Outcries for debt consolidation

Nov5

Filed Under Debt Consolidation, Debt Management, Editorial, Financial Updates

Debt consolidation involves transferring multiple debt balances into one payment with the view to save money and time.

Presently, financial times are harsh and debt consolidation is in high demand. With increased levels of risk, traditional lending institutions have become wary of offering consolidation loans to applicants that do not meet traditional lending requirements.

For people struggling financially and considering bankruptcy, and cant get a consolidation loan through traditional means, a debt agreement may be a feasible option.

As a form of debt consolidation, Debt Agreements are for people who want to regain control of their financial situation.

As a Government Registered Debt Agreement Administrator, Debt fix help debtors settle their debts by negotiating an affordable repayment plan.

For some, bankruptcy is the only logical option; however for many people struggling to make ends meet in this onerous financial climate, a debt agreement could represent a viable alternative.

Click here to check out this article to see how Aussie’s are dealing with the financial times:

It’s All about the Interest, Baby

Oct8

Filed Under Budgeting, Debt Consolidation, Debt Management, Debt Tips, Debt help, Interest Rates, Loans, Mortgage Refinancing

It’s All about the Interest, Baby

     And don’t forget the time. Interest and time are two of the most key elements in savvy budgeting that is hardly mentioned when the topic of budgeting is mentioned.

     A small amount of money can grow into heaps under the right conditions. Here is a metaphor: picture a lone flatworm, which turns into a miniature army of flatworms, if a competent cutter makes that incision in the right spot which would allow the flatworm to split into two successfully, and those flatworms decided to have a party, conditions were right, and nothing disturbed them. Similarly to flatworms, money needs time and interest- and no disturbance- in order to grow. Money needs to be cut and placed into a vehicle, like a flatworm’s Petri dish, that allows the money to grow with time and interest. If the investor has urges to touch the money, a certificate of deposit (or a swift kick as a reminder) could be a good way to go since it discourages the investor from withdrawing money by charging fees for doing that before a set date.

      Anyway, money best grows on compound interest instead of simple interest. In simple interest, that small amount of money is the only thing that earns interest. In compound interest, that small amount of money PLUS the interest on that small amount of money, earns interest. Under compound interest, the more frequent an amount of money is allowed to earn interest, the quicker that small amount of money grows into heaps of money. Therefore, if ever given a choice over investing your money at simple interest or compound interest, opt for the choice with compound interest. Another way of putting this information to practical use is, if you have a credit card, look for the one that does not charge compound interest on the balance.  If that is not possible, pick a card that charges a lower interest rate over the same amount of time.

      One major credit card can fool someone into thinking that the interest rate that it charges for late payments is lower than the next credit card by restating the terms of interest and time. For example, having an interest charge of 2.5% for every fortnight that the balance wasn’t completely paid off is the same as having an interest charge of 5% for every month.

      Time is money, and that saying is very true in this case. A great financial tenet is: A dollar today is worth more than a dollar tomorrow. Why is that? It is true because of compound interest.  If you earn a dollar today, tomorrow you have that dollar PLUS interest, assuming that you didn’t spend that dollar and invested it somewhere. If you earn a dollar tomorrow, you do not earn any interest until the day after tomorrow. And remember, the sooner and the more frequent you earn interest, the sooner and the larger your small amount of money grows.

      Now let’s say that you have a choice between a billion dollars today or a billion dollars tomorrow. Obviously you’d pick having a billion dollars today. And with a billion dollars earning compound interest today, you’d have more than a billion dollars tomorrow.

      Then let’s consider what happens to that miniature army of flatworms if for some reason, a couple hundred of them were needed  at different points of time during the school year for a bunch of high school students to run biological experiments on them. How would taking away some flatworms at different points in time affect the number of flatworms that make up that miniature army?

      Well, if the same amount of flatworms were taken away mainly during the beginning of the school year, at the end of the school year there would be less flatworms than if the same amount of flatworms were taken away mainly towards the end of the school year. 

      Likewise, if the same amount of money is taken out of a compound interest account towards the beginning of the financial year, at the end of the financial year there would be less money than if the same amount of money were taken away mainly towards the end of the financial year.

      It’s all because of time and interest. Have you stopped to think how credit cards and other fine lending institutions make their money? They take advantage of time and interest, and the fact that some people just don’t appreciate how much of an impact interest and time has on an unpaid balance until it becomes a huge problem.  A debt agreement or bankruptcy cuts off the time and interest factor that multiplies the debt that is owed by the debtor. Think of how much money is saved by having a debt agreement or declaring bankruptcy… In flatworm terms, that would be a big pool of flatworms….

     In all honesty, there are many different scenarios that could be played out with different amounts of money, time, and interest.  Knowing what happens with the variations of these key elements and applying them to your budgeting can help you make payments in time and reach goals. The next time you decide what to do with spending and budgeting, think of how a dollar today is worth more than a dollar tomorrow, and remember that as true as timing is everything, it’s all about the interest, baby!

Pamela Caronongan is a guest writer. She has a MSA degree with a specialization in finance from Northeastern Illinois University and a BA degree in English Literature from the University of Illinois Champaign-Urbana. Her background includes promotional marketing and creating instructional material for businesses. Her interests are in financial analysis, auditing, and writing.

The Nitty Gritty of Bankruptcy

Sep22

Filed Under Bankruptcy, Debt Management, Debt Tips, Debt help

Ever consider bankruptcy as the answer to all of your financial woes? After reading this article, hopefully you will have a more balanced opinion on the advantages and disadvantages of declaring bankruptcy.

Bankruptcy happens involuntarily or voluntarily; either a creditor (owed $2,000 or more) takes a court order against you or you sign up and declare yourself bankrupt with the Insolvency Trustees Services Australia (ITSA) or a registered trustee. Bankruptcy is an option for protection from creditors for someone who cannot pay outstanding debts and cannot reach an agreement with creditors to repay through a flexible repayment plan or be discharged from all debt obligations. Usually those considering bankruptcy lack the resources to pay off creditors while meeting basic living expenses and have no sellable assets to repay creditors.

One can opt for bankruptcy voluntarily by lodging the following documentation: a debtor’s petition, a Statement of Affairs, and an acknowledgement that basically says that one is aware of the circumstances, effects, and consequences of bankruptcy.

However, opting for bankruptcy is a major financial decision that should not be taken lightly. Other options may be more suitable than bankruptcy and it is crucial that one considers all of the alternatives to bankruptcy before binding oneself to its lifetime ramifications. There may be other ways to get protection from creditors.

Declaring bankruptcy does not protect the bankrupt from being hassled by secured creditors such as banks, although it does protect the bankrupt from unsecured creditors such as major credit cards. For example, the credit card lender cannot legally ask for repayment while a secured creditor can simply take away assets that were covered by their security. Case in point, a bank can repossess a bankrupt’s home if the bankrupt misses a mortgage payment.

Alongside having to repay secured creditors, other creditors and payments which have to be paid despite declaring bankruptcy are: court fines and penalties , child support, fees relating to fraudulent proceedings, and HECS/HELP obligations.

Bankruptcy also negatively impacts one’s employment opportunities, ownership, earnings, and credit file. Certain industries are off limits for a bankrupt. A bankrupt employed in a restricted industry will have to look for another job in another industry and perhaps acquire a new set of vocational skills and certifications. Also, a bankrupt cannot be a company director without court approval.

A bankrupt is forced to live on a smaller income because of mandatory payments to a Bankruptcy Trustee if earnings are over a certain amount, which is determined by the government.

A bankrupt cannot own whatever he or she wants. A bankrupt can only own “necessary” household property and clothes, money or property bought with compensation payments, tools that meet a predetermined value, and a vehicle that meets a predetermined value. Check the ITSA website for current thresholds, restrictions, and updates at www.itsa.gov.au.

While a bankrupt can apply for and obtain credit, the credit line available for borrowing is limited to a predetermined value. One also has to ask for permission in order to borrow more than that predetermined value.

For seven years, a bankrupt’s name and personal information will be all over various credit reference agencies’ databases. After seven years, that information will be removed. Conversely, a bankrupt’s name and personal information will stay recorded on the National Personal Insolvency Index, a public record which is accessible by any person or organization that is willing to pay a fee. Having name and personal information in a permanent record makes it harder to obtain financing options.

For all of the aforementioned reasons, it is important to consider one’s circumstances and investigate all the options, weighing them against the benefits and consequences of bankruptcy.

New changes in the law also give more power to the government or the Bankruptcy Trustees to repossess assets that have been transferred before bankruptcy, depending on the deemed intention of the bankrupt to avoid creditors.

Normally, assets can be protected by giving assets to others (gifting assets) and placing assets in superannuation. Yet as of May 31, 2006, the Bankruptcy Act was amended to the effect that a trustee can take back property previously owned by the bankrupt and presently owned by a spouse or a family trust. Assets that were transferred to a party where common sense would say that the bankrupt made the transfer in order to evade paying creditors, and in addition, consideration for a property that was transferred from a bankrupt to a third-party, will most likely be taken back into the possession of a trustee.

Superannuation contributions that were made by a bankrupt before he or she became bankrupt can be taken back by a trustee if the intentions of making superannuation contributions were to avoid repaying creditors. This became effective from July 27, 2007 in response to a case in 1990, Cook v Benson, where a bankrupt had made superannuation contributions to numerous funds and still managed to enjoy an outrageously comfortable amount of benefits despite being bankrupt. Now the government and the court can take back superannuation contributions where they believe that the intention of those contributions was to avoid creditors, and an investigation of the bankrupt’s past history of superannuation contributions can be launched in order to determine if the intention of those contributions was to avoid creditors.

The main point is that bankruptcy is not a laughing matter, and it is harder for the wily to avoid being caught for trying to plan a comfortable bankruptcy situation.

Pamela Caronongan is a guest writer. She has a MSA degree with a specialization in finance from Northeastern Illinois University and a BA degree in English Literature from the University of Illinois Champaign-Urbana. Her background includes promotional marketing and creating instructional material for businesses. Her interests are in financial analysis, auditing, and writing.

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