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Debt Relief Advice

The kind of debt relief advice you get will depend on your financial situation. For the purposes of explaining options clearly, let us consider two couples, each in need of debt relief advice. Each will hear a very different answer because of one primary difference between them: Bill and Mary have equity in their home, while John and Jennifer do not.

Home Equity

Bill and Mary bought their home ten years ago and although they saw values decline along with the rest of the market, they have been paying extra principle on their mortgage for the past ten years. They also have a fixed rate 30-year mortgage at 7%. Even though the value of their home has declined from the market high, they still have $50,000 equity in their home, with $150,000 left to pay off over the next 20 years.

While the couple has been wise with their home loan, they have been struggling to make their payments lately. With the rising cost of gasoline and groceries, their finances became stretched thin. Their credit cards slowly began to amass debt and their budget did not allow for the increased expenses. Currently, the couple owes $15,000 in credit card debt. Card A has a balance of $1,000 at 18%, card B has $5,000 at 15% and card C has $9,000 at 11%.

Mortgage Refinance

When Bill and Mary realized their credit would suffer if things continued as they were, and how much the credit cards would cost if they kept paying just the minimum, the couple understood that they must consolidate the debt. To get the best debt relief advice, they consulted

Where to Get Unbiased Refinancing Advice

The couple used a because they wanted to avoid the conflict of interest posted by a conventional mortgage broker. Conventional brokers are paid based on how much the loan is marked up, giving them an incentive to choose programs that offer the highest markup, rather than choosing the loan that is truly best for the borrower. A mortgage refinance works on a markup amount that is agreed to upfront, before any services are rendered. This eliminates the conflict of interest and lets the Brokers find the loan that can best help the client. brokers have access to more markets than many lenders and brokers, including wholesale and retail priced loans. They often have knowledge of special loans that conventional brokers do not take time to investigate. For instance, if Bill were a doctor, he might qualify for a niche loan that would give them a better rate and a better loan program. A conventional broker would not go looking for a niche loan.

The couple met with their Broker, who found a 30-year fixed rate refinance mortgage. Refinancing to consolidate the credit card debt would save Bill and Mary 40% on the cost of interest on the credit card cebt, plus 2% in mortgage interest. But because the 30-year fixed loan will extend their payments another ten years, it will interfere with their retirement plans. For this reason, their worked out that they could pay $989.93 per month on the loan to pay it off in 20 years and encouraged them to pay the higher amount whenever they could. When they need a little extra to cover expenses, they can pay the monthly payment of $805.23. The extra $184 will come in handy when things are tight.

When there is No Home Equity

Our other pair, John and Jennifer, is not as fortunate. They have a 30-year fixed mortgage with 25 years left to go. They are paying 5% and have $190,000 left to pay on the loan. The $10,000 equity left in the home is not enough to pay the cards. The value of their home decreased in the depressed market and they are now paying PMI insurance to boot.

Along with the increased cost of living, the new PMI payments are giving the couple big financial headaches. They have been getting by with their credit cards to make up the difference and now have $15,000 of debt. They know the situation will only get worse if they do not take action. A refinance to a 30-year mortgage would only save them $90 per month, savings that would be wiped out by the closing costs.

John and Jennifer have been talking over their situation and discussion several options. The first and most obvious option is credit card consolidation or a peer loan. Putting these debts together under one 10% Rate would save them money and give them time to pay off the debt. With credit card consolidation, they would have to be careful to pay as much as they could each month or they may become trapped in never-ending payments. One a peer loan, they would have five years to pay the debt, but they still wouldn’t be able to afford the payments.

Credit Counseling

So the couple went searching for counseling. But a search online for a good service turned up so many questionable companies, they were afraid to fall prey to a scam. A search through the yellow pages just turned up a slew of bankruptcy attorneys. This was not an option the couple wanted to consider.

Instead they turned to and were referred to a local credit counselor, located at their town hall. The counselor helped the couple look at their budget and find places to trim expenses. Unfortunately, they could not find enough savings to keep them out of trouble. The next option was to look at modifying their home loan.

The HUD counselor helped John and Jennifer find out that their loan was not through Fannie Mae or Freddie Mac. That means they will have more difficulty trying to get a loan modification. In addition, the two already had a low interest rate on the mortgage and were current with payments so far. While late payments were not an absolute prerequisite to a home modification, they make one much harder to obtain.

Letting payments get late is a tricky proposition. The bank could change its policy to only offering modifications to those who are current, making them worse off. So, John and Jennifer decided to keep struggling with their new trimmed budget while each of them searched for a second job. They would put all efforts into staying current with the mortgage and paying off the credit card cebt. Once that was paid, they would start attacking the mortgage principle. In the mean time, they would keep calling the bank every few months to see if their loan modification program had changed.

This option looked much better to them than going with a debt management plan (DMP) or Chapter 13 bankruptcy. They knew that either of these options would damage their good credit.

Staying on Track

One year after putting this plan in place, John and Jennifer have found even more ways to save money, through careful planning and research. Jennifer has been working nights part-time as a server for the past nine months. They have paid off the credit card debt and are now attacking the mortgage. On their current path, Jennifer will be able to quit her second job in another nine months, adding another $15,000 in equity to the home. Then they can refinance the property for a lower loan payment. They will continue to pay as much as they can on the principle with their regular wages and are on track to long-term financial security.





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