Pay Off Debt Before Buying a House

Should I Pay Off Debt Before Buying a House?

Should I Pay Off Debt Before Buying a House?

I never truly understood the saying “more money, more problems” until I actually started making more money. I’m not rich by any means, but every time I get a raise, a bonus, or a promotion, I go out and spend more money, which leads to more debt and more problems. Most of us want to end our cycle of spending and become financially free. Unfortunately, increased spending with increasing earnings is just the start of our debt woes; it gets even more complicated when you start thinking about bigger, more necessary purchases.

If you’re anything like me, the more money you’ve made, the more you’ve thought about that one massive investment we all aspire to — a home of your own. A house is a more worthwhile purchase than most things, but the prospect can leave us wondering how to prioritize our debts. Obviously, the fewer debts you have, the easier it will be to qualify for a mortgage loan, right? Not necessarily. Before picking out your dream home or starter home, you need to figure out which debts to eliminate and which to work on in the long run — a task which can be frustratingly complex.

Paying Off Debt Before Getting a Mortgage

So, here’s the big question: should you pay off debt before buying a house? The short answer is yes, by all means, you should pay off debt before buying a house. But, you absolutely must do it strategically. And you probably shouldn’t close all credit card accounts, or you could ruin your chances of even qualifying for a mortgage. If you have no debts (credit card accounts or otherwise), you could ruin your Debt-to-Income ratio (DTI), which is what banks look at to determine your borrowing capacity.

Banks use your DTI in order to score your ability to handle a mortgage loan. DTI is calculated by dividing your total minimum debt by your gross monthly income. If you have two minimum monthly payments of $500 each and a monthly income of $3000, your DTI is 33 percent (1000 divided by 3000), which is a pretty good DTI.

According to Investopedia, “a low debt-to-income ratio demonstrates a good balance between debt and income. In general, the lower the percentage, the better the chance you will be able to get the loan or line of credit you want.” With DTIs, the lower the better. But, if you’re looking for a DTI ratio to shoot for, try to stay under 40 percent, with a max DTI being 43 percent.

Becoming Debt-Free While House Hunting

You probably already noticed that becoming completely debt-free might not be as simple as it sounds, especially when house hunting; you almost need to approach the matter sideways. Instead of just paying off all of your debts blindly, you should pay attention to what your debts do to your home-buying chances. Most people would pay off high interest debts first, in order to save more money. However, one of the best things you can do to qualify for a great mortgage loan is to make big payments on big debts — which leads to a better mortgage.

You’d think it would be safest to pay off your high-interest debts first, but that doesn’t really help your chances with the bank. In reality, paying off debts with large payments does signal to the bank that you might be prepared for the responsibility of mortgage payments.

For example, if you have a $10,000 (15 percent interest) credit card bill and about $10,000 dollars to pay bills, paying a big chunk of your $15,000 (0 percent interest) debt will actually help you more than paying off your entire credit card bill.

So you can go ahead and pay off those high-interest debts if you want, but the banks aren’t highly interested in them. What’s really impressive to banks and mortgage companies is if you can pay off debts with big payments (regardless of interest). According to Fox Business, “banks and mortgage companies do factor in what you are obligated to pay each month as a benchmark for determining your credit capacity.”

When you think about approaching paying debts vs. buying a home, remember these two important facts: first, your credit score will affect your interest rate. Second, your income (minus your payments on current debts) will signal to banks how much money you can borrow. It might be a bit complicated at first, but if you stick with it, do enough research, and ask for advice from friends, you’ll be much more equipped to handle life’s financial challenges and enjoy its rewards.

 

Get Budget Help With Budget Apps

What Are The Best Budgeting Apps of 2018?

The Best Budgeting Apps of 2018

Most people believe in the power of budgeting; some people think it’s just an excuse to avoid the real solution. Richard Quinn, a retired VP of Compensation and Benefits with over 50 years of experience in managing pension and 401k plans for a fortune 200 company, offers some profound advice about budgeting. One particular thing he mentioned about budgeting apps will strike a chord with most budgeting experts. According to Quinn, “Nobody needs an app. They don’t even need a budget. They need to do a few simple things: Take their net pay and save 10% or more, throw away all credit cards, buy what you can afford only and spend all you want after fixed expenses. No budget needed.” What Quinn suggests may shock some at first, but it makes sense. Essentially what he is asking is for you to be smart with your money. Stop spending it first and start saving it first.

Yet, there remains a virtue in budgeting apps that might be overlooked in Quinn’s suggestion. What a budgeting app does is it disciplines and trains you to be the type of spender that Quinn envisions. If you have already achieved a high level of self control, you don’t need an app; in that case, as Quinn says, you don’t even need a budget. For the rest of us—those who are still learning to spend wisely and save regularly—we need a bit of help. Here are the best budgeting apps for those who need extra help in 2018.

YNAB (You Need a Budget)

Budgeting apps come in all shapes in sizes. The best one will mostly depend on your personal taste, but for Larry Ludwig, Founder of Investor Junkie, “YNAB is the clear winner.” Ludwig explains that YNAB is his favorite for its simplicity and lack of confusing “bells and whistles” and notes that “for a first time budgeter, it’s important not to intimidate them with a complicated user experience.” The app’s website explains its method in three simple steps: “Get some dollars, prioritize those dollars, and follow the plan.” Those who are in debt are often swamped by numbers and projections of how much they need to spend or save. YNAB is a simple solution to get you back on track or stay on track.

Honeyfi

One of the coolest new budgeting apps is called Honeyfi, made for not only helping one person manage finances, but helps two at the same time. Most married couples have a hard time negotiating spending limits, individual allowances, and other finance rules. In the words of Sam Schultz, Co-Founder of Honeyfi, the free app seeks to solve that problem by helping “couples save more money, pay down more debt, and make better decisions.” Featured in HuffPost, MSN, and Entrepreneur, Schultz explains that the app does “spark a lot of communication IRL” and that it also allows “users to decide how much to share with their partner for each account (balances and/or transactions).” If you’re a couple looking to manage not one, but two different budgets, Honeyfi is a great option.

Mint

According to Brian Bartold, a licensed insurance professional with VFG Associates in Livonia, MI, the best overall budgeting app is Mint. This app lets you link “everything to the app including your credit cards, bank accounts and any brokerage or IRA accounts you have.” Though it might not have the speciality in helping couples like Honeyfi, Mint allows for more in-depth budgeting. Bartold also explains that Mint “also works with TurboTax and QuickBooks, two very popular programs for managing your taxes and bills.”

Even though Mint isn’t quite as cut and dry as other apps, it does simplify more complicated budgeting issues, like losing a job or going through a divorce, in a very helpful way. This simplification is possible because the app puts all financial processes in one place. Bartold explains this, saying “you may work with an insurance agent, stock broker, someone in your 401(k) department, all while doing stuff you are doing on your own. All those things are not being managed in one specific area. Using an app that combines everything you’re doing can make planning and budgeting simpler.” Mint is a great option for those with more money to budget and more financial issues to maneuver.

PocketGuard

The best part of the PocketGuard app is that it lets users link directly to their bank accounts so that all transactions and balances are current. As opposed to many other budgeting apps, PocketGuard is more focused on spending projections than it is past history. Because of this, the app can let you know how much pocket change you have to spend on any given day or even month. The app is a great alternative to Mint or YNAB if those apps aren’t to your liking.

As Richard Quinn pointed out, the best budgeting system available is your own persistence and determination. The purpose of a budgeting app should be to make your savings methods become habitual. Whether it’s Mint, PocketGuard, Honeyfi, YNAB, or some other budgeting app, make sure you are learning self-sufficiency and responsible spending. The most efficient budgeting tool should be your habits.

 

How Katherine in Michigan Was Able to Retire Debt Free

Name: Katherine

Age: 62

Location: Michigan

 

When did you enroll in our debt settlement program and how much debt were you facing?

I had about 23,0000.00 worth of debt with 2 credit cards.

Why did you choose Pacific Debt over the options and companies you researched?

When I was looking for a company, basically, I went thru and saw Pacific Debt, I called and was put in touch with Josh Hallas.  In just speaking to him and his reassurances, I knew this was the company I was supposed to deal with.  Josh explained the company and just what we would have to do and he sent me the paperwork, and that was that.

Tell us about your journey through the Pacific Debt program? Are there any special team members you would like to recognize?

I have had Josh Hallas primarily throughout my whole journey.  There was another gentleman that I was dealing with, but then I was transferred back to Josh.  The last person I dealt with was Bethany R.  She was very helpful, but I was always transferred back to Josh.

How does it feel to be debt free? What are your financial goals moving forward?

It feels like a weight has been lifted off my shoulders and now I can retire knowing that I don’t have any financial debt hanging over my head.  That was and still is my primary goal.  Without the help of Josh and the other folks that had my case, this probably wouldn’t have been possible  – for me to retire without any debt.  I want to thank all the people at PDI who were there for me when i needed that little push to get myself out of a sticky situation.  I would recommend PDI to anyone who was in the situation.

We know we are not perfect. What suggestions or advice would you offer to help us improve our program? All advice is welcome.

I can’t think of anything that you would need to change, all of your people are very kind, courteous and helpful.  I thank them all from the bottom of my heart!!

Meet Christopher – Now Debt Free Thanks to Pacific Debt

Name: Christopher

Age: 35

Location: California

 

When did you enroll in our debt settlement program and how much debt were you facing? How did carrying all of that debt make you feel?

We enrolled March 2016 in Pacific Debt’s program, with $23,176 in debt. Carrying that much debt made it almost impossible to make ends meet. We could make only minimum payments, and would immediately be checking balances and available credit to see which card we could use next. Purchases were for necessities, not fun or frivolous items. We lived credit card limit to credit card limit.

 

Christoper, Debt Free, Pacific Debt

Tell us about your journey through the Pacific Debt program? Are there any special team members you would like to recognize?

Our journey through Pacific Debt’s program was worry free and easy. We were contacted immediately whenever something was needed, and we were informed of every step taken along the way. Brian LoBianco was amazing to work with! He took care of our account and our debts in the fastest way possible, never neglecting quality service, and ended up getting us great settlement agreements with our creditors. He was professional at all times, and we could tell that he cared about us and the assistance he provided.

 

How does it feel to be debt free? What are your financial goals moving forward?

It feels amazing to be debt free! One thing this program allowed us to do is learn how to live without using credit. By not being able to use our cards, and by lightening the load that we carried, we were able to manage our budget in a credit free way, realizing what we really needed, and what we could do without. Our financial goals are to continue to live completely free of revolving debt, not having to worry about paying high interest for what easily could have been the rest of our lives doing what we were doing before.

 

We know we are not perfect. What suggestions or advice would you offer to help us improve our program? All advice is welcome.

I honestly was completely satisfied. I will say, the first 6 months to 1 year of creditor/collector phone calls was nerve racking. Understanding that things had to get worse before they could get better was key, though it was still a time that worried us. Pacific Debt made sure we understood the process, and what to do with those calls and contacts, and that made all the difference. We knew Pacific Debt was in our corner the whole time.

Read Over 1300 Real Pacific Debt Client Reviews

At Pacific Debt we’ve always focused on providing an awesome customer experience and delivering great results. Over the past 15 years, our team has settled over $200 million in consumer credit card debt and helped tens of thousands of individuals and families.

A couple of years, ago, our team started actively asking our customers to share their experiences online, so that others who are struggling with debt could see for themselves the power of our program. In that time, our customers have shared over 1300 online reviews, with an average weighted user score of 9.47 out of 10.

Consumers who are struggling with excessive credit card debt are often unsure where to turn for help. Being an Accredited Debt Relief provider is no longer good enough for consumers who are living in the age of Yelp and Amazon, where real customer feedback and reviews are easy to come by. We’ve found that these first hand experiences, from real customers, really make a big difference for consumers who are weighing their options and evaluating different companies.

While the majority of reviews are overwhelmingly positive and validate our program, we don’t turn a blind eye to opportunities for improvement. Any negative feedback received is used as a customer service opportunity and we follow up with our clients to better understand their situation and see what can be done to turn things around for them.

Read a Recent Review

To highlight the power of our online customer reviews, here is a recent review from Marissa in Pittsburgh, Pennsylvania via BestCompany.com:

“After doing some research and reading online reviews, I decided to reach out to Pacific Debt for help with my credit card and loan debt. I worked first with Rian to go over who they are as a company and how they were going to help. After being setup and starting their program, Kimberly B. became my account manager and main point of contact throughout this program. She’s awesome and keeps me in the loop regarding my account and settlement progress. It is easy to get in contact with anyone at Pacific Debt with questions or concerns. They understand your situation and answered any and all questions that I had.”

Read More of Our Reviews

For consumers interested in reading our online reviews, a compilation of our real client reviews can be found below:

What you're doing wrong with your debt

What You’re Doing Wrong With Your Debt

It’s likely that you only use credit cards to make everyday purchases. People don’t often carry around cash anymore simply because credit cards are more convenient. You might even have several cards for specific stores. You make payments here and there and wonder why all the sudden, you’re thousands of dollars in debt. $40 on gas + $100 on groceries + $5 on coffee + $15 on lunch during the week will definitely add up. I can also bet that you’re not just at the coffee shop or sandwich stand next door once a week. Then take that credit card debt and add it to your car payments, student loans and mortgage and you’re likely drowning in all the numbers next to that dollar sign. There are several ways to pay off your debt, but some methods are more effective than others. If several years have gone by and you’re still making payments on credit cards and loans, you’re probably doing something wrong.

Here are some of the common mistakes people make when paying off debt and how you can get out of that trap as soon as possible:

You don’t have a plan

It’s great that you are putting payments on your credit cards, but without a smart plan, you won’t really see your efforts pay off as much as they can. If you have several credit cards, it’s smart to make a list before you tackle them. Write down the credit card name, balance due, interest rate, minimum payment and due date. Some people have made the mistake of putting the minimum payment on all their cards or focusing on the credit card with the most balance. While this is a plan, it’s not the best one. Instead, focus on the card with the highest interest rate as that the one worth paying off first and the pay the minimum on the rest of your cards until you can solely focus on them. You’ll pay off your debt quicker in the long run when you’re paying off bigger amounts on a single card. Mainly focusing on one balance also makes your debt seem less overwhelming as opposed to throwing $50 here and there on multiple cards at the same time.

You’re missing payments

 

While you’re devising your plan, set up all your accounts to automatically pay by the due date. This will ensure that you’re not hit with late payments. If you know exactly how much will be coming out of your bank account and when, it’ll be easier to make sure you have the right amount of funds for that payment every time. You can even change the payment dates to work around your paychecks. Noting all of your debt information on paper or on a spreadsheet will help you see things in a bigger picture so you’re prepared every month. If you are charged with a late fee, call the credit card company and kindly ask if they will waive it for you. They’ll be more likely to reverse the fee if you tell them you’ll be setting your account to automatic payment, if this is your first late fee or if you’ve been a long time valued customer. It never hurts to ask.

You keep a balance on your cards to build credit

Keeping up your credit score should definitely not be a priority over paying off your debt and it’s likely that your good credit score got you into this debt in the first place. Carrying a balance on your card each month that you’re being charged interest for is actually ruining your credit. Pay off your debt now and stop worrying about hurting your credit score. There are several ways to boost your credit when it’s time, but for now, paying off these cards should be number one on your list. Also keep in mind that just because you have a high limit on your credit card doesn’t mean you should be maxing it out. A $15,000 credit limit does not equate to a shopping spree. In fact, you should be keeping your utilization rate low and your balance should not exceed 30% of your credit limit. For example, a card with a limit of $15,000 should never have more than a $4,500 balance. Doing this will definitely protect your score later.

You’re putting it off until you make more money

“When I make more money, I’ll pay this card off. When I make more money, I’ll clear all my debt. When I make more more money, life will be great.” Well when will that be? The time is now. The longer you procrastinate paying off your debt, the more debt you’ll be in. Simple as that. An emergency might come up. Your company might downsize. You might decide to pursue a different career and end up working a lower paying job until you learn the ropes. Who knows what can happen, but you don’t want to have all this debt acquiring on top of it all. Start paying off as much as you can starting now.

You don’t know your options

Stuck paying a high balance on loans you simply cannot afford right now? Got a balance with high interest rates? You have options and asking what they are is where you can start. If you’re paying off student loans and don’t make enough money to pay the monthly payments, don’t have a job as a recent graduate or recently got laid off, you can request a deferment or forbearance for a certain amount of time. Stopping payments on student loans for now can help you focus on your other debt. Refinance your car to reduce the amount you pay each month, reduce your interest rate and change the length of your loan. Also ask your credit card company if you can reduce the interest charge on your monthly payment. Some companies will grant this request if you’ve been a loyal customer who makes payments on time. It also helps if you have a good credit score or if it has recently improved. These companies want to keep you as a customer so simply request a lower interest rate and hope for the best.

You always give into your friends’ invitations

We’re not telling you to live like a hermit crab until you’ve zeroed out all your cards and loans, but you need to be smart about where you go out and how often. As much as you want to and as hard as it is to break bad habits, don’t accept every invitation your friends throw your way. Lunch here, coffee there, brunch on weekends and happy hour during the game can cost you hundreds of dollars a month when you add it all up. Plan accordingly, choose the events and be ready to decline if it’s something you can’t afford to do. Only try going out to celebrate your friends’ special occasions like birthdays and anniversaries and avoid the random “Wanna grab a drink?” invites. If your colleagues always go out for lunch on Fridays and you don’t want to miss out, vow to eat a packed lunch for the rest of the week and choose an affordable option on the menu. If you’re invited to watch the game at a bar during happy hour, eat at home first and you won’t be tempted to order something at the restaurant. You also don’t need to order a drink to enjoy the game. Be smart and disciplined (almost like you’re on a diet). When you’re on a diet, you watch what you eat, you create a meal plan, resist temptation and create incentives when you achieve your goals, like if you lose 10 lbs. in 2 months, you’ll buy new workout shoes. When you’re on a spending diet, you need to decide what’s a necessity and what’s a splurge. Create incentives the same way and treat yourself without breaking the bank. For example, for every $1,000 you pay off, reward yourself with a Netflix binge, a drive to the beach, a homemade pancake breakfast or a lazy day to sleep in and do absolutely nothing. Having a reward system for your goal to pay off debt can help you achieve it faster.

It’s not a priority

Having large amounts of debt can be extremely detrimental to many factors in your life. It can affect you buying a house, buying a car, going on vacations, changing your career, opening up a business or going to grad school. It can even cost you landing your dream job as a larger percent of employers check your credit along with running a background check. According to a 2012 study from the Society for Human Resource Management, 47% of U.S. companies conduct credit checks and if they see that you have poor credit history, have missed payments, filed bankruptcy or have large amounts of debt, it could cost you the job.

Your life will benefit greatly when you learn how to manage your money, pay off cards in full and on time, and experience what it’s like to live debt-free. It’ll feel like a huge weight has been lifted off your shoulders and you could be a lot closer to it than you think. Just make paying off debt a priority, cut out the bad habits that are costing you money, make a plan, find out your options and be disciplined. This can be hard, but it can be done. You just have to start somewhere. Don’t let debt run your life and the sooner you start paying if off, the sooner you can start living your life to the fullest.

Top 5 causes of debt

Top 5 Causes of Debt & How To Fix Them

They say it’s smart to have between 3-6 months worth of expenses saved up incase of an emergency. To give you an idea, if your monthly expenses round up to $5,000, there should be $30,000 sitting your saving account right now. But in this age of consumerism, people are likely swimming in debt instead of in a comfortable amount of hundred dollar bills. As of May 2016, 38.1% of all households carry some sort of credit card debt and according to the most recent survey from the U.S. Federal Reserve, the average credit card debt of U.S. households is about $5,700. That’s a lot of money to be sitting on credit cards that likely comes with an interest rate that will boost that debt even higher.

Sometimes, debt is accumulated from massive charges that are typically unexpected such as a medical emergency, a broken car or a divorce, but usually, debt is accrued over a longer period of time by charging common expenses like gas and groceries. These “small” charges here and there look unthreatening at first, but then it spirals out of control where you end up only paying the minimum balance each month, leaving you with more interest to pay in the future.

Here are the top 5 causes of debt and some suggestions for how you can get address the problem.

1. Divorce

The leading cause of arguments among couples revolves around money more than any other causes of typical domestic disputes. It’s likely that one or both parties had accrued debt prior to getting married and “what’s yours is mine” unfortunately applies to the bills too. Although it’s recommended to discuss money and spending habits before tying the knot, if couples don’t create a reasonable plan to paying off debt and spending money, it will lead to marital strife that can turn into divorce. The average percent of divorce in the United States is between 40-50% and the cost of getting divorced is $15,000-$20,000. Also going from a two-income household back to one can take a significant toll on your bank account.

2. Unemployment & Underemployment

No one expects to lose their job and it never comes at a good time. Unless you have the recommended 6 months worth of expenses stored in your savings account, you’re going to accrue a lot of debt sooner than later just to pay off your current bills and it’s possible that it’ll take longer than 6 months to get another job. There’s also the unfortunate occurrence of taking a pay cut when having to suddenly work part-time either due to having a child, a medical issue, or getting fewer shifts at work. We’re creatures of habit, so although our employment status might have changed, it’s very likely that our spending habits haven’t. People are typically spending more than they earn and recent studies have shown that although income is decreasing, the rate of spending is still climbing up, which leads to the next reason for debt.

3. Poor Money Management

Related to financial illiteracy, not many people have a good grasp of managing the money they earn likely because they were never taught the simple rules of spending and saving growing up. These people rely on credit cards for expenses and the idea of instant gratification is a major factor. It’s so appealing for us to buy something and have it now, but pay for it later. If you don’t pay off your credit card balance in full, you’ll end up paying a good chunk of it in interests. Most credit cards today have an interest rate ranging between 15-20%, making anything you buy cost a whole lot more than what you paid for. This also ties in with impulse spending and making poor financial decisions. Having a monthly game plan to tackle your common expenses will keep you from spending more than you make. It’ll also be a good idea to educate yourself on the rules of the bank, loans and credit cards to see if you can reduce your fees, avoid late charges and have 0% APR for a set period of time.

4. Minimum Payment Trap

So you racked up a credit card and can’t pay the full balance. You know you have to pay something on it so you set up your account to automatically pay the minimum every month and brush it off, feeling assured that payments are being made. Months later, you check your account and wonder why you still owe so much. Well, that’s interest for you! Here’s an example to give you an idea: If you owe $10,000 on a credit card and pay a minimum of $250 per month and your interest is 15%, you’re going to be paying $3,950 in interest in the 56 months it’ll take you to pay it off. That $10,000 easily turns into nearly $14,000 before you know it. If your interest rate is 20%, that payment towards interest becomes $6,617 and it’ll take you 67 months to pay it all off! That’s over 5 years of your life spent paying off this credit card while you’re stuck paying off your typical expenses too, such as food, gas, rent or mortgage and a car. Bottom line is that you should always pay the balance in full, but if you can’t, pay as much as you can as fast as you can.

5. Military Status

A recent study revealed that members of the military accrue debt at a higher rate than civilians and there are a number of reasons why. First of all, military members may be receiving a steady paycheck but it isn’t large enough to support their means, especially if they’re supporting a family, making them resort to credit cards to compensate. Next, frequently moving can add to the debt if an active military personnel is forced to sell their home and they can’t get an immediate buyer. They end up paying two mortgages until they receive an offer on their old home. It may also be difficult for the spouse to find a good-paying job right away during relocation. And finally, when military members find themselves in debt, they end up staying in debt because they don’t want their superiors finding out. They don’t seek out help due to their fear of losing their security clearance, ruining their chances of a career advancement or being discharged. This just makes their debt continually increase.

If you’re currently in one of these situations, there are a number of routes to take to reduce your debt, but the first step should be to come up with a spending plan and stick to it. Review your spending habits and see where you can cut down. Your daily cup of Joe at the local coffee shop can definitely add up in the bills. Pay your balances in full as often as you can and use cash if you’ve got it. People tend to spend less when they only use real money to pay. And most importantly, if you’re married, make sure you keep all lines of communication open and ask for help if you need it. In a perfect world, both parties of the couple will be savers but that’s an unlikely story. If you’re the spender, it might be a good idea to have your spouse manage the money until you’ve got a good grasp on saving more money each month.

If you feel like you’ve tried it all on your own and need professional help, one of our professional and friendly counselors here at Pacific Debt can talk you through your options. Our consultations are free and it’s our goal to get you out of debt for less than you currently owe.

How to get out of your debt quickly

How do I get out of debt quickly without hurting my credit?

Each day our enrollment counselors at Pacific Debt are posed with this question: “How do I get out of debt quickly without hurting my credit?” The answer, unfortunately for most, is that there is no easy way out, and depending on the option you select, as well as your prior payment history, your credit may be impacted. The reality is that it took a long time to accumulate the debt in most cases, and it generally takes even longer to dig yourself out, due to the interest and fees charged by credit issuers.

One of the fastest ways to get yourself out of debt, is to enroll in a debt settlement program, which is an alternative to bankruptcy. For those struggling with over $10,000 in unsecured debt, it can be a turning point in their financial lives and put them on a path to a debt free future. Unfortunately, many individuals and families don’t get the financial relief they need because they are paralyzed by the fear of their credit score dropping. This relates back to the original question posed in this post, which is that most consumers are looking for a solution that is “quick” but that will also not “hurt their credit”.

For the record, your credit score is important. Individuals with a FICO score of 720 or higher generally can borrow money at the lowest rates available, meaning car loans, mortgages and credit cards will carry lower rates of interest. If you own a television or surf the web, you have been exposed to countless advertisements and financial gurus all espousing the virtues of a high credit score. The fact is, credit is important.

However, I would argue that for most individuals struggling with excessive unsecured debt, their low credit score is not what keeps them up at night. Nor is their credit score what prompted them to call us for help.

No, just about everyone that picks up the phone to call Pacific Debt for the first time is concerned with their actual debt. Clients often have a combination of credit cards, high interest personal loans and payday loans. We often hear stories of clients borrowing from one creditor to pay another. For some, this is a cycle that they have been trapped in for years, possibly decades. Many of the people we consult with are excellent candidates for debt settlement; however, many still opt to not get the help – even when the problem involves over $40,000 in credit card debt. The primary reason cited for not proceeding is “affect on credit”.

For those of you who are stuck on the fence with your decision, here are three points to consider when weighing your DEBT versus YOUR CREDIT:

  1. How much is your “good credit” costing you? The reality is, your good credit is probably what enabled you to accumulate the debt in the first place. Now, consider how much interest you are paying each month. Are you making any progress on the debt? If you are paying $400 per month in interest and seeing little to no progress, that translates to $4800 per year, $19,200 over four years, and you will STILL likely be in debt! If the above situation resembles your own, it’s clear to see that maintaining your “good” credit is a cost that you simply cannot afford. Alternatively, if you choose to stop throwing away your money, you could be DEBT FREE in as little as 3-4 years. Upon completing Pacific Debt’s program, that $400 per month could then be used to fund a retirement account, college savings or down payment on new home or car.
  2. Have you had any recent late payments? Are you close to being maxed out on your cards? Do you have collection accounts? If you have answered “yes” to any of these, your credit score probably isn’t as good as you think it is. Pacific Debt has a relationship with Experian and can actually run your credit and pull your score for free to let you know where you stand. Once your debt is resolved, you can then begin focusing on improving your credit score by borrowing and using credit wisely.
  3. If you are struggling with debt, the last thing you probably need is MORE debt! The primary reason people maintain good credit is so that they can borrow money at favorable interest rates. While enrolled in a debt settlement program, your score will be negatively affected and you should avoid borrowing more money. Like all things, time heals all wounds and your score will improve through proper credit management. With that said, one of the many benefits to debt settlement is that our clients learn to live without relying on credit. Upon completing their programs, our clients have spent two to fours years budgeting and managing their finances without depending on credit cards to finance their monthly expenses. As a result, our clients have learned new financial behaviors to avoid falling into the debt trap in the future.

As with all decisions concerning your finances, it’s important to weigh all of your options. One of our professional staff members would be happy to complete a thorough budget analysis with you, and review your debt situation. Based on this information, we are happy to review your options and help you to decide if debt settlement is right for you. Please call us directly at 1-877-722-3328 for a free, no obligation consultation.

Get out of your debt by saving money every month

5 Ways to Save Money Every Month

Most people spend far more than they need to on things that don’t actually make any noticeable difference to their quality of life. Of course, there are obvious ways to start saving, such as eating out less, spending less on your hobbies and going on fewer vacations, but not everyone wants to sacrifice the things that they love most in order to start saving a bit of money for the future. Provided that you are not in a desperate state of debt already, now is a great time to start putting some money aside by cutting your monthly outgoings without having to lower your standard of living. Following are five money-saving considerations that you might be overlooking:

1 – Change Your Utility Providers

Things like heating, electricity, water, city tax and various other bills are things that everyone has to pay, but most people also pay more than they need to for the exact same services. Given that most utility industries are so competitive, it shouldn’t come as any surprise that there are many other options out there, some of which may be much more attractive to you. Thanks to price comparison websites, it only takes a matter of minutes to find out how much you could be saving by switching to a new utility company. However, don’t be attracted only by a short-term deal, and instead think of the longer term saving possibilities when choosing a new utility company.

2 – Change Your Phone Provider or Plan

Many people pay far more than they need to for their mobile phones, and consumers are often fooled by the lure of expensive new phones offered for free in return for an overpriced contract that is difficult to get out of. However, being another competitive industry, the cost of mobile calls, text messages and even mobile Internet, has dropped drastically in recent years, so there’s no need to be paying more than absolutely necessary. Unless you are a heavy mobile user, you will likely find it preferable to go for a prepaid plan so that you are not bound by any contracts or likely to fall victim to any surprise bills.

3 – Stop Paying Interest

Unless they are in the process of being paid off, most debts continue to cost you money in interest to the extent that the monthly payments can put a huge dent in your income. Irresponsible use of credit cards, overdraft, loans and other lines of credit can quickly lead to you spiraling deeper into debt. To avoid paying interest, pay off your debts as soon as possible, but if your income is not great enough to pay them off within a few months, you may want to consider consolidating your debts and transferring them to an interest-free balance transfer credit card or debt consolidation loan. This way, you’ll have to pay a one-time fee (on the balance transfer card), after which you’ll have a certain amount of time (typically six to 36 months) to pay off the debt without paying any more interest.

4 – Buy in Bulk

Buying in bulk, whether shopping for groceries, stationary, cleaning products or anything else that you use on a daily basis, is invariably cheaper than any other option. However, many people are put off spending a large amount of money in one hit, failing to take into account the long-term savings in the process. Instead, consider doing your grocery shopping at a discount supermarket, Costco, or other such venues that primarily cater to businesses seeking wholesale prices. You might need a membership card, but they are usually not difficult to get, and you can often borrow one from a friend without any problem. Saving money by buying in bulk also applies to things like subscriptions, whereby you can purchase things like computer software and prepaid mobile cards that will last you for a year or more.

5 – Change Your Banking Habits

Many people spend more than they need to on their day-to-day banking, either in overdraft interest fees, withdrawal fees, poor exchange rates abroad, money transfer fees or even monthly fees just to keep the account open. Your requirements will vary depending on your lifestyle and your priorities, but there are some tips that apply across the broad. For a start, if you use a credit card, make sure you only use it for emergencies, and be sure to pay the bill off in full every month so that you avoid paying interest. You should also consider opening a savings account if you don’t have one already, since you’ll be able to earn a small amount of interest on what you save, and it’s always wise to set aside some money for a rainy day. As is the case with just about anything else, you can compare bank accounts and other financial services online until you find something that better suits your particular requirements.

Saving money and getting control over your financial affairs is more about making a few changes to your spending habits rather than sacrificing the things you love. By taking time to more closely examine your outgoings, you could be surprised by just how much extra cash you can put aside each month.

Erase credit card debt forever

“Erasing” Credit Card Debt

Since the great recession of 2008 many of us have had to rely on credit cards and other forms of unsecured debt just to get by. The heavy burden of too much debt can be overwhelming. Although it may seem that debt is a mountain too high to scale, it can be overcome. By following a few simple rules anyone can “erase” credit card debt forever.

The first step on the road to debt freedom is to reduce one’s consumption by evaluating and changing your spending habits. It is a concept that is almost too obvious. Many people get into debt because they spend what they do not have. Of course, there are many people who make less than their bills add up to. So how can these people reduce their expenses? The obvious answer is to find a way to lower the amount of money you owe every month by cutting expenses down to the bare necessities, or by finding a way to supplement your income.

Most of the time, it is not because bills are higher than income that cause people to start relying on credit cards. Most of the time, people simply cannot seem to wait for that big ticket item which they want so badly. It may be a television, a computer, a gaming system. The truth is, most people who find themselves in credit card debt are not using their cards to cover their bills. So to come full circle, it’s imperative to stop spending money on the things you want, and instead only leverage a line of credit out of necessity.

The second step is to pay more than the minimum monthly payments, which are designed to keep the cardholder in debt for as long as possible so that the balance can keep accruing interest. Three years is a long time to wait to pay off a small sum like $300. There are credit card calculators online which can be used to figure out exactly how long it will take to pay off the card if the minimum due is paid each month. They also show how much is ultimately spent on paying off the card.

A good rule of thumb is to pay as much as possible each month. If bills are cut to the bare minimum and paying off the card is set as a top priority, it will be easier to pay the card off quickly. The faster a card is paid off, the less interest is accrued. This is true with all interest related debts such as mortgages and car payments as well. Once the card is paid off, a person can still use the card responsibly on occasion. In fact, some credit card companies will charge a fee if the card is not used unless the account is closed. The best way to continue to use the card without going further into debt is to make sure that any items bought with the card are in the budget and the statement balance is paid in full. Any rewards that are offered for use of the card can be taken advantage of this way without falling back into debt. The card may also be used in emergencies provided the debt is paid off quickly.

The last thing to remember about credit card debt is to make payments on time and never exceed the limit. Falling behind or exceeding the limit on a card will normally trigger huge increases in the APR. The default rate may be as high as 29.9%. To make matters worse, there are often fees for both and it is easy to keep maxing out the card if one keeps spending after each payment.

If you’ve already tried pushing yourself to do the things mentioned above and are still struggling with your debt, it may be a good idea for your to speak with a debt relief professional about your options. If you’re interested in how Pacific Debt can help you, please review the details on our debt reduction program.

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