1.1262-1.1534 range in the last few weeks. It was last flat at $1.1400.

Against the yen, the euro was a touch softer at 135.00, off a three-week peak of 136.70 reached last Thursday. The dollar slipped to 118.59 yen, recoiling from a one-month high of 120.48 set last Wednesday.

The main mover on Monday was sterling, which scaled a six-week peak following recent hawkish-sounding comments from the Bank of England. The pound climbed as far as $1.5435 in early trade, from around $1.5407 late on Friday.

In commodities, oil was supported by signs that deeper industry spending cuts may curb excess supply. Brent crude rose 42 cents to $61.94 per barrel, while U.S. crude added 34 cents to $53.12 per barrel.

source: interaksyon.com

'Falling angels' could hit $260 billion of emerging market debt

LONDON - After a golden decade of improvement, credit ratings for a swathe of developing economies risk falling back to "junk", with huge potential costs for up to a tenth of outstanding emerging market bonds.

Many mainstream investment and pension funds have rules preventing them from holding debt unless it is classified as investment grade by at least two of the big ratings agencies, and a number of countries are at risk due to problems ranging from tumbling commodity export prices to political instability.

Russia this week became the first of the major economies to lose its investment grade status from Standard & Poor's, falling out off the top ratings category for credits deemed to have a low risk of default for the first time in a decade.

If Moody's and Fitch follow, conservative investors barred from owning junk securities must sell their holdings. JPMorgan estimates this means they may ditch $6 billion in Russian government rouble and dollar debt.

Russia may have company. Almost $260 billion worth of sovereign and corporate bonds - nearly a tenth of outstanding emerging market (EM) debt - is in danger of being relegated to junk, according to David Spegel, head of emerging debt at BNP Paribas, who calls such credits "falling angels".

What's more, almost $1 trillion of debt is rated BBB or BBB minus - the two lowest investment grade ranks after which junk or "high yield" status awaits.

"After a year of political upheaval and collapsing commodity prices, the sky is alight with EM falling angels," Spegel said.

TABLE of emerging markets ratings.

In 2010, for the first time, a majority of bonds in the EMBI Global index of emerging market debt became investment grade 11EML. But now a fifth of emerging market governments rated by S&P carry negative outlooks; the agency calls emerging markets the "weak link" in the global ratings picture.

If there is a series of downgrades, the entire index could shift lower again, Spegel warned, adding: "The EM benchmark index is at risk of becoming a falling angel."

Ratings models compiled by analysts at Bank of America/Merrill Lynch show downgrade risks in Brazil, Russia, Turkey, South Africa and Indonesia.

Some of these, such as energy importers which benefit from falling oil prices and countries making economic reforms, may avoid relegation.

However, ratings tend to move up and down in tandem, BofA noted. It cited negative credit revisions in the 1980s, upgrades in the early 1990s, downgrades in the late 1990s and another round of upgrades this century. Two-thirds of emerging economies are investment grade, up from 42 percent a decade ago, it added.

"Investors may well view initial downgrades not as isolated events but as the beginning of a new trend," BofA said.

INDEX EJECTION RISK

Russian, Turkish, Brazilian and South African local bonds - among the handful of emerging market names included in the Barclays Global Aggregate index - risk ejection from the $2 trillion benchmark if they are downgraded.

Falling angels which lapse into junk status will also drop out of the investment grade portion of the EMBIG index which has up to $7 billion benchmarked, JPMorgan says.

"The big worry is for countries in the low investment grade range, such as Russia and Brazil. Falling into the junk bond range cuts you off from the largest segment of bond buyers," said Peter Marber, head of emerging debt at Loomis Sayles.

That's especially so in the case of big insurers and banks which are extremely sensitive to ratings due to tighter regulations on capital reserves and asset quality, he noted.

Also, company ratings tend to be constrained by the sovereign, Marber said, adding: "So if we see countries downgraded into high-yield status, it may trigger automatic corporate downgrades which would dramatically restrict access to international capital."

All this will raise capital costs for borrowers, adding to pressures caused by the possibility of higher U.S. interest rates and Treasury yields which will suck funds out of emerging markets.

Exactly how much emerging bond yields will rise is impossible to calculate. But BofA/Merrill reckons a one-notch downgrade to junk tends to produce a 40-60 basis point increase in yield and credit default swap spreads.

BNP's Spegel calculates that for every 10 falling angels, spreads over U.S. treasury bond yields on the CEMBI EM corporate debt index will widen by 125 basis points and sovereign spreads will blow out 241 bps.

On the plus side, though, some risk is already priced in. Russian and Kazakh bonds for instance trade as though they were several notches into junk.

Also ratings don't much matter to dedicated emerging market funds and increasingly to some institutional investors who may base allocations on asset managers' analysis, rather than solely on ratings.

Wayne Bowers, EMEA and Asia chief investment officer at Northern Trust, says many big investors have built in the flexibility to hold different kinds of emerging assets in recent years. Also, he notes, while some countries' outlook has darkened, others will benefit from reforms and cheaper oil.

"People usually understand EM is not a low-risk asset class." Bowers said. "You will find the return profile of the broader indexes can offset the negatives... It's not just focused on countries that are fragile but also those that benefit from falling oil prices."

source: interaksyon.com

4 Tips to Help 40-Somethings Manage Their Debt

Handling debt is a challenge for those of all ages, and the problems start early in our adult lives. It's only natural to incur some heavy debts in our 20s and 30s, as we're dealing with the imbalance between our relatively scarce financial resources and the sizable expenses of getting started with careers and families.

By the time you hit your 40s, you might hope to have moved past that phase. But although many people in their 40s have well-established careers that produce sizable incomes, they also often face growing financial commitments -- both to themselves and to family members. That's a big reason why 40-somethings have the highest levels of debt of any age group, and unlike younger groups, they've seen their debt levels increase slightly since 2005, according to figures from the FICO Banking Analytics Blog.

Debt management in your 40s isn't just about paying down debt. It's also about making sure you're using the right kind of debt to handle the most important expenses you face. Also vital -- maintaining the ability to repay your debts while simultaneously ramping up savings for your longer-term goals.

To address all those issues, here are four things that 40-somethings should keep in mind in dealing with their debt.

1. Anticipate Big-Ticket Expenses.

Dealing with unanticipated expenses can break the budgets of young adults. But by the time you hit 40, you have plenty of life experience behind you and can predict what sorts of financial demands will come up. In particular, major expenses like putting children through college or replacing a vehicle are fairly easy to foresee. The smarter you can be about planning for them beforehand, the better you'll be positioned to minimize how much debt you have to take on to pay for those expenses later.

Having an emergency fund with three to six months' worth of income is out of reach for many young adults, but by your 40s, it becomes more realistic. Having that fund available can keep you from incurring debt and provide a cushion you can tap later for college expenses and other big-ticket items.

2. Get The Right Protection For Your Family.

As 40-somethings hit the peak debt levels of their lifetimes, they're most vulnerable to unforeseen tragedies like a death or major illness in the family. Between lost income and increased expenses, such events can crush even a well-crafted financial plan.

Having the right insurance policies in place to protect against tragic events can ensure your family's financial survival. A simple term-life insurance policy usually costs relatively little but can provide enough death benefits to pay off a home mortgage and other debt while potentially leaving additional savings available for future needs.

Disability insurance can replace lost income and cover qualifying expenses if you're unable to work following an accident or illness. Working with an insurance company to craft the right protection package for you could mean the difference between beating debt and suffering a big financial setback.

3. Put Your Best Debt-Foot Forward.

Young adults tend to take advantage of credit wherever they can get it. But as you get older, your access to better credit should increase, allowing you to skip expensive forms of debt like credit cards and payday loans and instead get low-rate loans that are much easier to pay off. Although low-rate specials on car loans and credit cards can make their interest costs attractive, the most consistently inexpensive financing usually comes from a home mortgage or home equity loan, with government-subsidized student loans also offering reasonable rates for many students. If you have to have debt, look to consolidate it into these favorable areas, then avoid taking out further high-cost debt in the future.

4. Set the Stage For Your Own Future.

As important as debt reduction is, 40-somethings also have to face the inevitability of their own future financial needs. One big reason why it's so important to get rid of bad debt and focus on concentrating outstanding balances in inexpensive forms of credit is to give yourself the flexibility to save more for retirement. As your salary increases, the potential matching contributions from your employer also rise, and you won't want to miss out on the opportunity to collect more free money to put toward your retirement savings.

The hallmark of your 40s is that debt stops being a necessary evil and starts becoming more of a potentially useful tool. By focusing on the positive aspects of debt in helping you balance competing financial needs while avoiding the downsides with which you're already familiar, you can put debt on your side and manage it effectively.

source: dailyfinance.com

My Kid's Drowning in Credit Card Debt! What Do I Do?

If you trusted your son or daughter to keep track of their finances, and they slipped up, what in the world are you supposed to do?

Let's say they've racked up a big, nasty credit card debt -- to the tune of thousands of dollars. Should you pay off their debts to help keep their credit score above water? Or is it better to let them learn from their mistakes and suffer the consequences? Though each individual situation is different, here are your options, what's at stake, and a few pointers to help you plot your course of action.  



A Personal Loan, With a Contract

If you have the means, think about whether or not you want to loan your daughter the money. Sometimes her debt is manageable enough that you can pay it off in the form of a personal loan to your daughter. You can charge her interest as well, so she learns just how much a high APR can cost her.

But you have to examine the situation from a lender's perspective, rather than simply write a check and expect she'll make payments. What is her employment situation? Will she be able to make payments to you without the security blanket of your relationship making her complacent? Has she typically been a responsible spender in the past, or does she impulsively purchase on a grand scale regularly? If you do decide to help protect her credit history, it's a smart idea to sign a contract with your daughter to make your agreement more official and binding.

If You Co-Signed, You're on the Hook

If you co-signed on your son's account, you're responsible for his credit card debt. Because of regulations passed in the CARD Act of 2009, it's more difficult for young adults to qualify for credit cards, so more and more parents are co-signing on accounts and acting as guarantors for their children. If you've already taken that step, you should hopefully have realized that your son's purchases will affect your credit, regardless of your involvement.



 In this case, it may be more prudent to pay off the debt if you can, cancel his account, and work together to come up with a payment plan to rectify the situation and make sure it never happens again. If you haven't co-signed yet, sit down for a serious conversation with your son on your values and financial responsibility.

Lessons to Be Learned?

Bad credit now will impact her financial future later, but so will bad habits. If your daughter doesn't learn from her mistakes now, there could be bigger and more damaging mistakes ahead. Will bailing your daughter out of her financial mess with creditors make her realize the gravity of her mistake? Or will you just end up fostering her sense of dependence on you? You won't always be there, wallet in hand to save her, so if she can manage to take the credit hit, perhaps it's best to let her learn her lesson this time, and give her some tough love.

Communication Is Key

Loaning money to someone you love is always, always messy. While your son should intellectually know that your love is unconditional (which is why your help comes so willingly), for him, it's emotionally very difficult to face your parents when you owe them money. Plenty of relationships have been ruined by debts of personal loans, both from neglected payments and feelings of shame. Be sure that if you choose to help your son, you commit to maintaining an open dialogue and doing your best to keep business and family separate.

Ultimately, each family and financial situation is different. But before you make a plan to tackle your son or daughter's debt, you need to examine the situation from all angles. There are many factors in play, but above all, your relationship and your child's sense of responsibility from this learning experience should be at the forefront of your mind.

source: dailyfinance.com

Settle Debts Before Investing?

Question: Hi Rose. I enjoy reading your FQ and parenting articles. I also want to start investing now but I think I have to settle my debts first. What do you think? – J.N. via email

Answer: Hi J.N. Yes I agree with you. If you have been carrying debts, which cost you money, the first step is to pay them off. Think of it this way, if you’re able to pay off your credit card debts that charge 3.5% per month, you just “earned” yourself an annual return of 42%! Where can you find an investment return like that?

Sometimes people are also afraid to touch their Emergency Fund to pay off their credit card debts because they want the security of having ready cash for emergency. However, please remember that while your credit card charges you 42% p.a. your Emergency Fund, even if kept in money market placements, only gives you around 2-3% p.a. So pay those loans, then start building your Emergency Fund again. If you have an existing home mortgage with a decent interest rate of 5 to 5.5% p.a., then I think you don’t have to wait to fully pay that before you can start investing. Just make sure that you pay your mortgage on time so you don’t incur penalties and other charges.

I am preparing for a half-day workshop this week for the employees of a government agency. The Human Resources Director asked me to tackle the issue on debt management because she knows that a lot of their employees have debt problems.

She shared with me that their salaries are still given in cash instead of direct credit to employee ATM accounts. When I suggested that they shift to direct credit system in order to nudge their employees to save, she said, “We’re concerned that they might pawn their ATM cards!” I was surprised to hear this and learn that this has become a common practice among people who are living from paycheck to paycheck.

The Origin of Debt:



To know more about debt, I did some research on the origin of debt. I found this book entitled Debt: The First 5,000 Years by anthropologist David Graeber. His interesting theory is that debt originated as early as 3500 B.C., long before the advent of coinage or money in 600 B.C., refuting the traditional explanation for the origins of monetary economies from primitive bartering system as laid out by Adam Smith, the father of modern economics.

I’m not yet done reading the book but it promises to be an interesting read as it talks about how throughout our history indebtedness has led to unrest, insurrections and revolts. The morality of debt is also discussed – how people mired in debt would resort to using their children as payment; how the IMF and the big banks convinced the Third World dictators and politicians to take out loans (while pocketing some in their Swiss accounts) whose interest rates later on skyrocketed leading to the Third World Debt Crisis in the 80s; how the sub-prime lending era crafted mortgages that makes default inevitable, taking bets on these defaults and selling them to institutional investors, turning over the responsibility of paying off debts to giant insurance conglomerates and eventually being bailed out by taxpayers.

What we can gather from this data so far is that debt is really something to be careful with, both on a personal and national/international basis. Inasmuch as it can help us enjoy big-ticket items like buying a house or expanding our business, growing our country without having to put up 100% of cash required, mismanagement can also make life miserable. I’m glad that you intend to pay off your debts now.

Ways to pay off your debts:


The most cost-efficient way to retire your debts is to pay off those which carry high financing cost. And since front-end fees would have been paid by now, these are the loans that carry the highest interest rates. Always make sure you compare the rates on a per annum (p.a.) basis.

However, since handling money is not all about math but has a lot to do about emotions, there are a lot of proponents of the so-called Debt Snowball Method. This method, popularized by Dave Ramsey, advises you to pay off the loan with the smallest outstanding balance first, on to the bigger ones until you pay off all loans. The primary advantage of this method is the psychological contentment that you will feel as you tick off debts from your list. So the smaller the debt, the easier and sooner you can pay it off. You’ll feel the progress more in doing this and give you optimism and drive to pursue until all debts are paid off.

Check which one works for you. As I’ve discussed in previous articles, humans are not always rational and we should work out systems for ourselves such that we move towards our goals more successfully.

May I also remind you not to incur new debts? Review and reflect on how you got into indebtedness so you know what to avoid. Remember debt is bondage. The sooner you get out of it, the closer you move towards your financial freedom. Continue to read up on investing. The more you know about it, the more excited you will be to start the adventure, the more motivated you’ll be to pay off your debts.


Quotes on Debt:

Let me end with some quotes on debts that may be good for you to ponder upon.

“Wars in old times were made to get slaves. The modern implement of imposing slavery is debt.” - Ezra Pound

“If you have debt I’m willing to bet that general clutter is a problem for you too.” - Suze Orman

“In the long run we shall have to pay our debts at a time that may be very inconvenient for our survival.” - Norbert Wiener

“One of the greatest disservices you can do a man is to lend him money that he can’t pay back.” - Jesse Jones

“Debt is like any other trap, easy enough to get into, but hard enough to get out of.” - Henry Wheeler Shaw

“Debt is the secret foe of thrift, as vice and idleness are its open enemies.”-James H. Aughey

“It is poor judgment to countersign another’s note, to become responsible for his debts.” - Bible

“If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.” - John Maynard Keynes

I wish you freedom from debt soon and financial happiness.

Sincerely,

Rose

source: philstar.com

How to Refinance Any Debt

What do you think of when you hear the word refinance? If you’re like most people, you probably think of refinancing a mortgage.

In my weekly newsletter, however, we’ve been talking about how you can refinance any debt. I’ve encouraged my newsletter subscribers to write down every debt they have, including the interest rate. With the list in hand, they are reviewing each loan to determine if they can lower their interest rate. It’s one of the easiest ways to save money.

So today I thought we’d look at what refinancing involves, why you might want to refinance, and how to refinance any type of debt.

What is Refinancing?

Refinancing is trading one debt for another. If you refinance your mortgage, you’re trading your original mortgage for a new mortgage, usually with better terms that save you money.

You could also trade your credit card debt for a lower-interest home equity loan, which is refinancing. Or you could move your car loan to a new lender to get a better interest rate.

Sometimes you refinance with the same lender. In this case, you’re changing the terms of your original loan based on new financial factors, such as a better credit score on your part or lower overall mortgage interest rates. Sometimes, you may take out a new loan to pay off the old loan, getting better loan terms in the process.

As an aside, a loan consolidation is a bit different. With consolidation, you are usually consolidating multiple loans into a single loan. This process is a form of refinancing, but involves trading multiple debts for one.

When Should You Consider Refinancing?

Usually the goal of refinancing is to save money, especially on interest paid over time and on monthly payments. But you could also choose to refinance to change your loan terms.

For instance, you might refinance your mortgage from a 15- to a 30-year loan. A longer term gives you lower (often much lower) monthly payments, which are great if you’re in a financial pinch. Even if you’re paying your 15-year mortgage with ease, you might want to take a longer term and invest the extra money each month, hoping to come out ahead financially in the long run.

On the flip side, you might choose to refinance your 30-year mortgage to a 15-year mortgage. If you want to be debt free faster, this is a way to make it happen without making extra mortgage payments. Plus, the shorter loan term can save you tens of thousands of dollars in interest paid over time because 15-year interest rates are lower and you’ll pay down principal faster.

If you owe less on your home than it’s worth, you might want to do a cash out refinance, in which you remortgage it and take the difference in cash.

One more option is to switch from a variable-rate mortgage to a fixed-rate mortgage. A set interest rate and predictable payments can make it much easier to plan your personal finances.

As you can see, there are many instances in which you might consider refinancing your debts. Be sure you run the proper calculations, especially if you’re refinancing a larger debt like a home or a car. These refinances can cost you cash up front, so make sure they’ll be worth your while in the long run.

Refinancing other debts, on the other hand, may not be so complicated. If you’re dealing with high-interest credit card debt, all you need to do is transfer the balance to a lower-interest card to save a fortune.

How to Refinance all Your Debts

As I said earlier, you can refinance any debt with the proper steps. Here are some of the ways that you can refinance various types of debt:

Straight-up refinancing

 

Although any of these methods is refinancing, let’s first talk about traditional refinancing. This term is most likely to be used for mortgage loans, auto loans and student loans. Basically, you either get a loan with better terms from your current lender or from a new lender. The key to this is to shop around for your new loan.

Refinancing your mortgage may take more legwork because you’ll likely need to talk with loan officers about refinancing offers and the potential costs of the process. When refinancing a secured loan like your home or auto loan, you may not be able to refinance if you owe more than the home or vehicle is worth. A loan for more than an item is worth is riskier for lenders.

We talk elsewhere about how to refinance a home in which you don’t have a lot of equity. One option is to refinance through the Home Affordable Refinance Program, and another is to take out two loans, one for the negative equity in your home, and another for a regular mortgage at a lower rate.

If you have negative equity in your vehicle, you may need to take out a separate, unsecured loan to pay down part of the car loan. For instance, if you owe $15,000 on a car worth $11,000, take out an unsecured loan (or use a low-interest credit card) to pay off $4,000, and then refinance the remaining auto loan. Or you could keep paying on the vehicle until you build more equity.

Finally, let’s talk about straight-up refinancing of student loans. Because student loans are unsecured, it’s very hard to get a new lender to take them on at a lower interest rate or better terms. Bloomberg’s BusinessWeek notes that there are several ways to change some of your student loan terms. If you can’t make minimum payments on federal loans, look into modified payment plans or forbearance. Even some private lenders offer forbearance in some instances.

Unfortunately, you probably won’t be able to refinance these loans at a lower interest rate simply by finding a new lender. But you may be able to use one of these options for refinancing your student loans:

Using your home’s equity

 

If you have equity in your home, you can use that to refinance some of your other debts, such as school loans, credit cards or other personal debts. There are three options for doing this, including a home equity loan, a home equity line of credit, and a cash out refinance:

• Home Equity Loan: This is an installment loan based on your home’s equity. It’s also known as a second mortgage. If your home, for instance, is worth $500,000 and you owe $300,000 on your first mortgage, you could borrow $150,000 against your home’s value as a second mortgage. You’d pay back this type of loan in set installments, just like your first mortgage. All other things being equal, however, the interest rate on a second will be higher than your first mortgage
• Home Equity Line of Credit: This is similar to a home equity loan, except that it’s a revolving debt like a credit card. With a HELOC, you can write a check or use a debit card attached to the account, pay back some or all of the charge, and then charge again.
• Cash Out Refinance: Instead of taking out a second mortgage as a home equity loan, you might consider a cash out refinance, which will leave you with one mortgage payment. In the home equity loan scenario above, you could just refinance your first mortgage as a $450,000 mortgage, and take the excess $150,000 in cash.

Using your home’s equity to refinance other debts can be a good option because a secured loan against your home’s equity will likely have a much lower interest rate than the rates on other debts.

The rates you’ll pay on a home equity loan are typically much lower rate than you’re likely to be paying on any credit cards, and it’s also a lot lower than the locked-in 6.8 percent rate on federal student loans. So you could lower your overall debt payments and reduce the time it takes to pay off debts by using your home’s equity to pay off the balance of other loans.

If you can’t pay on your credit cards or student loans normally, the creditors can’t come after your property directly. If you can’t pay your HELOC or home equity loan, your lender could foreclose on your home.

Refinancing with credit cards

 

The most common way to refinance credit card debt is a balance transfer. You transfer the balance from one credit card to another, normally with a much lower interest rate.

Your best bet is to consider a zero interest credit card set up to encourage balance transfers. Note that some balance transfer credit cards come with fees, even if they have a limited-time zero interest rate on balance transfers.

There are some no-fee balance transfer cards available, so you should check out these options first. Some cards have an option for either zero interest with a balance-transfer fee (which is usually a percentage of the balance you transfer), or a zero transfer fee with a low interest rate. You’ll have to do the math to figure out which works best for you.

If you get a really great deal on a credit card and have enough available credit, you can use a credit card to refinance other higher-interest debts, as well. For instance, you could pay off a very high-interest personal loan with a lower-interest credit card, effectively using your credit card to refinance it.

Always check your credit card contract first because different types of purchases, transfers and payments may result in different interest rates.

Debt consolidation

 

If you’re swamped in debt and are unable to make minimum payments on everything, debt consolidation could be a good option. You’ll get one large loan to pay off part or all of your other debts, consolidating them into one loan.

The advantage of debt consolidation is often that it lowers your overall monthly payments, a relief for hard-hit consumers. Depending on the interest rates of the loans you’re carrying, consolidation may lower your overall interest rate and total interest payments.

According to the FTC, using your home’s equity is the most common way to consolidate debt, but you may also be able to get a consolidation loan. However, some disreputable so-called debt relief organizations will offer debt consolidation loans that aren’t a great deal. They may increase the overall interest paid, extend your repayment time to decades, or charge fees that increase your overall debt load.

It’s very common to consolidate student loan debt, and this is usually an automatic option with federal student loans. If you took out student loans for several years in a row, you probably have several loans from several lenders. It’s a pain to make so many separate payments, and your minimum payments are probably quite high.

In this case, you can consolidate all your loans into one by a single lender. Consolidating federal loans usually means that you lock in your interest rate, which may otherwise vary from year to year. Plus, you could lower your overall monthly payments and gain access to several repayment plans.

You’ll have to consolidate private student loans separately, but there are several lenders who will do it. You can read more about how to consolidate student loans here.

Using LendingClub or Prosper

 

LendingClub and Prosper are peer-to-peer lending marketplaces. Basically, you can get a fairly low rate on an unsecured personal loan that comes from other individual lenders. LendingClub statistics say that nearly half their loans are used to consolidate debt or pay down credit cards with a lower interest loan.

Peer-to-peer lending options generally come with competitive interest rates that depend on your credit history, and they’re relatively quick to get. But the loan limits are usually around $25,000, though you may be able to take out multiple loans at once. They can be a good option if you need to refinance debt quickly.

The Bottom Line

 

Refinancing some or all of your debts may or may not be a good idea. Look at your debts, interest rates and minimum payments. If you could reduce interest rates significantly, refinancing is usually a great option. Also, if you can lower your monthly payments, you could kick the money you save into paying off your principal balances more quickly, or into investment accounts that allow you to save for the future.

source: doughroller.net

Bank of America's Newest Credit Card Pays You to Repay Them

A new credit card from Bank of America (BAC) will offer cash rewards up to $120 a year to cardholders who pay off more than the minimum balance every month.

The BankAmericard Better Balance Rewards card gives cardholders $25 per quarter as long as they always pay their bill on time and pay off more than their monthly minimum due amount. Cardholders who also have a Bank of America bank account get another $5 each quarter, bringing the total to $120 a year just for staying on top of their bills and making an effort to bringing down their debt. The rewards can be cashed out or put toward your credit card balance.




That's a very different rewards program than you see on standard rewards cards, which focus on getting cardholders to spend as much as possible to get cash back. And while those rewards cards tends to be geared toward people with excellent credit, the Los Angeles Times notes that this card is likely to be aimed at lower-income consumers with fair credit.

So is the card a good deal?

The rewards are certainly attractive. To get $120 in annual cash rewards on a standard rewards card with 1 percent cash-back, you'd need to spend $12,000 in a calendar year (though bonus categories with rewards of up to 5 percent can allow you to get there more quickly).

By contrast, you don't have to rack up a ton of spending on this card to get a comparable cash bonus. In fact, even if you have only a $15 minimum payment, you could put a measly $20 on the card every month, and as long as you're paying a little more than the minimum due amount, you'll reap the rewards. If you also have a bank account with Bank of America, that means you could wind up getting $120 in bonuses on $240 of spending, a tidy 50% cash-back rate.

But that same feature also means that the card doesn't necessarily encourage people to make a serious dent in their balances. Because the cardholder need only pay "any amount more than the monthly minimum due" to get the cash bonus, simply paying a dollar over the minimum would be sufficient to get the rewards. A better incentive to encourage responsible borrowing might be to require cardholders to pay a minimum percentage of their total balance.

Another issue is that the annual $20 perk for holding an account with Bank of America might backfire on some consumers. The card, after all, is aimed at lower-income customers, who may not be able to maintain the necessary minimum account balance to avoid Bank of America's monthly account fees. If you're considering this card and you're currently with a bank or credit union that doesn't charge a monthly maintenance fee, you should examine Bank of America's fee structure to make sure that switching banks won't cost you considerably more in the long run.

As with any other credit card, then, you'll need to examine your own personal finance habits to determine whether it's a good fit for you. Played the right way, the Better Balance Rewards card can help you make some easy money without significantly altering your spending. Just don't be fooled into thinking it's a magic bullet for eliminating your credit card debt.


source: dailyfinance.com

Most Americans Have More Savings Than Credit Card Debt

Rumors of the spendthrift American consumer may be slightly exaggerated. Bankrate's 2013 February Financial Security Index found that a majority of consumers -- by a narrow margin -- say they have more savings than credit card debt.

For more than half the country, 55 percent, an emergency fund outweighs credit card debt. Nearly a quarter, 24 percent, admit to having more debt on plastic than money in the bank, while 16 percent say they have neither credit card debt nor savings. That puts 40 percent of the population close to the edge of ruin while everyone else seems to be sitting pretty.

If most people have more savings than credit card debt, "Why are so many people broke?" asks Howard Dvorkin, CPA and founder of ConsolidatedCredit.org.

It's a curious question. The answer may be that although credit card balances came down through the financial downturn that began in 2007, consumers' fundamental behavior of not saving enough did not change.

According to the Department of Commerce, for 2012, the overall savings of the average household were 3.9 percent, much better compared to the 0.9 percent Americans were saving in 2001. However, this is down from the average 5.4 percent savings rate in 2008.

Even with a low savings rate, why wouldn't a supposedly low credit card debt rate put Americans in better financial shape?

"The fact of the matter is that America is broke -- whether it's mortgages, student loans or credit cards, we are broke. The old rule of thumb is that people should have six months' of savings," Dvorkin says."If you talk to people, most don't have two pennies."

Who's In Trouble?

In Bankrate's survey, men were more likely than women to say their emergency fund outweighed credit card debt, at 60 percent, compared to 49 percent of women.

But credit card debt hits all kinds of consumers. Bankrate's survey has found that roughly a quarter of all income levels has more credit card debt than savings.

"Credit card debt will eat you alive no matter who you are," Dvorkin says.










Those people with incomes more than $75,000 were less likely to have no savings or credit card debt compared to those at the opposite end of the spectrum, with incomes less than $30,000. Only 7 percent of high earners have no credit card debt or savings, while 28 percent of the bottom rung of earners say they aren't in debt but have no savings.

While staying out of credit card debt is a good place to be,having no savings puts low-income earners in danger of falling into a payday-loan cycle or needing to borrow from family or friends.

"People who earn less than $30,000 may not have the credit score to get credit cards. That keeps them from getting into trouble with debt, but it also keeps them from saving," says Xavier Epps, CEO and founder of XNE Financial Advising in Woodbridge, Va.

For the rest of the population, there may be a fundamental divide between consumers who are fine with carrying credit card balances and dedicated savers who strictly avoid debt.

"It tends to be that debt and savings are very lumpy; you rarely find someone that has both. It's either someone has a lot of debt and little to no savings, or someone has savings and very little debt,"says Elliott Orsillo, CFA, co-founder of Season Investments in Colorado Springs, Colo.

"There isn't much of a fluid spectrum of people with a ton of savings and no debt and a nice mixture down to people with no savings and lots of debt. It's usually either one or the other," he says.

"One of my clients had $400,000 in credit card bills. He came to me because it was impeding his ability to fuel his jet. The credit card companies would not allow him to charge his fuel anymore," he says.

No matter how much money you have coming in, learning to save and live beneath your means is the key to getting ahead.

source: dailyfinance.com

Your share of the national debt: P59,000

MANILA - The Aquino administration added nearly a tenth to the national government's outstanding debt last year.

According to the Bureau of Treasury, the government's debt stock rose 9.8 percent to P5.437 trillion in 2012 from the P4.951 trillion the previous year.

This debt is usually settled by new financing, but ultimately the taxpayer foots the bill. Given a population of 92.34 million, each Filipino then is in hock for P58,880.22.

The increase was brought about largely by a 20.7 percent jump in the government's borrowings from the domestic market. Debt owed to local creditors rose to P3.468 trillion last year from P2.873 trillion in 2011.

Foreign obligations fell 5.3 percent to P1.969 trillion from the previous year's P2.078 trillion.

As a result, 64 percent of the government's debt is owed to local creditors, leaving 36 percent with foreigners.

The debt represents the accumulation of borrowings made through the years, as the government makes up for tax collection shortfalls just so it can push through with programmed expenditures, including infrastructure and other capital outlays, personnel compensation, as well as maintenance and other operating expenses.

The annual revenue shortfall gives rise to the budget deficit, which the government finances through borrowings.

The Department of Finance earlier said the government likely ended 2012 with a budget deficit of P235.3 billion, which is lower than the P279 billion ceiling for the period.

source: interaksyon.com

Debt Consolidation To Free Yourself From Slavery

You’ve probably heard someone say that the borrower is slave to the lender. If you’re currently struggling with debt, have you ever thought about how true this is? Owing money to someone is constantly in the back of your mind. Every dollar that comes in comes with a nagging reminder that it’s not really yours – that you owe it to someone else.

Every purchase you make might also set off an alarm bell, telling you that it really belongs to the person or institution who you’re in debt to.

The word slave might be a bit melodramatic, but it’s not that far from the truth. It’s a terrible feeling to be in that kind of debt to someone, so let’s talk about how to get out.

If you’re truly drowning in debt, be it credit cards, student loans, lines of credit, car loans, or some combination of all of these, being pulled in so many different directions is just as stressful as the actual amount you owe.

That’s why debt consolidation can be a good option to help deal with everything.

Debt consolidation is the process of borrowing enough money to pay back all of your debts at once. This loan is then your only debt that you’ll focus on paying down. At first it may seem like you’re just moving money around, but there are several benefits:

• Lower monthly payment – rather than a bunch of different monthly minimum payments (which you may not even be able to afford), you’ll be able to negotiate for a single payment that works well with your income and budget. This alone can take a lot of the stress off of your debt. Of course a lower monthly payment means it will also take longer to pay off your debts. There are many calculators available to help you see what your options are. Check out http://debt.ca for some great ones.
• Lower interest rate – some debt, such as credit card debt can carry an astonishingly high interest rate. Through debt consolidation you may be able to negotiate for an interest rate that is, on average, lower than what you were paying before.
• Less pressure – if you’ve been getting harassed by creditors, debt consolidation will stop all of that. Debt consolidation Ontario or any other province in Canada will speak directly to your creditors and arrange payback in full. You’ll only owe one institution, and they’ll be the ones setting up your payments to make sure you don’t fall behind again.   

There are some dangers to debt consolidation. If it was bad habits that got you to this point, doing what seems like clearing out your debts might lead you to make the same mistakes again. For example, if your credit card is maxed out and all of a sudden it’s cleared, you might be tempted to make more purchases with it. If you think this might happen, debt consolidation will only serve to drive you further into debt.

source: christianfinanceblog.com

How to Restructure Credit Card Debt

For consumers struggling to make ends meet and racking up credit card debt and barely making minimum payments, hardship programs might provide a welcome relief.

Many credit card companies offer these programs that target borrowers who have fallen behind on payments. They typically offer debtors lower interest rates as well as reduced payments, fees and penalties. In general, most hardship programs fall into two categories: short-term, which could be for a few months or up to a year, or permanent which is until the credit card balance is paid.

Credit card companies don’t publicize these programs because they hurt revenues due to the lowered interest rates. But for most banks, these programs are a better option than not getting any money back as a result of an individual’s default or bankruptcy.

Delinquency: Not a Good Strategy

There are a couple of things to keep in mind when approaching a credit card company about enrolling in a hardship program. Most creditors will want to look at your income and expenses so be prepared to explain your budget. The company will evaluate your ability to pay your debt to determine your eligibility.

They will also look at your account history, so it is a good idea to inquire about the program before falling behind on payments. Using delinquency as a strategy to get your creditor to work out a deal with you is a bad idea. You’ll get a more sympathetic ear if you approach them prior to missing a payment.

Hardship programs are not designed for reckless spenders who have maxed out their credit cards and are looking for an easy way out. They are aimed at debtors who have been hit by catastrophic, life-altering crises like a job loss, major illness, inability to work or loss of spouse or breadwinner. That is not to say that banks will not work with you if you don’t fit into one of these categories.

Stop the Plastic Habit

Be warned that these programs usually mean you will lose use of the credit card. In most cases, your charging privileges will be suspended or revoked. Some companies, however, have programs that restore your privileges upon completion of the program.

Entering a hardship program could also impact your credit score. Before entering the program it is a good idea to ask what repercussions this could have on your credit. Some companies negatively report this information to credit bureaus. Sometimes the negative references on your credit are removed after the program is completed. When negotiating with your creditor about being placed on the hardship track, it is important to understand the card issuer’s policies and the consequences.

The policy on credit reporting depends on the company. Most short-term plans are no more than a year. Long-term plans can go as long as five years. American Express, for example, doesn’t negatively report borrowers on short-term programs. But those who are on long-term programs should expect large dings on their credit regardless of what bank or issuer you owe.

source: foxbusiness.com

File Bankruptcy to Get Off Mortgage With Ex?

Dear Bankruptcy Adviser,

My ex-husband and I divorced in 2005 and he kept the house. The problem is that we agreed to everything but didn't specify that he must get my name off the house in the divorce papers. So we both have remarried and he has been late on the house payments, which is affecting my credit and preventing me and my husband from getting a home loan. My ex-husband is missing payments. He does get caught up, but this has occurred on and off. It also means he cannot refinance because his credit is poor and now mine is, too. So my question is: Could I file bankruptcy and list only the house so that I am no longer responsible for it? Also, if I did file, would that affect me being able to get a loan for a house?

-- Kathy

Dear Kathy, Most things in life are not as simple as we want them to be. I respect that you just want to be done with the ex-husband and the past. Your approach may work, but not as easily as you would like it to.

If you are eligible for the Chapter 7 bankruptcy, it would eliminate your liability on the mortgage but it would not remove your name from the property title or the mortgage loan. You may have signed your name off of the title during the divorce, but your ex-husband would have to refinance the mortgage to take your name off the loan.

Here are the issues you have to address.

Are you eligible for Chapter 7 bankruptcy? You did remarry. While you can file bankruptcy as an individual, you must qualify as a couple. Your new husband may have separate assets and those generally do not need to be listed in your bankruptcy. However, his income and any post-marriage assets must be listed in your case. So, you need to find out whether you are eligible for Chapter 7 bankruptcy.

Do you have joint accounts with your new husband? The bankruptcy will impact any joint credit card accounts that you have with your husband. He can keep paying and his credit should not be harmed, but the lender may place a notation on his credit report. That note will say, "Included in bankruptcy." I am not a credit reporting expert, but I have researched this issue and my research shows that this note should not impact his credit score. It may only require an explanation to future prospective lenders.

Know that all debt must be included. You cannot file bankruptcy only on some debt. You have to include all other accounts, such as credit cards or personal loans. Even accounts without balances will likely be closed. You can start over, but not with your current accounts.

What will happen to your mortgage with your ex-husband? The mortgage lender will receive notification that you have filed bankruptcy. The positive part is that future late payments will no longer report to the credit bureaus.

The negative part is that a future foreclosure will show up on your credit report. Your ex-husband may lose the house in foreclosure one, two or many years later. The lender would not have been reporting the late payments on your credit report all that time, but will report the foreclosure. That will definitely impact your credit.

Will you be able to get future mortgage loans? The bankruptcy will impact your credit for the next few years. Even though the bankruptcy notation stays on your credit for 10 years, you can get new credit sooner. Obtaining credit after bankruptcy is not impossible and your new husband could help you establish new, post-bankruptcy credit. Even though I do not endorse co-signing, it is a way for your current husband to help rebuild your credit faster.

You cannot expect to get a mortgage loan immediately after filing. Lenders want to see that you have established post-bankruptcy credit and confirm the bankruptcy case was filed more than two years ago.

As I said, this is an option, but most things are not as easy as we would like them to be. You will have to do some research and may need to talk to a bankruptcy attorney before you take this approach.

source: foxbusiness.com

How to Get Rich Leveraging Debt

How many stories have we all heard about the entrepreneur that came to America with five cents and turned it into an empire? It’s stories like this that make us long for a piece of that American dream. We all wish that we could turn our nickels into big money, but most of us don’t know how to do it. The secret is using debt wisely to leverage more income producing streams. No one can turn five cents into five million dollars overnight, but by taking chances and finding ways to use debt smartly, you can become financially independent, just like the entrepreneurs of old.

The thread that binds all of these success stories together is that somewhere along the way, these entrepreneurs had to go into debt to make more money. Unless you’re Rumplestiltskin and know a way to spin straw into gold, you’re going to have to start taking chances. While it’s perfectly acceptable to put money aside every month or even put it into an interest bearing account, you’re going to nickel and dime yourself for years. You might be able to put aside a nice little nest egg, but what if you want to become really wealthy?

In order to accomplish that, you’re going to have to extend what you already have. It’s pretty frustrating to look at your checkbook and see the cold hard truth that your dreams of wealth are not panning out. It’s even tougher to spot a great opportunity, like a hot stock, and not have enough money to take advantage of it. However, there are ways that you can take advantage of that opportunity, even if you don’t have a lot of money in the bank.

Let’s say that you have the chance to purchase some shares right now. You don’t have the money on hand, but instead of giving up, you go to the bank and you get a loan for the money you need. You buy those shares and in five years, they’ve returned 500% of your initial investment. If you hadn’t taken that risk of going into a small amount of debt, you never would have been able to reap those rewards. Instead, you’d be muttering into your coffee as the news comes in on how well that stock you could have had is doing.

While most of us think of the word debt and blanch, when used properly and managed well, it is the key to becoming wealthy. Do you think billionaires spend their own money when they want to buy a new building? No, that would be silly. They put together a plan and get financing to pay for it. Then, when the rents for the building come in, they pay off that loan and go find another property. That is leveraging debt at its finest. You’ve got to have money to make money and unless you’ve already got it, you’re going to need to go into debt, at least at first, to make those big dreams a reality.

source: richcreditdebtloan.com

How to Determine How Much to Give

 Dear Dave,

We’re debt-free except for our house, and that’s on a 15-year, fixed-rate mortgage. We also have an emergency fund in place. We’d like to give back this year, and do some Secret Santa things and a little extra giving. At what point should we start giving over and above what we tithe?

-Jeremy




Dear Jeremy,

My advice would be to wait until you finish Baby Step 3, which it sounds like you’ve done. That way, you’ve paid off all of your debt, except the house, plus you have a fully-funded emergency fund of three to six months of expenses.

You mentioned tithing, so I’ll cite the Scripture that says he who doesn’t take care of his family is worse than an unbeliever. I’m paraphrasing, of course, but in my mind, from a financial point of view, taking care of your family means having your emergency fund in place and being out of debt, except for your house. At that stage, you’re beginning to build wealth and you can really help others while knowing those closest to you aren’t going without.

My wife and I made the decision a long time ago to live on a certain amount of money. We apply a formula to everything above that figure for tithing and taxes. The rest we allocate for giving, saving and spending. It works great for us, but be responsible and realistic with what you have. You don’t want one of those areas to hinder the others.

-Dave

Dear Dave,

Do you have any advice for deciding which charities to give money to during the holidays?

-Danny

Dear Danny,

There are so many great organizations out there. It’s virtually impossible to pick three or four and say with any certainty they’re the best.

When it comes to choosing, I think the amount of diligence you put into the decision-making process should correspond directly to the amount of money you’re giving. There’s no reason to spend hours in exhaustive study over a $20 donation. However, you’d want to put some time and thought into research if the amount is $2,000.

In situations like this, I’d want to see full disclosure. I’d like to know the expense ratios of the organization and how much money goes toward administrative costs. Every organization has bills to pay and salaries to consider, but you don’t want overhead to eat up 90 percent of every dollar donated.

Helping a good cause is wonderful, but you’ve got to be reasonable and wise about these things. Don’t feel bad about asking to visit a site and take a tour. Lots of times you can get a feel for what’s going on by just walking around and gauging the people you encounter. Regardless, the bigger the gift, the more time you should spend investigating!

—Dave

source: foxbusiness.com