Connect with us


4 common debt consolidation mistakes and how to avoid them



If you’ve amassed multiple forms of debt, like credit cards, medical bills or personal loans, you might be considering consolidating.

Debt consolidation is when you combine your debts into one payment, usually with a consolidation loan. Not only does this simplify your debt, but if you qualify for a low enough rate, you can pay less in interest and even get out of debt faster.

Sounds like a no-brainer, right?

Though financial experts agree debt consolidation can be a smart move, it’s not without risk. Avoid these four common mistakes when consolidating.

Mistake 1: Rushing into debt consolidation

Being in debt is stressful, and it makes sense to want to get out as quickly as possible. But rushing into consolidation can cost you money.

Borrowers with higher credit scores tend to qualify for lower interest rates, including when refinancing. That’s why Charles Ho, a California-based certified financial planner and founder of Legacy Builders Financial, says borrowers should look for ways to build their credit before consolidating.

When working with clients who want to consolidate, Ho pulls their credit report and identifies what he calls “low-hanging fruit” — quick fixes with big payoff. This could be disputing an error or scheduling a few on-time payments to lower credit utilization, which is the amount you owe on revolving credit accounts compared with the total available credit of those accounts.

According to Ho, small changes could impact your score in the short term, 50 to 100 points. “It’s literally dollars saved by having a lower interest rate when you consolidate, just by waiting a couple months,” he says.

Avoid it: Before applying for a debt consolidation product, pull your credit report and look for ways to quickly build credit. Through April 2022, you can check your credit report with each major credit bureau for free every week using

Mistake 2: Ignoring the root cause of your debt

Though debt consolidation can feel like taking a big step in the right direction, it may not be enough to keep you out of financial hardship.

It’s common for people to get trapped in recurring debt if they haven’t tackled the source, says Pete Klipa, senior vice president of creditor relations at the National Foundation for Credit Counseling.

“If someone comes into debt consolidation, and they don’t fundamentally address the budget habits that might have gotten them there in the first place, then they’re just going to fall right back into that trap,” he says.

Consolidating can even exacerbate a common root cause of debt: overcharging credit cards. Moving your current debt off those cards through consolidation frees them up again. If you can’t resist using them, you’ll be in worse trouble than if you hadn’t consolidated in the first place.

Avoid it: Build a monthly budget that balances your income and expenses, and leaves room for an emergency fund. As you work toward paying off debt, avoid financing any nonessential purchases.

Mistake 3: Choosing the wrong debt consolidation loan

Personal loans for debt consolidation are available to borrowers across the credit spectrum, including those with bad credit (629 FICO or lower).

But just because a lender will give you a debt consolidation loan doesn’t mean you should take it.

A smart debt consolidation loan is one with a lower annual percentage rate than the average interest rate of your current debts. You’ll also want to pay close attention to the repayment term. A longer term will mean lower monthly payments, but it also prolongs debt. Consider whether you can stay motivated to make payments over a three- or four-year term and what other financial goals may be delayed until your loan is paid off.

Avoid it: If you’re considering a debt consolidation loan, first plug your debts into a debt consolidation calculator to see your average APR. You’ll want your new APR to be lower. Also look for the shortest repayment term with monthly payments you can still afford.

Mistake 4: Not considering other debt payoff options

Debt consolidation isn’t the only option available, and depending on factors like your financial situation and credit score, you may be better off choosing another strategy.

Klipa says credit counseling can offer benefits a simple debt consolidation product cannot, since clients receive individualized counseling about their finances, in addition to a plan to restructure and pay off their debt. This is especially valuable for clients who need budgeting advice.

Another option may be to borrow against an asset, like a home equity loan or a 401(k) loan, Ho says. These loans often have lower APRs compared to an unsecured consolidation loan, especially for borrowers with bad credit.

However, Ho urges caution. If you default on the loan, you could lose the asset or face a large tax bill, on top of the hit to your credit score.

Regardless of the option you choose, the key is to make a plan and commit to it by staying on track with your payments.

“There’s rarely a magic pill that makes debt go away,” Ho says. “We live in a society that favors instant gratification, but with debt, it’s a slow, methodical process.”

Avoid it: Do your research on different ways to pay off debt, particularly if you have bad credit. Consider working with a nonprofit credit counseling agency or a fee-only certified financial planner for advice on your specific financial situation.

About the author: Jackie Veling covers personal loans for NerdWallet. Read more

Source link

Continue Reading


Are Sallie Mae Student Loans Federal or Private?



When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

Learn more:

Source link

Continue Reading


Tips to do some fall cleaning on your finances



Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

Source link

Continue Reading


How to Get a Loan Even with Bad Credit



Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.



Source link

Continue Reading