Debt relief options

People love to dream and unknowingly cross boundaries to fulfill that dream. Many people falls a prey to debt unknowingly because of this reason. A person spends a lot in order to get his dream come true or may be because of a small pleasure one starts spending beyond their means.  In order to stop oneself from getting into such an unavoidable situation, one must know the steps or procedures to stay away from debt.

Let me jot down 5 easy steps of debt relief:

1) Making payments on time can reduce the chances of getting into debt. Sometimes a little late payment may be a result of some late fines which can increase the amount of payment. Hence, it is always advisable to pay on time.

2) Experts can always help you come out of debt. They play an important role in any debt relief program. There are many credit counselors who provide counseling services both private and public. One should ask for help from them and take the guidelines on how to check the expenses and reduce debt.

3) You can also negotiate with your lender for a reduced rate. Sometimes the lenders also want to come to a deal rather than loosing the whole money in foreclosure or bankruptcy.

4) All the individual debts can be consolidated. That is a single loan can be taken in order to pay off the small debts and like this the debt can be reduced. The interest rate gets consolidated as a single rate which sometimes saves some money.

5) The last step would be bankruptcy. If nothing clicks then one can go for it. With the help of chapter 7 bankruptcy you can get a liberation on certain amount of your debt and with chapter 13 one can pay different rates for his different debts.

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Debt Manangement program

1) Debt negotiation

2) Debt consolidation

3) Debt elimination

4) Debt counseling

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Debt-to-Income Ratios

The lenders use few guidelines in order to know the maximum mortgage amount that one can afford. These guidelines are known as Debt-to-income ratios. A percentage of the gross monthly income is used to pay the debts that occur monthly, here monthly income is that portion of the income from which the tax not yet being deducted. In this case two ratios are considered the housing ratio and the debt –to-income ratio which are the “front end” ratio and the “back end” ratio. The general format to denote these two ratios are 33/38.

In these two debts the auto and the life insurance are not taken under consideration. The cost price of the house along with the principal, rates, taxes, insurance, insurance on mortgage and fees of the homeowners association are paid with the front ratio. The portion of the salary (before the taxes) which is used to pay the above expenditures is known as the front end ratio. In the same way the back end ratio includes all the above expenditures along with the monthly consumer debt. The payment that is made for car, debt due to credit cards, installments paid for loans and few expenses of the same nature comes under consumer debt.

Generally followed guideline for the debt-to-income ratios is 33/38. 33 % of the total monthly income (before tax) is used for the house loan. If the housing cost and the consumer debt to the housing cost are summed up then also it should not rise above 38 % of the monthly income.

These are very flexible guidelines. The rigidity of the guidelines depends on the amount of down payment one makes and also on the credit he has. The guidelines become rigid if one makes a low amount of down payment. If there is a marginal credit then also the guidelines becomes rigid. If one can afford to pay large amount of down payment then the flexibility of the guidelines increases. The natures of the guidelines are also dependent on the type of loan program.  The guidelines vary with the type of the loan program. According to the FHA guideline the ratio should be 29/41 on the other hand in the VA guideline there is no indication of front ratio at all but there is an indication of the back ratio i.e. 41.

Let me explain the above guideline with the help of an example. Suppose an individual earns $10000 each month. Then according to the 33/38 ratio guidelines his monthly housing cost would be $ 3300 and the maximum debt-to-income ratio should not exceed $3800.

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My ways to clear your debts

The advance that a debtor takes out on his home is known as debt consolidation mortgage loan. This is more or less same as taking second mortgage on your home. Second mortgage is taken for usual purposes whereas this refinance is taken for paying off a consolidated debt.

Sometimes the debt cycle becomes vicious and assures that the debtor is not able to come out of the debt background. The debtor generally falls into such a situation because interest on debt increases very rapidly, on the other hand the income of the debtor remains static. At times when the debtor is some how able to pay the loan; he finds that the interest increased to such an amount which is out of his reach to pay. This procedure goes on and on making the debtor fall deep into his debt. The option of consolidating your debt is open to you. If  you want to avoid filing for bankruptcy. You may have taken lots of loans from different sources and now it has become a burden on your side to repay. This situation is very obvious for a person taking so many loans from various places.

If all the debts are merged into a sole amount you can handle the refinancing better. In this way your worries are minimized, less monthly payments you have to pay, interest is also minimized and finally number of creditors knocking your door daily is also less. The only thing that you have to do is think about how to repay your debt after your credit advisor discussed on your behalf with your creditors and made an agreement and merged all your debts into a single debt.

The debt consolidation loan is utilized in two ways:

a) For the primary mortgage

b) For the consolidated debt

The loan that you have taken on your home for the second time is known as second mortgage. Once your primary loan is paid off then you have to think of paying your debt.

The different ways in which you can do that are:

a) Utilize the real estate loan for your debts

b) Make very good use of the consolidation process that you are in and make few changes in your daily lifestyle so that you can store the remaining amount that is due.

c) Finally try to get another source of earning, or shift to a better job in terms of salary.

These are all my personal views how you can repay your debts but the choice is yours. You can come out of your debts with the help of debt consolidation mortgage loan but don’t make it a regular habit because the more you take a loan more your financial situation will be in danger.

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