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28 Mar 2016

One of the most disturbing trends in money management is overuse of debt consolidation loans. Sure, they may be the perfect solution for people who have gotten into unforeseen financial trouble, but debt consolidation loans are too often used to treat symptoms instead of addressing an underlying problem. One of the greatest myths about these loans is that they save money on interest. The only way interest rates get cut is when someone borrows against home equity, but home equity loans can become a crutch as well.


Bankruptcy attorneys have seen many clients come into their office after thinking they had "fixed" their finances through debt consolidation, only to find out later on that the old habits are still there. They just "moved" the debt to a different collector. It's a bad idea to think you can borrow your way out of debt. A true fix will be neither quick nor easy, but it will have a lasting effect.
People who find themselves in debt frequently are likely to avoid addressing its real source, which is overspending and undersaving. Financial coaches rarely recommend a debt consolidation loan for clients because they know it doesn't work.

Statistics about debt consolidation

Some debt consolidation firms estimate that more than 78 percent of the time, after a client consolidates credit card debt, it gradually grows back. The reason for this is the client hasn't developed a game plan to prevent it from happening, such as saving for unexpected events or paying cash all the time.

When a debt consolidation offers lower monthly payments, most people feel like they've "won," but they soon find that the lower payment isn't coming from lower rates; just a longer payment term. Staying in debt longer usually means you pay the lender more money, which explains why so many lenders jumped into the debt consolidation business.

For example, say you've accumulated $30,000 in unsecured debt, including a four year loan for $20,000 at 10% and a two-year loan for $10,000 at 12%. Your monthly payment on the $20,000 loan would be $583 and you would pay $517 on the $10,000 loan, with monthly payments totaling $1,100. A debt consolidation company comes along and tells you they can lower your payment to $640 per month and by negotiating with your creditors lower your interest rate to 9% because all of your loans would be rolled into one. While this may sound tempting, what they don't tell you is now it will take you six years to pay off the loan. Instead of paying the $40,392 you would have owed on the original loans, now you're paying $46,080, even with the lower interest rate of 9%. Not such a great deal after all. But now do you see why these debt consolidation companies are so profitable?

How Can You Really Get Out of Debt?

The solution is not in the interest rate. You will need to change your spending habits by committing to a written game plan and sticking with it. If needed, get a second job and start paying down your debt. Figure out how to live on less than you earn and be frugal! Changing your habits isn't easy, but it will put you on the path to financial freedom and out of bankruptcy court, which is where you want to be.

Will a Debt Consolidation Damage Your Credit Score?

A lot of people think that a debt consolidation will make their credit report look better because it will show a lot of closed, paid-off accounts. But the answer really depends on what you do afterwards. If you get the debts consolidated and then start using your old credit cards again it will hurt your credit score. The best thing to do after a debt consolidation is to cut up your cards and stop filling out credit card applications. Make your loan payments on time every month and check your credit score regularly for any changes.

Consolidating credit cards with high balances using an installment loan — a loan with fixed monthly payments — may actually benefit your credit rating, especially if you use the loan to pay off credit cards that are near their limits. At the same time, any new loan can cause a short-term dip to your credit scores — so don't be surprised if that happens.

Transferring a high-rate credit card balance to a card at a lower rate can be another way to consolidate. If you decide to go this route it's important to be disciplined in your approach. Otherwise, you may fall into traps such as getting stuck with a balance at a high interest rate after the introductory period ends. If you use a substantial portion of the available credit on the card to consolidate balances from other cards with lower balance-to-available-credit ratios, your credit scores may drop.

Remember, moving around debt is not the goal here. The goal is to pay off those balances to free up cash flow as well as to help build strong credit. A consolidation loan, used correctly, can help you get there just a little faster.

Contact Us today for more information and to receive a free consultation.

30 Oct 2013

As people enter into adult life and take on new responsibilities, finances can be one of the most intimidating and confusing things to deal with. Not only will financial rules vary from state to state, but you will have financial advisors telling you to do vastly different things with your money. For one reason or another, consumers find it hard to make smart financial decisions, yet the importance of these decisions cannot be overemphasized.


Learning the ins and outs of household finances and retirement planning is something that should be done early and often, however sometimes these lessons are only learned after one takes on too much debt.. A certified credit counselor is usually an expert at reviewing your financial decisions and making suggestions from there. He or she can take the mystery out of the complex world of finance help you make the right decisions for your future. Debt consolidation specialists will also allow you to get started online by offering a free debt analysis.

Before you start working with a financial planner or debt consolidation specialist, it is important to clear up some misconceptions.

Debt consolidation is not the same as a "debt settlement."

With debt consolidation you still pay back everything you owe in full. The only adjustment that is made is the amount of interest you pay on this debt, and that adjustment will reduce the monthly payments and allow you to pay it off without exceeding your monthly budget.

On the other hand, debt settlement means you only pay back a portion of the debt because you "settle" the debt with each creditor for less than what you owe. Any time a debt settlement occurs, expect to incur a seven year penalty on your credit report.

You can still consolidate debt with bad credit.

While some options for debt consolidation may require a strong credit rating, a debt management program is a form of debt consolidation that can be used even with poor credit scores. It is always worth considering a debt management program to get relief, especially if you believe that will prevent bankruptcy.

Debt consolidation will not damage your credit or cause credit penalties.

Neither a debt consolidation nor a debt management program will cause a credit penalty. These only occur when debts are not paid back on time or in full. Debt consolidation may adjust your schedule of payments, but as long as you make timely payments on that schedule you will not be penalized. In fact, if the debts are paid in full through a debt consolidation you may actually see your credit score improve.

Debt consolidation will not keep you in debt longer.

It's easy to believe that since debt consolidation reduces monthly payments it will take longer to pay them back, but just the opposite is true. Most people find they are free from debt faster with a debt consolidation than if they had paid back credit card companies in the traditional way, primarily because their interest rates have been reduced.

How does an interest rate reduction help? When the interest rate is reduced on your debt, it doesn't grow as fast with accumulated interest. Additionally, when a minimum payment schedule is set up in a debt consolidation it usually means the debt will be paid more efficiently than the schedule set up by creditors.

 

13 Feb 2013

Imagine a credit card that charged a 36 percent APR, slapped you with a fee when your credit limit increased and cost you $400 a year just to own -- yet, the company tells you they're doing you a favor.

It's a reality.

Our Colorado Springs bankruptcy attorneys know that credit cards with predatory lending practices are one of the main reasons so many people get embroiled in debt. We previously discussed how many people are choosing to avoid using credit cards in order to avoid having to seek debt relief or file for a Colorado Springs bankruptcy. This card represents one of the most shameful examples of why people are backing away.


The platinum card, distributed by First Premier, (FIRST PREMIER, if you can dig it) already has nearly 3 million customers, according to CNNMoney, and it solicits another 1.5 million every month. The company's CEO claims the business is doing people a favor, because the card is aimed at people with poor credit, who might otherwise not be able to get a credit card. The fees are justified, he said, because of the risk the company is taking on.

One has to wonder, though, whether customers who are already struggling financially could possibly beneift from being slammed with such outrageous fees.

The CEO of CardHub, which allows users to compare credit cards online before applying, was quoted by CNNMoney as saying that perhaps the worst of those fees involves a credit limit increase fee, which charges the customer 25 percent of whatever amount the limit is increased by. So if your spending limit  is increased by $200, you pay an automatic $50 fee. Another online credit card comparison site CEO says he knows of no other company that does that.

"While (First Premier) is bragging about helping people back on their feet, they're in fact beating people when they're down," he said.

We understand that credit cards can be very useful - they can help improve your credit score and sometimes, you can't make major purchases unless you have some credit history. But a card like this isn't your only option if your credit is bad.

One different option is a secured card, which come with lower fees because the card holder has to deposit their own money into the account. That mitigates the lender's risk, without forcing the card holder to be shackled by fees.

08 Oct 2012

Our Southern Colorado Chapter 7 bankruptcy attorneys know that credit card companies have long targeted the college student demographic because of their overall impulsiveness and lack of experience.

But their tactics are becoming increasingly savvy.

Today, nearly 900 universities and colleges have partnerships with credit card companies and financial firms. These are extremely profitable to all entities involved. The ones who lose out are the students.

The gimmicks are shameless. Some involve students receiving free t-shirts or gift cards "just to sign up." But as we all now, those "gifts" cost a great deal more than what students are bargaining for.


In one example provided by a LearnVest article, a college student signed up for a card in her second month of university because she liked the silly slogan on the t-shirt. Now, 15 years later, she's struggling to pay off the $25,000 in debt that still remains from that card.

Some studies have indicated that students that are repeatedly exposed to marketing by a financial institution over a period of time will overwhelmingly cave (about 70 to 80 percent). Of course, these students aren't being encouraged to shop around for competitive card rates or instructed on how to wisely manage their spending and debt.

In fact, a recent survey indicated that only about 15 percent of college students had a clue what their interest rate was and two-thirds were not sure whether they had been charged late fees.

These mistakes can follow students for many years after they graduate.

A survey conducted by Chase Card Services indicates that 35 percent women between the ages of 25 and 32 believe their credit card debt has prevented them from attaining their financial goals.

There are thankfully some protections that have been put in place under the Credit CARD Act, a federal measure that places certain limitations on credit card companies. Among those changes:

  • A person under the age of 21 must have an adult co-signer on their account.
  • A person under the age of 21 must provide some proof of income that will indicate they will be able to repay the debt, should they reach the maximum limit.
  • Banks and credit card companies have to stay at least 1,000 feet away from campuses if they are offering any sort of free gift or perk in exchange for signing up for a credit card.
05 Oct 2012

The U.S. Federal Reserve has reported that consumer credit overall has bounced back in August, following a sharp decline a month earlier.

Southern Colorado bankruptcy attorneys know this means more people are feeling comfortable with taking on more credit card debt. This can be viewed as a positive thing in terms of our overall economy, but it can also quickly launch a downward spiral, particularly if an individual is hit with an unforeseen financial crisis, such as a lay-off or major illness.


A Chapter 7 bankruptcy in Denver is one way these individuals can find relief. The proceeding allows you to end the creditor harassment and erase most of your debts.

The Reserve reports that credit debt rose to $18.1 billion in August, which marks the highest rise since May of this year, and a marked increase from July, when credit fell by $2.5 billion.

Combine that with the fact that the country's jobless rate still stands at about 8 percent, and it's clear we're not financially out of the woods.

If you are one of those who is taking on more credit debt, consider the following tips to help you keep it in check:

  1. Know where you stand. Ignoring credit debt will not make it go away. Know what your interest rate is and keep a close eye on your credit report.
  2. Hold off. If you can wait a few months to get your credit in order, you may be able to improve your credit score and get a better deal on your card. This will also give a you a goal to begin addressing your other debt problems that may be affecting your credit (late payments, etc.).
  3. Pay more than the minimum. Otherwise, if you have an interest rate that is somewhere in the neighborhood of 13 to 15 percent, all you're doing is increasing what you owe the longer you take to pay it off.
  4. Protect yourself from identity theft by not using public computers to make online purchases with your card. Monitor your accounts regularly so you can easily spot odd transactions. If you do see something off-color, report it immediately.
  5. If you do start to get in over your head with debt, consult with an experienced Denver bankruptcy attorney for advice on what to do next.
05 Oct 2012

Colorado Springs credit card debt is easily one of the main sources of financial upheaval.

Of course, Colorado Springs debt relief attorneys know that they can be a great asset if you use them the right way. However, when times are tough, some see them as easy access to money they don't have. But that's the problem: If you don't have the money know, chances are you aren't going to have three times the money next month when the bill arrives. This is where people find themselves in deep trouble.


1. Gluttony. Mostly, this involves maxing out your credit cards or borrowing just about up to your limit. For example, if the issuer of the card offers you a $5,000 limit, that doesn't mean you should take out $4,500 of it just because you can. What's more, when you take out that much, you risk harming your credit score. It increases your debt-to-income ratio, and makes it appear as if you are high-risk.

2. Pride. Many people simply assume that their credit score is Ok, so they don't bother checking it. However, in a lot of cases, errors are common. Sometimes, creditors mark that you are delinquent on a payment, when in fact you aren't. It's important to know where you stand.

3. Lust. This comes in the form of applying for more credit than you can actually afford. Plus, the more credit card inquiries you have, the worse your credit score will be.

4. Greed. Cash advances on credit cards are usually a bad idea. The interest rates on these transactions can sometimes top 25 percent. Take out only what you need - and know that you can pay back in a timely manner.

5. Envy. When you apply for a credit card that is above what you can afford. A lot of times, platinum or gold cards come with astronomically high annual fees. They only really pay off if you travel enough to earn the rewards.

6. Wrath. There may be a temptation to cut up all your credit cards if you've been badly burned by one company. However, this is a bad idea because it won't give you a chance to rebuild your credit.

7. Sloth. If you don't check your monthly statements, you risk the possibility that you could be paying for things that you previously signed up for and have since forgotten about.

26 Sep 2012

Colorado Springs Chapter 7 bankruptcy lawyers know that anyone who has ever struggled with debt wants to ensure their children don't endure the same.

While some debts are inevitable, establishing good spending and saving habits early on can save them a great deal of heartache later on.

This is critical especially considering that a recent survey indicated that 12th graders were failing on basic, personal-finance literacy tests. (And only half of adults were able to get the right answers on basic questions about inflation and interest rates.)


A number of federal and state initiatives in the last year have focused on addressing these issues in high schools. For example, President Barack Obama's Advisory Council on Financial Capability has launched a campaign aimed at young people, with nearly two dozen money lessons important for children.

Here are some of those key points:

  1. You are not going to be able to purchase everything you want. Consider as you conduct your back-to-school shopping - or any shopping - take a picture of a "want" item. Have them revisit it in a few weeks to consider whether it is still necessary.
  2. Forgoing one purchase allows you to save up for another. One way to drive this message home is to hold off on simply buying the items yourself. Instead, give them money and help them decide how they should spend it and how much should be saved. Back-to-school shopping should at least partially involve older kids' allowance money.
  3. Avoid trying to keep up with your peers. This is tougher than ever right now because social media sites like Facebook make it that much easier to compare your wealth to that of others - especially with some kids posting pictures of their new $200 designer jeans. But talk about how damaging it can be - not only to their wallet but to their self-esteem - to measure their worth in this way. Help them minimize impulse purchases.
  4. Know that it is Ok to make mistakes. These can provide invaluable lessons. Some suggest allowing high school students to invest a small amount in stocks. They may learn to diversify if they lose it all on one product.

 

Contact us today for more information.

 

21 Sep 2012

A Colorado Springs bankruptcy is generally the result of circumstances beyond one's control: divorce, lay-off, medical crisis, etc.

However, our Colorado Springs Chapter 7 bankruptcy attorneys recognize that almost everyone can benefit from delving into their financial habits and breaking a few bad ones.


This is especially important for people after they have had a bankruptcy discharge, as this will be key to re-establishing credit.

Some of the biggest bad money habits include:

  • Not having a budget. You will find it impossible to pay your bills in full, on time - not to mention put some away in savings - if you don't know how much you have to work with. Take the time to write out your budget and track your monthly expenses. You may be more comfortable with the old-fashioned, pen-and-paper route, or you may find it easier to use free online services and programs.
  • Consistently overspending. This typically happens when you arrive at a store without a very specific idea of what you plan to buy. This goes for everything from grocery to home goods to clothing. Go in with a list. Budget for your purchase. Stick to your list.
  • Paying retail. Sometimes, you can't avoid it. But in many situations, there are options for you to cut corners on cost. Maybe you're eligible for a senior discount. Check out the weekly ads before grocery shopping. Use coupons. If you are using a credit card, use one with rewards. Find out if you can earn cash back if you do your shopping online.
  • Indulging in impulse buys. If you see something and buy it without thinking twice, it's probably something you don't need and can't afford. If you can establish a 48-hour waiting period on any item over a certain amount - say $50 -that gives you a chance not only to evaluate whether it's necessary, but whether you can afford it and also whether you may be able to get a better price somewhere else or by waiting a week or two.
  • Having lowered financial expectations. Just because you have undergone bankruptcy does not mean you can not make you dreams a reality, whether it's purchasing a home or moving across the country. You simply have to be calculated about it. It may not happen within the first year after your discharge, but with careful planning, there is no reason to think it couldn't happen shortly after that.
06 Sep 2012

You may just now be settling down with the idea that your child is actually in college.

He or she is probably getting in the swing of classes, exams and group projects. But one area of study that college students as a whole routinely flunk is credit card savvy.

Too often, our Colorado Springs Chapter 7 bankruptcy lawyers are seeing younger and younger clients who seek are seeking bankruptcy protection because they got in over their heads with credit cards.


The good news is that for a college student or someone in your early 20s, a bankruptcy filing is unlikely to dramatically impact your financial future. You have more time to bounce back than, say, someone who is facing down retirement in the near future.

That said, part of what credit card companies bank on with college students is that they won't know how to spend responsibly. The fact is, it's good for college students to have a credit card, as it can help to boost their overall credit history, which they are not likely to have much of at this point in their lives. However, the problem is that to a college student, a credit card can seem like a magical wand of instant gratification. But then, of course, the time comes to pay up.

In the interest of avoiding major headaches for your child, here are some bullet points of what you may want to discuss:

  • Be selective about the card you choose. Shop around and get the best interest rates. Check into what the annual percentage rate is, what kind of fees are attached to the card and whether there are any rewards available.
  • Don't apply for more than two cards. This is what is known as a "hard inquiry," and it reflects poorly on your credit report.
  • Speaking of credit reports, understand what a credit report is and how it can affect you. Also, take the time every few months to check your credit score and ensure there are no errors. This is also an opportunity for you to learn to manage that score smartly.
  • If you can't pay it off, don't buy it. Credit cards are not free money, and they will end up costing you a great deal in the long run if you aren't careful.
04 Sep 2012

Colorado Springs foreclosure lawyers understand that while rising home prices have helped to pull some homeowners from the debts of this housing crisis, younger homeowners are still facing an uphill battle.

 

According to real estate database Zillow, the percentage of homeowners who were underwater, or owed more on their homes than they were worth, dropped to about less than 1 percent (to about 31 percent)in the second quarter of 2012. This is somewhat encouraging, but of the 15 million borrowers who remain underwater, a huge portion of those are below the age of 40.


In fact, about half of all borrowers in this age bracket are underwater. This is double what the underwater rate is for older borrowers.

What we're likely to see as a result is a stagnation in the economy. That's because when these borrowers can't move out of their starter homes into bigger homes, those younger couples seeking starter homes have a harder time doing so. That means they are more likely to rent or continue living at home for longer stretches of time.

These under-40 underwater borrowers, in order to sell their home, either have to come up with a lot of cash upfront or go through a short sale.

What they don't necessarily have to do is simply walk away. Our Colorado Springs foreclosure lawyers know that the entire process seems daunting and frustrating, but you do not have to endure it alone.

Our attorneys are experienced at finding foreclosure alternatives, such as loan modifications and principal loan reductions. These are available with increasing frequency as the government works to settle with major banks over foreclosure abuses and other housing wrongs. So even if you were previously unsuccessful in working out an agreement or modification on your own, there's a strong likelihood that we can help you negotiate better terms with your mortgage lender.

This may help you avoid both foreclosure and/or bankruptcy, depending on how deep in debt you are.

Unfortunately, many homeowners simply struggle to pay the current price in the hopes that the market will rebound and they will be able to make their money back. The fact is, you may never fully recoup the losses on the investment you made in your home. However, you shouldn't have to go broke just trying to pay your mortgage.

We can help.

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