Repairing Your Finances: Finding Your Way To Better Money Management

By Marquis Tubbs

Do you need help with your finances? Are you deeply in debt? Is your credit score in dire need of a fix? This guide contains all the information you need to start making smart money moves for yourself and your family. Don't worry about how to save or what you're doing wrong anymore as I have compiled the best tips and strategies for combatting bad finances and will show you how to overcome the debt and reign supreme over your finances!

• Language: English
• Publisher: Lulu.com
• Release date: Jul 12, 2021
• ISBN: 9781105529214

Book preview

REPAIRING YOUR FINANCES

Finding Your Way to Better Money Management

By Marquis Tubbs

On behalf of Evolution Credit services, LLC.

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Chapter 1:

Clearing Your Debt

What Is Debt Consolidation?

If you are flooded in debt, one option that you may have heard about is debt consolidation. There are many pros and cons to using a debt consolidation program. Keep in mind that to qualify, you generally need at least $7,500 in unsecured debt.

Here's how debt consolidation works.

Debt Consolidation 101

The basis of debt consolidation works like this. Let us say you have four different debts, all of which total up to $1,100 a month in debt payments. You simply cannot afford the payments anymore.

Instead of defaulting or going into bankruptcy, you go to a debt consolidation company.

The debt consolidation company will turn to your lenders and negotiate a deal to pay off all your loans for you. Usually, they will get a deal for between 25% to 75% off.

They will pay off the loan, then you'll owe them money instead of your previous lenders.

Instead of having to make four payments, you only need to make one. Your monthly payment is usually significantly lower than your previous monthly loan payment amount.

Keep In Mind They Need to Make Money Too

Keep in mind that debt consolidation companies, even if they're a non-profit company, need to make money too.

Some companies will structure their program in such a way that you're actually paying more at the end of the day. For example, they can lower your $1,100 payment down to $700 a month while extending your loan terms by 24 months.

Your monthly payment may be less, but in terms of the total loan term you may end up paying a few thousand dollars more.

It's a trade-off: they need to make money; but if you can't afford the higher monthly payment, then a lower monthly payment with a higher overall payment might be the lesser of two evils.

How Does It Affect Your Credit?

Settling a debt is not as good for your credit as paying it off in full. However, it is better than not paying it off at all.

How it affects your credit depends in part on how delinquent you were before the consolidation. It also depends on whether the creditor charged off your debt to a collection agency.

If your debt has already been charged off, the charge-off will appear on your credit report even if the consolidation company reaches a settlement with the collection agency.

The act of working with a debt consolidation company does not lower your credit. However, settling for an amount lower than the total you owed, being delinquent on your debt and getting charged off can all add up to negatively affect your credit report.

Apart from the settlement however, these would negatively affect your credit whether you consolidate your debt.

These are some of the most essential facts about debt consolidation. It's not for everyone; but if you want to save yourself from bankruptcy it may be the only option.

The True Cost of Credit Consulting - Is It Worth It?

What does credit consulting really cost? Believe it or not, when you talk to a credit consulting agency, they often will not give you many of the most important numbers. They might phrase their charge as a monthly amount rather than an interest rate number, artificially lowering the perceived cost.

When considering a credit consulting agency, it's crucial to weigh the potential benefits against the potential costs.

A Quick Note on Credit Consulting versus Debt Consolidation

Debt consolidation is the act of consolidating all your debt into one place. Credit consulting is a wide range of services, one of which is debt consolidation.

Make no mistake, however; many credit consultants will ultimately try to push you towards debt consolidation. They would much rather make thousands of dollars by consolidating your debt than charging you $50 an hour for consulting fees.

What is the Cost of Credit Consulting?

The first thing to consider is how much they can negotiate off your total debt. Most credit consulting companies will take over the negotiation process with your creditors.

Let's say you owe $50,000. A debt consolidation company may be able to negotiate as much as 20% to 70% from that amount. For example, they may get your creditors to agree to take only $25,000 and consider your case settled.

The remaining $25,000 is then paid to the debt consolidation company. However, they will often charge a premium on the amount they saved for you. Instead of paying your debt consolidation company just $25,000, they may ask for $35,000.

That is $10,000 in cost right off the bat. However, it is important to keep in mind that they saved you $25,000. The $10,000 cost is cheap when looked at in that light.

The cost of the negotiations, usually denominated as a percentage of the amount saved, is just one factor to look at.

Perhaps the most important cost to consider is the cost of carrying your debt, expressed as an annual percentage rate. Many debt consolidation companies will be very hesitant to give away this number, opting instead to disclose just the monthly payment.

Most consolidation companies will charge somewhere between 14% and 19% - more than most credit cards.

This is on top of any additional monthly fee and upfront fees they may charge for their services.

Is It Worth the Cost?

The real question is whether they can save you money in negotiations and whether or not that will cover the cost of working with them in the long run.

Lenders will often be much more receptive to working with a debt consolidation company than with someone who owes them money. They understand that if you are working with a credit consultant, chances are they're not going to get their money if they don't negotiate.

There are many online calculators where you can plug in your monthly payment and your initial principal and figure out what your APR and total interest costs are.

Make sure you calculate the payment terms for any plan you are considering. Make sure that amount is less than how much money you are saving by having a credit consultant negotiate for you.

The Do It Yourself Debt Snowball Method

The debt snowball method is one of the most effective methods for paying off personal debt, period. Instead of taking a purely logical approach, the debt snowball approach actually makes the whole process of paying off debts much more psychologically easy and satisfying.

Here's how the debt snowball works.

An Overview of the Process

Take out an Excel spreadsheet and list out all your debts. Make sure to include the name of the creditor, the amount you owe, the annual percentage rate, the monthly minimum payment, and the payment date for each debt.

Sort your list by the total owed. The smallest debt is the debt you'll work on first. Unlike other systems which advocate paying off the highest interest debt first, the debt snowball method works by paying off the smallest debt first.

This works because paying off that small debt gives a real sense of achievement. That momentum and enthusiasm can be