Help! I am up to my neck in loans!

A Guide to Dealing With Your Loans

Introduction

The economic crisis brought about a recession that may last for several years.  With unemployment rising, major companies declaring bankruptcy, banks still unwilling to lend to other banks, the credit crunch affecting millions of people, and the market’s consistent volatility has everyone very concerned about their individual finances.

Not since the Great Depression have more households been affected by this recession. Concerns about job loss, home foreclosures, and the inability to pay down debts and loans have become the primary focus for many people here and abroad.

In this report, we will discuss how to obtain lower rates on loans, how to appropriately budget, counseling services, different types of loans, and how to choose loans wisely.

One can use the Boston Marathon as an analogy to describe how one feels when debt is mounting and there seems to be no way out.  It is mile 13 of the Marathon, infamously called the “wall.”  As runners approach mile 13, their legs feel light dead weight and they find it difficult to go on.

Take heart!  Just as those runners find whatever inner strength they have to persevere to go on and finish the race, you too have to find that part of you that will not give up.

You will have to make whatever sacrifices are necessary to go beyond the wall, and bring stability not only to your personal life, but your financial one as well.

This report will offer many websites on the Resource Page that can help you make it to the finish line, as well as our tips and suggestions for better budgeting.

How to Obtain Lower Interest Rates on Loans

Car Loans

If the interest rate on your car loan is too high, you can always switch to another lender.  But before you do make the switch, call the lender with whom you have the loan and ask if there is a lower interest rate available to you.

In addition, call your own bank to determine if they are offering a lower interest rate. Or, if you are a member of a credit union, you may be able to obtain a lower rate through them.

Keep in mind that if you have an excellent credit rating, you are in a better position to obtain a lower interest rate. If your FICO score is under 700, chances are the banks will not offer a better rate. Currently, you need a score of 720 or higher to acquire the best rate available.

Two other alternatives may be to (1) contact your lender and discuss extending the loan term or (2) converting your current loan into a lease.  This requires you to find a lese company who will buy your car and pay off the loan.  Then they can lese the car back to you.  The payments will be substantially lower. When the lease expires, you can then determine whether to buy the car or return it.

Student Loans

There are three types of repayment loans available with Sallie Mae.  They are: Extended Repayment, Graduated Repayment, and Income-Sensitive Repayment designed to lower your monthly payments.

Extended Repayment

The following loans fall under this type of repayment:  Stafford, Parent and Graduate PLUS, federal consolidation loans for balances that exceed $30,000.  To qualify, you must:

* Be a new Federal Family Education Loan Program (FFELP) borrower with one or more eligible loans first disbursed on or after Oct. 7, 1998.
* Have obtained a federal consolidation loan on or after Oct. 7, 1998 with no other outstanding FFELP loans when the consolidation loan was made.

Graduated Repayment

According to Sallie Mae, “Graduated repayment allows Stafford, PLUS, and many of private student loan borrowers to make reduced payments that may be as low as interest only for up to four years followed by standard payments of principal and interest for the remaining repayment term.

Keep in mind that reduced payments may increase the total cost since the loan principal is repaid more slowly. Terms and conditions apply. Partial or full prepayment is allowed at any time without penalty.”

Income-Sensitive Repayment

Your payment must cover at least monthly accruing interest. You determine the percentage of your monthly payment: between 4% and 25% of your monthly gross income.

* You have to apply annually for an income-sensitive repayment plan.
* You can prepay at any time without penalty.
* Because the loan is repaid more slowly, your total interest costs may be higher over the life of your loan.

TIP:  The following information was obtained from MSN money:  “As of July 2009, borrowers “will have the assurance that their loan payments won’t cripple them,” says Robert Shireman of the Project on Student Debt. Rather than pay a fixed amount over 10 years — the standard repayment schedule — struggling grads can opt for a program that bases payments on up to 15% of their annual discretionary income, defined as gross income above 150% of the federal poverty level.”

Home Mortgage Loans

This may be the one area where most of your money is tied up on a monthly basis.  If you have a problem pay your mortgage, consider refinancing.

The rule of thumb is to refinance if the interest has been lowered by 2%.  Regardless of whether you have an adjustable rate mortgage or a fixed mortgage plan, refinancing can alleviate many of the current worries you have about paying off debts.

This will require researching the refinancing rates online.  After finding the best rate (use the online calculators to assist you), then you can determine how much you will save and apply the savings to pay off other debts.

TIP: With the current economic crisis, you may want to change your ARM loan to a Fixed Loan in order to prevent higher interest rates from increasing on your existing loan.

Loan Consolidation

A debt consolidation loan may be another alternative you can use to take all those high-interest rate credit cards and other loans and combine them into one monthly payment.

There are two types of consolidation loans: secured and unsecured.  A secured loan requires collateral, whereas an unsecured loan does not.

A secured loan should not be taken lightly.  Remember, collateral will be needed to obtain the loan – and if you default on said loan, you can lose whatever was put up for collateral.

Conversely, an example of an unsecured loan may be a home equity loan or mortgage refinancing.

The benefits of a debt consolidation loan include:

* Lower interest rate than the rate(s) you are paying on your existing debts
* Significant savings during the life of the loan
* The ability to pay off all credit cards and other loans
* Cutting up all credit cards except one

Seeking the Advice of a Financial Counselor

This is another important step you may need to take.  If all else fails, contact an accredited professional financial counselor you can help you pay down your debt by utilizing either a debt settlement or management plan.

Debt Settlement Plan.  The counselor will contact the creditors and settle your accounts by sending a portion of the debt.  If this agreeable with the creditors, the payments can be lowered so they can be repaid over time.  Individuals who have chosen this particular route have reduced their payments up to 65% and have become debt-free within five years.
Management Plan. The counselor will work with the creditors to negotiate benefits that will help you manage your debt in an easier manner.  They will either help to reduce your interest rates and waive any fees applicable so as to reduce your monthly payments.

How to Choose Loans Wisely

Finding the best loan for you requires a great deal of research.  As mentioned earlier, your best bet is to find an unsecured loan that has the lowest possible interest rate.

In order to secure the lowest interest rate, your credit rating today has to be excellent, that is, with a FICO score of 750 or above.

This may seem like a daunting task, but it is nonetheless necessary in order for you to reduce interest rates or obtain a new loan with a low rate.

Banks are being particularly cautious in lending money because of the sub-prime mortgage crisis.  For applicants with a so-so credit, rating banks will not be willing to take the risk that payments will not be forthcoming.

Here are steps you can take to increase your FICO score and improve your credit rating.

* First, contact the three credit reporting agencies and obtain copies of your credit standing as well as FICO scores.  Question any item in each report that you deem suspicious.

* Call each credit card company and/or bank where you have a loan, and ask if the interest rates can be lowered.  This should save you a few dollars in the short term.  If at all possible, double up on payments for the first two or three months.

* Ask family members to loan you the money if necessary.  This is an important step before securing a consolidation loan.

* Once you have made a list of the banks or lenders who are offering low interest rate loans, call to make an important with each one.

* Determine who is offering the best loan package and then make the decision.

TIP:    You can opt for a loan consolidation or a home equity loan. Ascertain the difference between the two and make your decision based on your particular financial circumstances.

Home Equity Loan
A home equity loan allows you obtain a loan by using the equity in your home as collateral. This may or may not be a good idea since the value of homes has dropped considerably since the economic crisis.  However, it doesn’t hurt to look into this alternative.
TIP: A home equity loan is a “secured” loan, which means that if you default on payments – you can lose your home.

Budgeting

Do you have a household budget? If so, is it working for you?  If not, here are some tips and suggestions that you can utilize to overhaul your budget and save additional money to pay off those loans.

First, scan your budget and get rid of unnecessary expenditures such as: manicures and pedicures, weekly visits to the hair salon, magazine subscriptions, newspaper deliveries, buying a cup of coffee daily, going out to lunch or dinner, vending machines, parking meters, lotto tickets, and other incidentals that can cost you dearly every month.

Determine where you can make additional cuts, such as:

* Groceries.  Buy in bulk when items are on sale.  Buy store brand items instead of premium items.  Use online coupons, Sunday circulars, and in-store circulars to save money. Prepare meals for a month by setting aside one day to cook soups, stews, and other meals for the family.

* Energy savings.  Unplug appliances when not in use.  Turn down thermostat at night.  Keep refrigerator thermostat to recommended temperature.  Use microwave more often.  Use energy efficient light bulbs and ceiling fans. Clean air condition filter often.  Winterize your home. Take shorter showers.  Do not leave water running when shaving.  Wash a full load of laundry in cold water.  Shut down computer; do not leave it in sleep mode. Make sure your water heater is adequately insulated.

* Entertainment.  If you normally eat out once or twice a month, eliminate this from your budget.  Try not to order take-out; you can prepare delicious meals in no time.  Utilize Food TV.com for 30-minute meal recipes.  Instead of going to the movies or renting DVDs, there are several online websites that you can join wherein you can swap movies on DVD, CDs, and books.  Or you can visit your local library.

* If you have cable and paying a fortune for premium channels, consider eliminating them as well.  Look into the many bundle packages available today.  If it is cost-effective, sign up.

* Call your telephone company and, line by line, eliminate the unnecessary features.  If you use a cell phone to make all your calls, eliminate your home phone.  For long distance calls, you can use the online company Skype and make calls for free.

* Clothing.  Use several of the online rebate and coupon sites to save money on clothes.  Consider shopping at consignment shops or thrift stores.

* Save money on gas.  While the cost of a gallon of gas is quite low now, it may go up again anytime soon.  Walk whenever you can. Make one trip to complete your errands. Maintain your car by making sure the tires are properly inflated; you are not carrying excess weight in your trunk; you change the oil and filter accordingly. Do not exceed the speed limit while driving, and do not sit in the car with the AC on.

* Prescription drugs/doctors.  You can save quite a bit of money by keeping your family healthy.  If you are required to take prescription drugs, check the many pharmacies that are offering lower prices.  Look into changing your health insurance to accommodate your family’s needs.  By generic over-the-counter medications whenever possible.

* Parking Meters.  These can eat up quarters faster than a slot machine.  If you shop in your local neighborhood, park on side streets or further away from the center of town.  You can save a lot of money by not using parking meters.

Keep contributing money to:

* 401K Plans.  If your company is offering a 401K plan and you have been contributing to it, don’t stop.  Even thought it may have lost money during the market downturn, this money is necessary for your retirement.  Eventually the market will return back to normal and the stocks, bonds, and mutual funds will continue to yield earnings.

* IRA/Investments.  If you have an IRA, continue to contribute. As for any stocks you may have, do not sell them as yet.  When the market rebounds, so will your stocks.

Finally, and this is very important, set aside – if you can – enough money to cover expenses for six months.  Since we do not know how long this recession will last, there is always the possibility that in addition to the loans you have, an emergency may occur requiring you to pay for whatever services are needed.
When it comes to budgeting, it is necessary that you adhere to it.  Yes, it will be difficult; and yes, there will be occasions when you need to take from Peter to accommodate Paul.  But these are difficult times that call for difficult measures.

Owing money can be a heavy burden to bear.  It can cause stress and other health conditions.

The content of this report is a means by which you can contemplate the choices you have, choose the best possible scenario for you and your family, and act upon it as soon as possible.

Telling you that there are hundreds of thousands of people with similar financial problems may not ease the pain, but it may alleviate it to some degree.

Here is how one woman talked about her financial situation:

“I am very worried. I have many credit card debts. I live on a meager pension, and supplement it with at-home work. I am also taking care of my parents as well. Together, we are just getting by. I watch how I spend every penny. My budget is small and doesn’t allow for any emergencies or illness, even though I have healthcare coverage from my former employer.

I worry that my savings, such as they are, will dry up. I do not know what I will do then since I do not make enough to apply for a consolidation loan. I have several debts that need to be paid every month. It’s hard, but the alternatives are few. All I can do is work hard every day and pray I will not become a statistic.”

Does this sound familiar?  People across the globe are experiencing some type of financial failure.  Many lost their entire savings during the economic crisis; still others lost a substantial amount of money in their retirement funds.

Every day, you read about people who invested with one firm or another only to find out the crooked CEOs spent their client’s money and there is nothing left.  People, like you, who worked hard all their lives just to be able to enjoy retirement comfortably.

But, there is a light at the end of that long dark tunnel.  All you have to do is find the path to it.

Finally, don’t panic.  When you do so, you make decisions that are not in your best interest.  Sit down with your family and devise a new budget; make the necessary changes to it; enlist the aid of your children (age appropriate), and ensure them that everything will be okay.

And it will be………….

Resources

CNN.Money Budget Calculator: http://cgi.money.cnn.com/tools/budget101/budget_101.jsp

Student Loans: http://www.salliemae.com/

FinAid: http://www.finaid.org/loans/consolidation.phtml

Loan Calculator: http://www.finaid.org/calculators/loanpayments.phtml

Loan Interest Rates Comparison: http://www.bankrate.com/brm/rate/brm_loansearch.asp?product=51

Auto Loan Calculator: http://www.bankrate.com/brm/auto-loan-calculator.asp

Student Loans Interest Rates and Fees: http://www.salliemae.com/get_student_loan/apply_student_loan/interest_rates_fees/

Credit Reports: http://www.ftc.gov/freereports

A Consumers Guide to Health Insurance:  http://www.ahrq.gov/consumer/insuranceqa/

About 401K Plans: http://www.401k.org/

Sample Letters to Lenders: http://www.cclcnsw.org.au/content/view/50/61/

Financial Counseling Services: http://www.moneymanagement.org/

Consumer Credit Counseling Services: http://www.creditcounseling.org/

National Credit Union Administration: http://www.ncua.gov/index.html

Credit Union Locator: http://www.creditunion.coop/cu_locator/index.html

Rebates: http://www.ebates.com/index.htm;jsessionid=abc0nCW5q3msfcIKYBIxr

Online Coupons:

http://www.anycoupons.com/

http://www.couponcabin.com/

http://www.currentcodes.com/

http://www.wow-coupons.com/index.php

http://www.couponfetch.com/