Consolidating payday loan debt

If you have multiple payday loan debts then you might consider consolidating them. With this option you would need to take a consolidation loan to pay off all your payday loans. Consolidating payday loans will make your life easier with a single monthly payment and a low rate of interest. Your monthly payments will also be lowered since consolidation is a long term affair. However, payday loan consolidation will make sense only if your debt is under control and you have a stable source of income so that you can make regular payments. Also, you might be denied an unsecured consolidation loan owing to poor credit history. Therefore, you would need to secure the loan against collateral. In that case consolidating your payday loans will turn unsecured debt into secured debt. Under the circumstance, you can lose important assets like your home if you fail to pay back the consolidation loan.

Payday loan settlement

If your payday loan debt has reached an acute stage and you can no longer pay back the whole debt then consider payday loan settlement. With payday loan settlement, you negotiate with your creditors to forgive a part of your debt. Professional services are often hired for this purpose. If the creditor realizes that the borrower can go bankrupt any moment or cannot repay the full amount under any circumstance then he will accept the settlement offer. You should know that though payday loan settlement will substantially reduce your debt (more than 50%in some cases), it would damage your credit score in a major way. Since payday loan settlement is a debt reduction program, your creditors will report it to the credit bureaus as “debt paid in less than full amount”.

Filing bankruptcy eliminate payday loan debt

It is possible to wipe out payday loan debt by filing Chapter 7 bankruptcy. Your assets will be liquidated to pay off your payday loan debt along with other debts. To be eligible for this type of bankruptcy your income should be pretty low. Also, you would need to handover the non-exempt assets to the trustee. Bankruptcy, for obvious reasons is your last resort. It would be a stressful experience for you and bring about social and economic stigma. So consider bankruptcy only when all other options have failed. Payday loans are a quite perilous proposition. Once you are in payday loan debt, finding a way out can be quite challenging. However, if you choose the most suitable debt relief option and be a sensible person then things will definitely work out for you.

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Smart ways to eliminate your payday loan debt

2. House poor is a relatively new term. You never really heard any terms like negative amortization mortgage, option arm loans, or adjustable rate mortgage before the refi boom. They became common place during the refi boom and were supposed to be good home loans. Unfortunately they were some of the worst loans ever. Nothing can ever beat the 30 year fixed interest rate mortgage.

3. So what is house poor? House poor is a combination of factors. The biggest factor is for people who are either first time home buyers or people looking to upgrade and move to a bigger home. When looking at all of their options they are told from their realtor and their mortgage banker to get approved for the biggest loan amount that they can. When you buy a bigger home you bring on more debt and expenses. Bigger home loan, bigger utility bills, more costs for upkeep,etc. House poor is when you make enough money to make the payments on your things like your house, cars, boats, student loans, and credit cards but cannot save any money for retirement, a trip, kids college funds, money to go out for dinner, or money to see a ball game. Everything looks good on the outside. You have a big house, nice cars, boat (maybe) but you are one missed check away from total financial disaster. If you were let go from your job tomorrow you would be screwed. Smart financial people would rather take a smaller house with a smaller mortgage payment and have money left over to play with.

4. As most of us know, realtors work on straight commission. So when you hear a realtor say “buy the bigger home” or “the one with all of the upgrades” you really need to step back. Of course they are going to say that. The difference on a $100k or $200k house is $6k more in commission for them. That is a ton of money. On the mortgage banker side, they also get paid a percentage of the loan amount. The bigger the loan amount, the bigger the commission check for them. Most of the times the mortgage banker will love to see you buy the bigger house but does not really care. What most of them do is tell you what you can be approved up to and then its up to you to work your way down from that number. The realtors for the most part are trying to find a home for you regardless of the price because they also want a sale. Do not fall for the “you’ll probably be making more money as your progress in your career” or “now you will never have to move.” Those are both ways to make you comfortable with buying a bigger house. Last time I checked homes were foreclosing all over the country and there are layoffs going on in every single industry. Might be hard trying to make payments on that larger house or even trying to sell it.

5. Going into your home search you kind of have an idea of what you can afford. Most people who are first time home buyers want to keep their first mortgage payment around what they pay for their rent payment. This is a good practice but what most home buyers forget is that all of those things like a hot water heater going out, cutting the grass, fixing the roof, and all other repairs add up. All of those things are just one call away to the apartment manager and they call a guy to come and fix it. Nothing comes out of your pocket for those expenses. When it happens in your home you have to pay for all of those out of pocket and still pay your mortgage payment. Expect to double your mortgage payment just in monthly maintenance and up keep to your house. I hope your starting to see why you do not own the home, it owns you.

6. When you buy a house that is at the maximum amount that you are approved for you have already began to handcuff yourself to this house. During the height of the refi boom, some people could get approved for mortgages with a debt to income ratio of 55% depending on their credit score. This means 55% of what is showing on your credit report is going to pay your new mortgage payment plus any car and credit card payments. This does not take into account things like car insurance, gas for your car, maintenance for your car, gas for your lawn mower, heating bills, water bills, cable bill, phone bills, etc. These are probably the largest of the bills that are not on your credit report. I bet if you added all of those up on top of your mortgage payment you will start to kick yourself because now you probably do not have anything left over for anything. You are now working for your house.

7. Here is a quick example. You and your spouse have a combined income of $125k a year. You pay $700 a month for car payments and $300 a month for pesky student loans. You do not carry any credit card debt at all and you have outstanding credit. You have saved up $30k in a savings account to be used for a down payment and have about $25k between 401k’s and retirement accounts. You currently pay $950 a month in rent. You are a first time home buyer and want to find something with a similar monthly payment. You call up your mortgage broker and tell him what your looking for. He says what you are looking for would be a home worth $125k. You can put 20% down of $25k and have $5k left over for closing costs. You decided to pay your property taxes and home owners insurance separately so you do not need to have anything for an escrow account. Your loan would be for $100k and lets say interest rates are 7% and if you were paying an escrow it would be $400 a month. Your principal and interest is $665 plus escrow of $400= $1065. This is still about a $100 more a month than what you were looking for but not bad since you get to write your taxes, insurance, and interest off on your taxes. Your debt to income ratio is calculated by adding all of your out going bills on your credit report $1065 + $700 + $300 =$2065 then dividing by your monthly income of $125k/12 months= $10,416. You get $2065/$10,416=19.8%. This is great. You will have more than enough money to save, make your payments and have enough money for repairs and upkeep.

8. But you really like that bigger, newer house the next street over. It has all of the upgrades you could ever want. You decide its the home of your dreams. Your realtor starts to smile because they know that you have sold yourself on the bigger house which means a bigger commission for them. You call your mortgage broker back up and ask them what the maximum amount you could get qualified on would be. Using the example above you could get approved for a home roughly in the $350k range. You could put your entire $30k down payment into the house and negotiate sellers concessions so they cover your closing costs. Your $30k only covers about 8% of the down payment which gives you a loan to value of 95%. You decide to only put down 5% and use the extra for closing costs. Your new monthly mortgage payment on $332,500 at 7% now includes private mortgage insurance (PMI). This will probably be another $200 or more (probably $400) a month and it is because you did not put 20% down payment. Your new payment is $2,212 + $200 (PMI) + escrow of $400 (it will probably be $700 because of the house value)= $2,812. To figure your DTI you have the $2,728 + $700 (cars) + $300 (student loans) = $3728. Your new DTI is $3728/$10416= 35%. As you can see this still sounds pretty good. I was saying how mortgage companies were approving people up to 55% DTI.

9. The thing of it is that the mortgage company has a way of making you think your approved for the loan. What they look at is your income before taxes to get you approved on a mortgage. They need all the income they can get to get you approved and this is why they do it. They need to close loans to stay in business. So those DTI numbers above really do you no good. What you need to do is take your combined family income of $125k and take out at least 15% which is probably what your income tax bracket is, i.e $18,750. Then use $125k-$18,750 = $106,250 to figure what your after tax income ratio. Now you have $106,250/12 months= $8,854. Using our first example of $2065 you get $2065/$8854=23.32% DTI. Still not bad. On the second one you get $3728/$8854=42%. Big difference. What you need to ask yourself is that if you are okay knowing that almost 40% of what you make in your family only gets you the keys to the house and your cars. This does not include operating them, just the keys. When you add up all the other costs like I did above you will see that by getting the bigger house you are probably going to have 5% of your monthly income laying around for saving and entertainment purposes.

10. Americans were very greedy during the housing boom. Homes were being sold at inflated prices. People assumed that home prices would keep going up and decided it was the time to buy bigger because they would never be able to afford the house later. The sad thing is that they could not afford the house at the time they closed on it. Underwriting guidelines were to relaxed. Everybody was getting approved on loans. Not only were they buying homes, they were taking advantage of 0% car loans and other things they did not need. I always get a kick out of the people that have a big house, nice ,cars, and lots of things they do not need and complain about HAVING to work 60-70 hours a week. I smile and wonder if they would be happier without the bigger house. They probably would but nobody will admit it. As long as we can show off to one another what we have this “house poor” phenomenon will continue.

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The Top 10 Reasons Why Your Mortgage Has Made You House Poor

2. The banks are the one’s that set the guidelines for anybody who does business with them. Since a mortgage broker does not lend you the money (the bank does that the mortgage broker works with) they were told that they would not be honoring anymore fixed second mortgages or HELOC’s. This lead to a mad dash from all of the smaller companies to close these loans so they could sell them to the bank before the deadline or they would not be able to close.

3. What lead to this rush was a realization that the housing bubble had finally burst. Home owners now owed more than what their house was worth and property values were dropping quickly. Most people that took out a second mortgage did so for home improvements, credit card bills, weddings, etc. The majority of people rolled in a bunch of debts so they could have one mortgage payment that they could write stuff off on their taxes instead of a bunch of smaller payments. This usually saved them payments on their overall monthly payments but all this did was increase people’s appetite to spend more and use their home as an ATM.

4. Now the mortgage companies see the dip in home prices and most could do second mortgages up to 100% of the value of their home. Appraisals were coming in much lower now than even just six months before so they could not give them another second mortgage or even be able to roll a first and second mortgage into one. Mortgage companies look at the loan to value (LTV) of the house and if both combined to over 100% there was nothing they could do.

5. When home owners started defaulting on their home loans and went into foreclosure what happens is if there is a first and second mortgage on the property the company that has the first mortgage would get paid back first in the event of a short sale or auction. The mortgage company that holds the second lien position on the house would get whatever proceeds that were left over…if any. Many received none because there was no way that the house was going to sell for what the home appraised for when they did the loan.

6. With no money coming in to cover the foreclosures the banks just said they are no longer going to do second mortgages up to 95% or above of the homes value. Many large banks like Chase, Bank Of America, and Wells Fargo might still do them because they would hold onto the mortgage note and service it themselves. What these large companies did was shut off the companies that sold the mortgage notes to them, ie the mortgage brokers. What happens is all of the mortgage notes the mortgage broker would have closed on get sold to the larger bank (that actually funded the loan) in a bundle. The banks would accept the notes in one packet and start servicing the loan and collect your interest. The banks left a lot of trust to the mortgage brokers to do the right thing (and most did) but it meant that some mortgages could squeeze through without going over thoroughly. The banks decided it would be in their best interest to get rid of all the small companies selling them the second mortgages and do it all in house.

7. The banks do not know how much farther the real estate market is going to go down. Of course the National Realtors Association says that home prices are leveling off but you should not believe that for a second. Remember that Realtors work on commission and they want to reassure you that you are getting a good deal. If you are not in a rush to buy a home right now, try and wait until about June of 2009 before you start looking to buy. You will probably save another 8%-15% on the purchase price of the home.

8. The banks have realized that home prices have not leveled off yet so they are not in a rush to do the second mortgages yet. What would happen if they did is let’s say that they start doing second mortgages back up to 95% or 100% of the value of the home. People default on the loans and the home goes into foreclosure. The banks should know that the real estate market is probably going to drop another 5%-15% across the country until June 2009 or when home prices get back to what they were before 9/11 happened. So now the bank would be holding onto the note for a second mortgage on a home that is worth 5%-10% less than what it could be sold for. This would leave them with a 5%-10% loss on the money that they lent. Banks are not in business to lose money and this is a losing scenario.

9. The banks are now trying to fight back to all of the mortgage brokers and correspondent lenders (Correspondent lender is a lender that is big enough to fund the home loans but typically borrows from a line of credit they have with a larger bank like Countrywide and sells that bank the mortgage note. A great example of a correspondent lender is Quicken Loans. They do not keep any of the loans and sell them after closing to the larger bank for a quick profit and releasing themselves of the note and the responsibility of the property in case of foreclosure) to take these second mortgages back. It’s becoming a game of hot potato because nobody wants these second mortgages and the finger is being pointed everywhere.

10. Instead of doing second mortgages for every body the banks have decided to only let certain borrowers take out a HELOC. The qualifications have gone up and many banks now will only let you take a second mortgage up to 80% LTV and you need to have over 700 credit scores with no mortgage lates in the last 12 months. Many also make you open up a checking account with them and you have to have to your payments automatically withdrawn. This is a safer bet for the banks because now they can handle the down turn in the market for a little longer and not have to worry about losing out in case of foreclosure or anymore short sales. If you are in the market for a second mortgage or HELOC good luck finding one. You should start out with your local bank and then call up a big bank like Chase or Bank Of America to see what they can offer.

Post from: The Top 10 Reasons

The Top 10 Reasons Mortgage Companies Stopped Doing Second Mortgages

2. The credit report is going to cost you probably $30 and you might even get told that you need to sign up for a credit watch thingy that costs you $25 a year or something. Stop wasting your money.

3. You already know what is on your credit report, or at least you should. What do you get bills for every month? Do you get a credit card bill? Yup, then it will be on there. Do you have a mortgage, car lease, boat loan, time share or any other monthly payments? Yes. Than guess what they will be on your credit report.

4. Why do you want to pay somebody money to tell you what you already know? It’s crazy. This is just a way for the credit bureaus to make more money. The credit bureaus make most of their money from charging banks and financial instituions to watch your credit and give you a credit score.

5. A lot of major financial instituions have a clause that will let them pull your credit report to make sure that you are paying on time and it also let’s them look to see if you had paid anything off. Why would they want to know if you have paid any credit card bills or home equity lines of credit? The reason is so then they will call you up and try to give you more money so they can earn interest.

6. The only reason why you should ever check your credit on your own is when you know that you have never paid anything on time and you get collection notices from credit card companies or other financial companies. This is when you need to spring into action and start cleaning up your credit report. When you look at your credit report it will tell you the names of every company that is reporting something in collection or any liens. Get to work on those right away…or not. Credit is for people who like to finance things. If you don’t see yourself financing anymore things like a car, a home, or even opening up a credit card because you are going to pay cash from now on then just let it stay on there so you can acheive the lowest credit score of all time.

7. You are serious about cleaning up your credit report because you do see a time in the near future where you are going to buy a house and you are going to need to get approved on a new home loan. You want to make sure your credit score is high so you get approved for the best mortgage rates available. It is still going to be a couple months away but its imperative to you to clean up your credit report.

8. Do not go to any of the credit bureaus websites and buy a credit report. Save your $30 and get a free credit report the easy way. Do some research on what mortgage company you want to work with when you are ready to buy a home and give them a call. They will be more than happy to pull your credit report for free.

9. Mortgage companies have to pull your credit report anyways to see if you can even get approved on a new home loan. Many larger mortgage companies like Quicken Loans, Countrywide, and Chase can in a matter of minutes look at your current mortgage situation (if you currently have one) or see if you could get approved on a new mortgage to buy a home. To be able to start quoting you mortgage rates, the mortgage banker must pull your credit report. Your credit report will pull up on their screen in a matter of seconds from all three credit bureaus. Equifax, Experian, and Trans Union will show everything you have ever financed. Most things stay on your credit report for about 10 years so the mortgage banker will see it all.

10. Even if you do not want to get approved on a new home loan and just want your credit score, just try to patronize them and tell them that your thinking about buying a home or looking to refinance your home. As soon as your credit report pops up on their screen they will tell you all three of your credit scores from the different credit bureaus. If you did not know, mortgage companies use your middle score to qualify you. After they tell you the score ask them if anything is showing up late or in collections. If there is ask them what and who is reporting it. Many mortgage bankers will give you this info because they want you to go out and repair your credit so maybe you will call them back to do a new home loan. Depending on the mortgage broker some of them might see a lot of bad things on your credit report and instead of taking up 10 minutes of their time, they will just copy your whole credit report and paste it in an e-mail and send it to you. Regardless if they do it or not (most will even if they are not supposed too) you still get the credit report for free and all it cost you was maybe 10 minutes of your time. If 10 minutes is too much then try this. Call the mortgage company and say your looking to buy a new home but your afraid your credit report may be bad. The mortgage banker will cut straight to the chase and say that they are going to pull your credit report before they go any farther. This will save you about 8 minutes. The mortgage companies get charged $10-$15 for a credit report because they do so many. In a normal day most mortgage bankers will pull 3 credit reports and with 1500 or more people doing mortgage’s for the company you can see why just 1 free credit report for you will not be so bad.

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The Top 10 Reasons Why You Should Never Pay For A Credit Report

2. During the real estate boom some lenders did second mortgages up to 125% of the value of the home because during that time the value of the home would probably go up during the next year by 25% to cover both the first and second mortgage in case of a sale or foreclosure. This would give the home owner plenty of money to do with it what they want to do.

3. Now with all of the mortgage mess going on in the United States many mortgage companies have scaled back doing second mortgages to 90% of the value of the home or have removed them from their product lists all together. The banks and mortgage companies are now seeing these home owners that borrowed up to 100% of the value of their home over the past couple years can’t pay back the loans and are going into foreclosure, or they just cannot sell the home because they owe to much.

4. When the Federal Reserve lowered the prime rate down to 1% in 2003 cheap money was starting to flow everywhere. Second mortgages were starting to become very popular because now people could go out and buy whatever they wanted with a home equity line of credit (HELOC) with their effective interest rate around 3%. The banks borrow the money at 1% from the Federal Reserve and make their 2% profit and give you the interest rate at 3%. This was cheap because now everything you bought with the line of credit was also a tax write off because it was included with your loan. When you did your taxes it was like whatever you bought you almost bought with no interest because of the tax write offs. Most home equity lines of credit had payments that were spread out over 30 years so your monthly payments were extremely low.

5. The gravy train lasted for about 4 more years up until 2006. This is when the Federal Reserve decided that it was time to start raising the prime rate. The prime rate is the rate which the Federal Reserve lends money to banks. The Fed started raising rates .25% every month for 17 consecutive months before stopping at 5.25% in 2006. What thie means to the average home owner who took out a home equity line of credit is that their monthly payment on the HELOC has now gone up 4.25% over a 1.5 years. If you do the math lets say on a $50k home equity line of credit your payment went from $125 a month at 3% to $302 a month at 7.25%. Plus, the payments on a HELOC are interest only for the first ten years of the loan so all of the stuff you bought cheaply you are now paying $302 – $125 = $177 more in interest a month and the balance stays the same if you do not pay more.

6. In comes the fixed rate second mortgage. On a home equity line of credit the interest rate is adjustable (There are a few local banks that lock HELOC rates in, but they are very hard to find and usually have stipulations like you need to have a checking account with them). Now the average American home owner does not want to have to deal with rising interest rates because it looked like there was going to be no end as to how high the prime rate was going to go. Now, the mortgage companies saw a reason to start coming out with more fixed rate second mortgages and sold them to home owners and the selling point is now you know what your payment is going to be like without having to worry about interest rates. Some mortgage companies used this as a scare tactic and it worked because the home owners were already scared. Most people already had a really good first mortgage with a low interest rate so it did not make sense to refinance the first mortgage, so all they did was refinance the home equity line of credit into a fixed rate second mortgage.

7. Many people that took a fixed rate second mortgage liked the idea that their payment was not going to move anymore. It is very comforting to know what your mortgage payment is going to be like. Interest rates on fixed second mortgages would depend on how high the total loan to value of your loans equaled. If you still had a lot of equity in your home you would get a lower rate. If you locked in a rate and you owed what your house was worth your mortgage rates were probably about 2% higher. There is a risk factor involved in going up to 100% of the value of the home. There are a variety of fixed second rate mortgages available such as a 10 year, 15 year, 20 year, 25 year, and a 30/15 year. All of the above come with different interest rates and the 10 year would have the best with every one after that probably having .125% more than the one before it. Most homeowners took out a 15 year second mortgage because they knew that they were going to pay it down (HA!). The payments were not high on it but for most people that rolled in credit card debt it did save them money initially, but many just rolled the bills right back up after doing the second mortgage. What most people should have done is find a mortgage company that does the 30/15 loan. This loan was unique in that your payment was put on a 30 year amortization schedule with a 15 year baloon payment. What this means is that you will not have the whole balance of the second mortgage paid off in 15 years (probably half of it will be) but during that time if you wanted to pay more you can. The way to get around having to pay the baloon payment would be to refinance the loan before the 15 years. This gave you a lower monthly payment than the 15 year loan and gave you more flexibility with your monthly cash flow. As an example on $50k a 15 year fixed second mortgage at 7.5% is $463 a month and the 30/15 loan at 7.75% of $50k is $358 a month. This puts $463 – $358 = $105 back in your pocket to invest or even put on top of your mortgage payment.

8. Now, home owners feel great because they have no more worries about mortgage payments. Now you need to ask yourself, “why did you get the home equity line of credit in the first place?” The reason you got it could have been for a number of reasons. You wanted to roll in some credit card debt, buy a rental property, a boat, a car, tuition, home remodeling, wedding, etc. The main reason you opened it was to have money available in case of an emergency. With a fixed second rate mortgage, you cannot borrow anymore. Gone are the days where you can write a check from your HELOC or call the bank and have them forward you a check. You cannot borrow anymore. The only way to get more money out would be to refinance the second mortgage again.

9. Let’s say you are okay with the fact that you can’t borrow anymore money (good for you, going old school and saving). You don’t hear anything about the Federal Reserve raising the prime rate any more. This goes on from June 2006 to September 2007. The Fed did nothing. Then in October 2007 the Fed comes out and says we are lowering the prime rate .5%. Great news. That is for the people who kept their HELOC, not good for you because you locked in your interest rate. The people that kept their HELOC will see their payment go down by .5% the very next month and they still have the flexibility to borrow more money (only if you have not maxed it out) if they want. The Federal Reserve comes out the following 3 months and lowers rates by .25% each month. The real kicker comes in December 2007 when the Fed lowers the prime rate by .75%. This is huge. The pattern continues until march 2008 in which the Fed stops lowering the prime rate at 2%. From June 2007 to March 2008 the prime rate went from 5.25% to 2%. If you kept your HELOC opened your payment every month would have dropped and now would be saving 3.25%. using the $50k HELOC balance example at 7.25% (5.25% + the bank’s 2% profit) a monthly payment would be $302 interest only and $50k at 4% (2% + bank’s 2% profit) is $166 interest only, saving you now $302 – $166 = $136 a month in interest. Now the people who took out a fixed rate second mortgage want to get their HELOC back now to save on interest. Sorry, you can’t. With declining values on homes you probably owe more on your house than what its worth. Very few mortgage companies or banks will even lend up to 100% of the value of the home now and many will not go over 90%. Some have put a hold on doing second mortgages or HELOC’s all together until the real estate market bottom’s out. More than likely you are now stuck with what you got.

10. As you can see from the examples above you really need to weigh in all of the factors when getting a second mortgage. It does not matter if it is going to be a home equity line of credit or a fixed rate second mortgage. If you want the flexibility of having cash readily avaialble then keep the HELOC open. It really is not about the rate when you need cash now. If you just want to know that your second mortgage payment is not going anywhere then lock it in. Just do not complain when rates go lower than yours.

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The Top 10 Reasons You Need To Pick The Right Second Mortgage