Archive for September 1st, 2007
Effective debt management is one of the important lessons of life that a student must learn once he graduates out from the college. Prompt repayment of student loans is necessary as it would directly influence the credit report of the student. Late repayment or defaulted loan payment are considered as bad credit. However, effective debt management is a relatively simple lesson that could be learnt in four easy steps.
The first important strategy is to pay bills on time. Every student loan comes with a 6-month grace period before the repayment period starts. This period has been provided to help graduated students get themselves a job and then repay the loan. Loan repayment should never be ignored. Graduates could opt for an automatic remittance from the account. In case of any unavoidable late payments, it is wise to inform the lender in advance.
The next important strategy is to pick a right repayment plan. Many lenders offering student loans have flexible repayment options. Graduates earning low salaries could opt for an income-sensitive repayment plan, where the monthly installments are determined based on income. Graduates with higher-paid jobs could happily go for a standard repayment option.
If the graduate has a heftier loan amount and is unable to repay the loan due to low salary, he could even consider the option of refinancing. However, student loan consolidation is best when it is done within the grace period. Student consolidation loans are available at low interest rates and extended repayment period.
Deferment of the loan is the last important strategy. If graduates are marred by unemployment, economic hardship or a desire to return to school, they have the option of deferring their loan repayment. While the deferment period is three years with unemployment and economic hardship, the loan could be deferred to an unspecified period if the graduate continues his studies.
September 1st, 2007
1. Only pay back the interest on the loan
If you have a repayment mortgage and you are unable to keep up with your regular mortgage repayments, you could ask the lender if it is prepared to let you make payments on an ‘interest only’ basis. This means that you make reduced repayments, which cover the interest charged on the loan but not the capital sum borrowed. If you have an endowment, pension or ISA mortgage, you can freeze payments to the’ investment’ so that you are only paying interest on the mortgage.
Advantages:
- you will have less to pay back each month
- you can go back to making your usual payments when your income increases
Disadvantages:
- the loan may take longer to repay
- the arrangement will not take into account any arrears that have already accrued. If you have built up arrears, your lender may suggest that your payments be increased to cover the repayment of these, unless your financial statement shows that this is impracticable.
- during the time that you are only paying interest your loan is not reducing. This may cause you problems in the future.
If you decide to opt for this strategy you should make the lender aware that it is only a temporary solution to your problem, and that you will go back to making your normal repayments as soon as your situation has improved. The lender may set a review date to re-examine your circumstances.
2. Negotiate a payment reduction with your lender
Mortgage lenders are sometimes amenable to an arrangement that will enable you to pay back less than your normal mortgage repayments. This may be cheaper to a creditor than the costs involved in repossessing the property Repayments are also more likely to be maintained if they are set at a lower level. The following are ways in which you might be able to get the lender to agree to reduce your monthly repayments:
- ask the lender if it is prepared to extend the period of the loan, while reducing repayments to make them more affordable. You should bear in mind that if the loan is extended in this way, the total amount that you will have to pay back may ultimately be greater.
- ask the lender to charge a lower rate of interest, either for a fixed period or for the rest of the loan.
3. Combine together all your secured debt (loan consolidation)
If you have taken out a secured loan with a second lender (at a high rate of interest) alongside your mortgage (which charges a lower rate), and you are finding it difficult to keep up both sets of repayments, it may be worth speaking to your first lender to arrange a refinancing deal to incorporate both loans into one. The effect of this will be to reduce your monthly repayments. The deal will be much easier to arrange if you have a good track record of making payments to your first lender even if you have missed payments to the second.
Although the arrangement will result in you paying back less money each month, it is important to remember that there will be charges for setting up the new loan and that payments may extend over a longer period than the original agreement. Some secured lenders also make penalty charges if you decide to settle up early.
4. Combine arrears with the remaining loan (capitalise arrears)
If you have built up mortgage arrears during a period of difficulty but are now able to resume regular repayments due to an improvement in your circumstances, you can ask your lender to add the unpaid arrears to the outstanding capital sum and charge you interest on the resulting amount. This will make the burden of arrears less onerous and leave you more funds to pay other priority debts.
Advantages:
- arrears are no longer treated as an unpaid debt
- no further action will be taken against you
- repayments are affordable.
Disadvantages:
- repayments increase if the term of the loan remains unaltered
- the new debt may take longer to pay off
- you will be paying interest on the arrears throughout the remaining term of the loan
5. Apply for tenant status under the Mortgage Rescue Scheme
This is a little-known strategy of changing from homeowner to tenant status while continuing to live in your own home. The way that it works is that your local housing association will buy your home and will settle the balance outstanding on the mortgage with your lender. This will allow you to continue to reside at your property while making payments to the housing association. You will also have the chance to buy your house back if your finances improve.
Unfortunately, rescue schemes are rare, but it is worth checking with your local authority to see if such schemes exist in your area and whether you meet their criteria.
6. Sell your home
Although it is a last resort, you may, in certain circumstances, decide to sell your home to meet priority debt repayments. If you intend to sell up, your lender may extend its deadline for repossession.
Advantages:
- if repossession appears inevitable and you have some equity in your home, you will probably get a better price for it by selling it on the open market. Inhabited houses tend to sell more quickly and at a better price than repossessed properties
- if your current home is in a particularly expensive area, or is larger than meets your needs, it might be worth selling it and moving into a smaller house or to a cheaper area
- if there is a considerable amount of equity in your property, you may be able to realise a high enough lump sum following its sale to clear your priority debts in full. The money that you can raise from the sale of the property will also be useful to clear pressing business debts or loans from friends and family.
Disadvantages:
- if you need your local council to rehouse you, following the sale, it will be tricky explaining to the council that by selling your home you were not trying to make yourself intentionally homeless once you have sold your home to meet debt repayments it will be difficult to get back on the property ladder if you want to buy again
- there may be considerable fees and expenses associated with buying and selling property
September 1st, 2007
If you are struggling with debt problems it can seem like you are trapped in an interminable fight to keep your head above water, desperately juggling your finance around to keep your creditors happy. It seems like you are alone in your debt struggle, but this is very far from the truth. Today, millions of people have at one time or another been in a similar fashion in debt situation, and even though it seems like there is no way out of it. Taking stock of the debtors financial malaise, the lending authority has started debt management services.
First of all, some questions are to be asked to individuals pondering over seeking debt management services. Following are some of them:
how many creditors you have
How aberrant your accounts may be
Account activity such as balance transfers, cash advances and large purchase
Your residence
Your financial situation
For the provisioning of the debt management services, there are many lenders available online and offline. However for an instant and quick processing, the lending authority has started entertaining the applications of debt management services through online. This method of availing is preferred these days, as it saves time and energy of the borrowers. If you hesitate giving your personal information on the net, then you should take heart in the fact that most of these sites have a well-defined encryption system in place that makes sure that the information you give remains protected.
Debt management services should not be misunderstood as the mode of reducing the loan amount; it only involves reducing the loan payments by extending the loan period. Even if you have a bad credit history, arrears, bankruptcy or CCJs you need not worry, you can too take a bad credit debt management services that are tailored for you only. The lenders charge higher interest rate for bad credit management services, as the risk involved is higher.
September 1st, 2007
