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The Pros and Cons of Debt Consolidation

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How Does Debt Consolidation Work?

Debt consolidation usually involves taking out a low interest loan at a fixed rate to reduce monthly payments. This often entails rolling many loan amounts into one. An asset is used as collateral for the new consolidated loan. The most commonly used asset is a home. This means that if the consumer defaults on the loan, they agree to allow the house to be sold to collect the remainder of the funds. This method of debt management is usually secured to pay off student loans or credit card debt that carries large interest rates that may increase frequently. There are pros and cons to debt consolidation.

The Positive Side of Debt Consolidation

On the positive side, it allows consumers to pay down the principle amount faster. As a result, credit scores may increase. This is especially useful when the consumer is trying to secure a mortgage to buy a home. The consolidation takes many small payments, with variable high interest rates and rolls them into one monthly payment with a lower interest rate. This takes away the stress caused by trying to manage many payment due dates to avoid late fees. The smaller payment makes it easier for most people to create a budget they can stick to.

Debt consolidation loans often extend the original terms of a loan. If the balance would have been due in six months, the deadline can be moved back to 12 or 18 months without penalty. If a home equity loan is involved, the interest may be tax deductible.

The Negative Side of Debt Consolidation

One of the disadvantages to this type of program is that it does not teach the consumer new habits, it just enables them to continue the bad spending habits that have already been established. If they don’t stop using their existing cards, debt will continue to build and their credit may be negatively affected.

Debt consolidation does not work for everyone. Many people believe that a consolidated loan is easy to get. While that may have been true at one time, it is not today. If your credit is still in good standing, it may be the most appropriate option. Though the monthly payments and interest rate has been reduced, the amount due has not. This means that the loan has been stretched out which will possibly take years to repay. It is only shifting the debt from immediate to long-term. Many people find debt settlement more appropriate for their situation.

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Written by dailyspends

January 26, 2012 at 10:19 am

How to Stop Spending

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Spending and overspending is easy. Unfortunately, stopping spending requires a lot more willpower!

Everyone has the odd splurge every now and again but if you find yourself regularly in the red you could be living above your means. Here are a few tips to help you take control of your spending.

Find out what you already own

When was the last time you really looked through your wardrobe, drawers or kitchen shelves? Before you go shopping, spend some time thinking about what you need to buy and make a list. Take this list with you and you will be far less likely to buy things you already own or simply do not need. Just make sure you stick to your list and avoid the temptation of buy-one-get-one-free offers!

Choose your time

Although shopping can be a great mood booster if you are feeling bored or depressed, the financial hangover that comes after a shopping spree doesn’t have the same feel good effect. Avoid the shops if you’re feeling down, as the temptation to spend can be difficult to resist.

Question yourself

Get into the habit of questioning yourself every time you are about to buy something. Ask yourself “Why am I buying this?” before handing over your cash or card. When you can’t answer or find yourself making up an excuse, put the item back. You can always come back later if you decide you really do need it and the chances are you won’t.

Budget

Although the thought of drawing up a budget can be daunting to say the least, budgeting really is the best way to take control of your spending. By examining your monthly income and outgoings you will find out exactly how much you have to spend and can usually spot ways to make savings. Once you have analysed your spending, allocate yourself a monthly budget and stick to it.

Go on a spending holiday

Really put your money-saving prowess to the test by going on a spending holiday. Decide on a week during which you will spend nothing at all, except on unavoidable costs such as travelling to work. Prepare for the week by shopping for groceries and planning a few free activities like going for walks or visiting friends. Don’t carry any credit or debit cards and restrict yourself to keeping just a small amount of cash with you for emergencies.

Think ahead

The recent economic downturn caught many people by surprise. Thankfully interest rates have remained low, helping homeowners keep on top of mortgage payments. Nobody has a clear idea of what the future holds for UK consumers however, as the political and economic situation remains uncertain. If interest rates go up and inflation causes the cost of goods to rise, this could spell trouble for many households who would struggle to pay the bills.

Written by dailyspends

May 23, 2011 at 9:05 am

Top 5 Bizarre Money Stories

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Here’s a few bizarre money stories:

Bank tells man he owes them $211 trillion
Some poor fella closes his bank account only to be told he owes them $211 TRILLION
http://www.wsbtv.com/news/14740712/detail.html

Messing with the IRS
Not telling the TaxMan about that £5.00 note from your Gran is one thing. Asking for a $10000 write down on an arsonist’s ‘consultation’ fee is quite another!
http://moneycentral.msn.com/content/taxes/p108364.asp

Wish You Were Here
UK cash machine dishes out double the money as resident queue round the block for their ‘free’ go.
http://news.sky.com/skynews/article/0,,30400-1310098,00.html

Expensive Farewells
If your quango failed . . . just let it go! No need to insult the tax payer by spending another twenty-odd grand on a ‘good-bye’ brochure.
http://www.yorkshirepost.co.uk/news/23000-storm–over-farewell.2845788.jp

Kids Get More Pocket Money ‘Up-North’
Who’d a thought that the kids up North get more pocket money that their Southern piers?
http://www.thisislondon.co.uk/news/article-431751-details/Research+reveals+pocket+money+divide/article.do

Written by dailyspends

April 9, 2008 at 4:52 pm

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Successful Financial Negotiation

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Just wanted to mention an excellent article recently featured on Jay’s DumbLittleMan.com called ‘The Art of Negotiation: Fifteen Steps to Success‘.

The concept for the article was thought up by one of my pals who I know was very pleased to be featured on such a well known site. The article gives some good practical tips for all stages of negotiation.

I’d recommend you take five minutes out to pop over and check out what you should be doing in your next negotiation. And . . . don’t forget we negotiate every day be it at work, home, at the pub. Read Jay’s tipss and keep them in your mined for the next suitable occasion.

Written by dailyspends

February 28, 2008 at 12:27 pm

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