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Three Ts Of Debt Consolidation Denial

Problematic consumerDebt consolidation is a financial options offered by numerous lenders in hopes of being able to encourage the borrowers to pay back debts. The program makes it easy for the borrower to make the payments and get up to date with the lender. It is also a very valuable tool of lenders and even the government in addressing delinquency and default in debt and loan payments. It helps consumers solve multiple loan problems as well.

The lenders offer the program to be able to close several loans of the borrower to enable them to concentrate on one payment amount every month. It also pays-off the other loans and does not reflect settlement in the credit score. As most people have become aware, settlement damages the credit score by reflecting that the borrower was not able to make the payments and had to settle with the lender to pay off the debt at a reduced amount.

As consumers troop to different lenders to be assessed for debt consolidation, they are hopeful that their application would be approved to be able to do away with the nuances of payment for several types of loans. It can also give them a little more elbow room when the monthly payments goes down to be able to start building up the emergency fund or put more for retirement amount.

Debt consolidation denial

As the consumers sit down and wait for the approved loan amount to consolidate their several loans, new interest rate to be used and the new monthly payment, the loan officer might get back to you with a denied application. There are debt consolidation techniques but at this point, this is tough if you are already counting the ways how debt consolidation will work to your advantage. Some of the most common reasons for this debt consolidation denial are:

Too many loans

The lender might be under the presumption that you are adding on more loans to your existing debt. As soon as they fire up the computer, they will see all your existing financial obligations and might deny your application for the loan. They might be quick to the draw and draw the conclusion that you will not be able to meet all the payments if they approve the loan.

As your objective is debt consolidation, you would need to explain to the lender that the very reason you are taking out the loan is to pay off the other existing loans. It is not to add up to your existing financial payments. If they realize your plan, they just might approve of the loan. Again, this is still not an assurance of approval because some lenders are skeptics and will assume the worst – that you are just trying to squeeze out a loan with no plan of repayment.

This is not always the case but it is a possibility. If the lender would not agree to your plan, you can look for other lenders that would be open to your financial objective. It is not the end of the world if you get rejected by one lender. It is actually an opportunity to do a financial audit and see where you can make some improvement before approaching another lender to talk about debt consolidation.

Too low income

One of the primary things the lenders will look at is your ability to pay. This includes income from employment or income from a business a venture. If you are denied because they conclude that you do not have enough cash inflow to meet the payment requirements, then you can double check your income sources. You might have overlooked one source or forgot to declare income that is coming from an investment.

If your lender still determines that your income is not enough, it would be best to sit down and go over your income and expense budget. There might be something that you need to closely look into like missed payments or missed income. It might be the reason that you are still in debt – you need better money management.

Too risky Credit score

As you approach private lenders to take out a loan to consolidate your debts, another consideration is your credit score. This is especially tough because if there is already financial hardship, chances are your credit score would have already been affected. And the same reason why your credit score is suffering is what you hope to correct with your debt consolidation.

This is a tough call for the lender because the lower your score, the higher your risk, the lower your chances of being approved for the loan. One way lenders would agree to granting you a loan is if you agree to a high interest rate. This is meant to cover their investment risk and be assured of earning enough in the beginning to cover risk of payment default.

These are the most common benchmarks of lenders to assess if you are a good candidate for debt consolidation. If there are any denials on your loan application, look to check these three items and talk to your lender on how to go about your debt consolidation target.

Here is a video on debt consolidation:

Steps after debt consolidation

If you are successful in getting a debt consolidation loan, this is a great start in getting your finances back on track. This could help you make your monthly payments easier, send out lower check amounts for payments and not miss out on any loan or debt payment. But with debt consolidation, here are some things that a borrower would need to look into.

  • Pay-off loans. It is important to use the loan meant to consolidate your debt to do exactly just that – debt consolidation. You need to pay off all loans in order to enjoy the benefits of consolidating your debt all in one payment. Investments are a good idea but not for this specific purpose. If the target amount does not pan out, you will be in deeper financial hole. You will be stuck with your original loan payments with the addition of the new loan meant for consolidation.
  • Focus on payments. When you start debt consolidation payments, you need to keep at it and try your best not to go into delinquent or default payment status. Debt consolidation is meant to help you get out of debt but if you do not make the payments, you will fail to reap the advantages of making single monthly payments for all your previous loans.
  • Extra payments. Using debt consolidation usually carries a long repayment period. One great financial move is to make extra payments to your loan. If the lender will allow it, send it to principal payments. Even Azcentral.com is suggesting thsi move to pay down mortgage loan. This will result into shorter payment term and save you payment in interest in the future. It will also make you feel better that you are lowering down the actual amount of the money you borrowed rather than the interest.

Debt consolidation is a great financial option for people trying to streamline monthly payments. This is usually more advantageous for consumers that are able to meet at least all the minimum payments on all the debt and loan payments. It guarantees one monthly payment ensuring that the borrower is able to manage payments monthly and not miss out on any financial obligation.

How To Pay Off Debt If You Are Not Paid Enough For A Job You Love

telemarketerHow’s this for a difficult scenario. You spent months after graduation stressed out about getting a job despite a tough job market. When you finally found a job opening, you are ecstatic to learn that it is a job that you know you will love to do for decades. But here’s the catch – it will not pay you enough for the type of lifestyle that you want to lead. How will you decide between your dream job and having the finances to support your dream lifestyle?

Most people will actually choose the latter. They will sacrifice their sense of personal fulfillment and happiness with work just so they can earn more money. And guess what the main reason is: to pay off debt. They will lean towards the practicality of being able to pay for their debts instead of pursuing the career that they know they love to do.

But there is some logic to pursuing the job that you love despite not giving you enough money to pay off debt. It may seem impractical but we have some sound reasoning that could help you decide. The work that you will do will take up at least 40 hours of your time every week. Imagine feeling miserable for 40 hours each week. If you think that the lifestyle you can afford will make you happy, think again. In most cases, people who come home from a bad day at work will bring that negativity with them. It will be felt by the people they live with.

But if you pursue a job that you love to do, your sense of personal fulfillment and happiness will be greater compared to the other scenario. And even if you start out with a low paying job that you are passionate about, you will most likely be more productive because of the happiness level that you have towards it.

Do not be too quick to shut out the jobs that you love to do just because it will not pay you well. There are two options for you to make ends meet so you can afford to pay off debt accounts that you owe. You can either earn more or spend less during a debt crisis.

Lower your expenses if you want to increase debt payments

The first option is for you to cut back on your expenses. If you are a new graduate, this may be easier for you. People who are older and have families will usually have a harder time changing their lifestyle to fit their low income. The longer you have grown accustomed to an affluent life, the more difficult it will be for you to make the change. But if you concentrate on the priceless benefit of doing a job that you love, it should be a sacrifice worth making.

The reason why it is difficult to make this transition is because Americans are spenders. That is according to an article published on CNBC.com. The article even cited a statement by former President George W. Bush back in 2006. Apparently, he said that the best help that Americans can give their country is if they went shopping.

In this country, everything around us encourages us to spend. But that is a lifestyle that we can no longer follow. You need to pay off debt by lowering your expenses. That will free up more money from your limited income.

To start, you need to simply concentrate on your priority expenses. According to the latest consumer expenditure data published on the Bureau of Labor Statistics website (BLS.gov), the average expense per consumer in 2012 is $51,442. It is noted to have increased by 3.5% from the previous year, 2011. Here are the top expenses that people usually spend on.

  • Housing: $16,887 (32%)

  • Transportation: $8,998 (17%)

  • Food: $6,599 (13%) (at home $3,921; away from home $2,678)

  • Personal insurance/pension: $5,591 (11%)

  • Healthcare: $3,556 (7%)

  • Entertainment: $2,605 (5%)

  • Cash Contributions: $1,913 (4%)

  • Apparel and services: $1,736 (3%)

  • Other expenses: $3,557 (7%)

If you notice, the food expense is high and that is alright. But we are wasting a lot of money on eating out. You can cut back on expenses if you only opt to cook and eat more at home. Not only that, transportation costs can find more room for savings. You can carpool with colleagues or opt to bike to work – if the distance can make it possible. There are so many ways that you can cut back on your expenses at home. And if you cannot afford, it simply opt not to spend on it. Prioritize what is important like the funds you will use to pay off debt.

Increase income to grow your credit contributions

The second option to make your low income job work for you is to set up side jobs that will earn you more income. In fact, this is common for Americans.

An article published on BostonGlobe.com revealed that Americans hold multiple jobs to help supplement their primary source of income. The article said that 4.9% of working adults hold more than one career. Half of them have one full time job and a part time job. They are called the moonlighters.

A lot of people have opted to increase their income through a second career but we encourage you to set up a passive income source to avoid burning yourself out. The article mentioned that people seek to get payment for the amount of time that they spend working on their hobbies and interest. They will spend some time doing handyman repairs, some will tutor or work on computers in their spare time. Any skill or interest that you have can be capitalized on so you can earn money on side to pay off debt without feeling too burnt out.

Here are some of your options to earn more money.

  • Freelancing. This is when you use your skill to earn money and get paid on an output basis or based on the time that you spend working on a job.

  • Passive income. There are so many options to earn a passive income. You can use a spare room in your home and rent it out. You can let other people rent out your extra vehicle. You can also convert your garage into a storage space for other people to rent out. These are options that will help you earn without necessarily having to work for it all the time. Writing a book and earning off it’s sales is also an option.

  • Earn from a hobby. If you love to garden, offer to plant and take care of the garden of your neighbors. Not only will you be going something that you are good at, you can help your neighbors cut costs on food. You can also offer to cook for colleagues and brown bag their lunch. That will help you earn extra through the lunch payment they will give you. Babysitting is also one way to earn more.

  • Teach a skill. If you are good at playing instruments, you can opt to take on student and teach them what you know. Cooking and baking classes will also work. If you love sports, this is also something that you can coach every summer.

Of course, you can always opt to simply ask for an increase from your boss. Given that it is something that you love to do, you will find the motivation to be as productive as you can be and improve your skill. That can be a leverage in negotiating for an increase.

Debt relief options for low income households

While you work on your options to increase the money that you can allocate to pay off debt, you need to choose a debt relief program to further improve your chances of achieving a debt free life. You have three options to help you out.

  • Income based repayment for student loans. This option will help you set a monthly payment on your student loans depending on the amount that you earn every month.

  • Loan forgiveness for those working in public service. This is mostly for student loans too. You may be qualified for a loan forgiveness if you work in the military or another career in public service.

  • Debt consolidation. For all the other debts that you owe, you can opt to use debt consolidation. This type of debt solution will help you restructure your payment plan so you can make lower monthly contributions towards your debts without being penalized for it. Here is a video that discusses your different options to consolidate debt.

Sacrificing a high paying job to do something that you love is rewarding. Do not worry about how you will pay off debt because you have so many options to help make it a less of a burden.

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