Debt Consolidation Archives

Assess Financial Standing Through Debt-to-Income Ratio

Assess Financial Standing Through Debt-to-Income Ratio

Since November 2007, credit card debt has reached its highest ever. According to recent statistics from the Federal Reserve, an increasing number of consumers rely on credit cards for purchases since revolving debt increased by $8 billion, which in turn increased the overall credit card debt to $870 billion.

The trouble with credit card debt is that it can instantly become unmanageable. An increase in credit debt means a corresponding increase in monthly payments and the amount of debt accumulates even further.

If you observe that your credit card bills are increasing, start keeping tabs on your debts and finances. One tool that can help you is your debt-to-income ratio, which gives an accurate measure of your financial status and shows the relationship between your debt and your income.

To compute for your debt-to-income ratio, just divide your total monthly debt by your total monthly income and multiply it by 100. Next, the following ratios provide an assessment of your financial status.

If your ratio is lower than 36 percent, then you have a good financial standing and must maintain at this level by building your savings and making investments.

If your ratio is between 37 percent and 42 percent, then you have an acceptable financial standing but must still strive to cut down your debt. Try paying above the minimum amount required on your credit card bills so that it will decrease your debt more rapidly.

If your ratio is between 43 percent and 49 percent, then you are in the verge of financial trouble and must take corrective actions to immediately manage your finances. Consider balance transfers or debt consolidation loans to remove your outstanding debt.

If your ratio is 50 percent or above, then you have a financial problem so you must ask for assistance. Consider a financial planner or seek help from a credit counseling agency to discuss your options.

Poor Credit Affects Auto and Home Insurance

Poor Credit Affects Auto and Home Insurance

The majority of consumers know that their credit history is affected by their payments on homes or cars, but only a few understand that it actually affects their insurance policies. Most companies that offer auto and home insurance use credit score as a factor in deciding whether to give out or renew an insurance policy, and the cost of premiums.

In the perspective of insurance companies, there is a relationship between credit scores claims. That is, more claims are filed by drivers and homeowners with bad credit histories than those with good credit histories.

Especially under the Fair Credit Reporting Act, insurers must inform their customers when something in their credit report rejects them of insurance, affects their rates to go up, or alters their coverage one way or another.

According to Bob Hartwig, president of the Insurance Information Institute in New York, low credit scores having a correlation with higher losses are supported by facts and are undeniable. In fact, using consumer credit has made it possible for insurers to price the risk of policies in a more accurate way. Moreover, it has also enable insurers to correctly price policies for risky drivers.

However, consumer advocates disagree with using credit reports in pricing insurance policies. According to them, the practice is unfavorable to those with low incomes and is unjust to those whose credit score might low due to difficulties like sickness, unemployment or divorce.

In addition, consumer advocates approximate that roughly one third of consumers know that insurance companies use their credit reports. Birny Birnbaum, executive director for the Center for Economic Justice, said that insurers do not take actions to inform consumers that their credit reports are being used.

All of these concerns show the significance of accurate credit reports. While errors and problems with credit reports can affect many aspects consumers’ lives, the greatest impact is in insurance.

Less Debt More Uncollectable Accounts

Less Debt More Uncollectable Accounts

The debt of Americans is continually decreasing these past few years. From an average of $16,383 two years ago, it has fallen to only $14,517 this year. This has nothing to do with financial discipline, and certainly this is not very good news for the industry.

The decrease in the rate in 2010 was due to the uncollectable amounts that were write-off by the companies, and this may be the case for 2012.

It has been nerve neither racking for consumers that the rate of debt is not going down nor showing signs at all. Credit rate has continued to stay stable in 2011 and has not made no signs of change ever since. The largest decline in credit occurred in 2010 but the two years that followed did not follow its trend.

The only hope for consumers is the fast recovering economy of the United States from the recession it suffered from in 2008, and the fact that more credit lending companies are more open to lend to customers even if they do not have a spotless credit history. Furthermore, the high employment rate continues to boost the confidence of lenders.

But this current trend in the lending business poses a threat in the future. The more the economy becomes progressive, the more these financial intermediaries will take on risky decisions. This will lead to the eventual rise in the debt rate again. It is an unavoidable cycle that once too much debt is made, and then the economy will surely fall again.

As all of you might now, the top three debts that American households endure are housing loan in first place, followed by student financial loans in second and credit card liabilities in third.

Debt occurred by student loans make out a total of $1 trillion. Though credit cards could be a very hard deal, student loans are imposing a very high threat in the economy. The US president Obama is trying to get legislators to sign a law to address this problem, and hopefully they succeed.

Not All Debt is Bad – Some Debt can Help Improve Your Financial Condition

Not All Debt is Bad – Some Debt can Help Improve Your Financial Condition

All types of debt can be seen in a mortgage business. Debt payments for car loans, student loans and IRS payments, alimony, child support are made when you engage in a mortgage. Too much debt and having no debt can be both a big problem.

It sounds strange that having no debt can be a problem. It can be big problem because the lenders are looking at the borrower’s credit history before granting him mortgage. The lenders want to see the manner of your payment whether it is delayed or on time. If you have no debt then you can show no credit record to the lenders and more likely you will not be able to get a mortgage.

If you have never had a credit card or any payment for a loan then lenders have no way of checking your credit history and you just might end up keeping on renting instead of owning a property.

So what you should do is to apply for a credit card as soon as possible. You start with one credit card. It does not have to be an American Express Gold Card. It can be any card for a start that will allow you to purchase any item and to be charged to your account. Then pay on time when the bill comes. Do it consistently for several months and then apply for Visa or MasterCard later. When you have your Visa or MasterCard, do the same thing. Purchase small items and when your bill comes, pay your dues on time.

Do not apply for a bunch of credit cards at one time. Get a card one at a time in a couple of months and limit it to only three. Make sure that your payment is on time because one late payment can do damage to your credit score and it might be the reason for the disapproval of your application for mortgage in the future.

Having a debt has also its merits. It is not a problem at all times. Let me cite an example. Having a mortgage can provide you earnings. If you purchase a home at $350,000 and the home appreciates at a conservative rate of 2 percent per year then in one year the home is already worth $357,000 or in five years its value is $386,000. In addition to this you can reduce your federal tax liability. How does this work? If the home you purchased is worth $350,000 and you borrowed $315,000 at 4 percent interest, you can deduct $12,000 from your income which will result to a reduced federal tax liability. Debt can be a good investment. It can help you improve your financial situation.

AEA Progresses But Have Problems with Bad Debt

AEA Progresses But Have Problems with Bad Debt

Based on the call report of the credit union during the first quarter of this year, there are a few flickers of progress for AEA. The call report was put online this week in the website of National Credit Union Administration.

However, it is still struggling with bad debt and its net worth to total assets ration is still supported by a $20 million worth of cash infusion which NCUA gave to AEA during December.

According to NCUA public affairs specialist John Zimmerman, the credit union was supported by giving additional capital through a deposit, also known as subordinated debt. Consequently, AEA’s net worth to total assets ratio for quarter four 2011 was 2.69 percent.

At the end of March, AEA’s ratio was up to positive 2.85 percent. One year earlier, their ratio was minus 7.77 percent.

Moreover, AEA’s profit for quarter one 2012 was $839,000. That is in line with the profit-making trend observed during 2011, with a $6.2 million ending cumulative profit.

During quarter one 2012, AEA reported shares and deposits up by $11 million. But the membership is decreasing from 46,015 members one year earlier to 41,750 members this year.

Zimmerman added that AEA constantly developed its performance for quarter one and AEA is developing its net worth as well. For the month of March, it reported $7 million of net worth, which is an increase from $6.1 million during December. On the other hand, the credit union had minus $18.6 million net worth during March of last year.

AEA might be converting delinquent loans to foreclosures since there was a decline in the number of delinquent loans but an increase in the number of foreclosures.

During December, AEA had $8.9 million loans overdue by 12 months or more, but it was down to $2.4 million during March. In contrast, AEA’s foreclosed and repossessed assets reached $7.8 million during quarter one 2012, which is up from $2.1 million foreclosures in 2011.

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