Understanding the difference between an unsecured and a secured loan is quite simple to comprehend even for the first-time loaner. Basically, a secured loan is a type of loan that requires collateral before money can be lent, it can either be your house, car, or any other asset you may have. On the other hand, an unsecured loan is solely based on your signature, a promissory letter, or your word to make regular payments for the loan. Although you may find an unsecured loan more beneficial as opposed to risking your personal properties with a secured loan, one should still consider the positives and negatives of each type of loan before choosing one. Here are the pros and cons of secured and unsecured loans.

For secured loans, a big advantage is its simplicity to get approved. You don’t have to undergo several steps or procedures just to get the loan you need. Furthermore, an individual who applies and gets approved for a secured loan can ask for a larger amount of loan as opposed to the amount lent from an unsecured one. Another benefit of secured loans is that you can negotiate the terms and rates of the plan in a way that it will benefit you the most. Lastly, loaners who choose secured loans can comfortably pay back their dues on a monthly basis. For an unsecured loan, the only advantage is that you don’t have to pay for collateral. This works well for individuals who need a quick loan due to emergency situations including payment of hospital bills or payment of tuition fees for the education of your children. The disadvantage, however, is that it is a lot more difficult to apply and get approved. In addition, it offers smaller loan values but incurs higher rates of interest over time.

Another type of loan that is given for students is a student loan. Direct loan consolidation for students should be done after graduation, during the grace period lasting up to six months. Direct loan consolidation within this time frame will allow the student sufficient amounts of time to obtain their finances so that they can decide the amount of monthly payments they can consistently achieve.

However, your credit rating won’t always be affected in the same way: it all depends on your overall finances. For example, if you’ve missed just one or two payments, it may not have much of an impact, whereas entering a formal insolvency solution, such as an IVA (Individual Voluntary Arrangement), will – and it’ll be recorded by credit reference agencies for six years.

If your credit rating is stopping you from getting access to the financial services you want, let’s look at what alternative banking options could be available.

Bank accounts for bad credit
If you’ve applied for a standard bank account and been turned down because of your current debt problems – or ones you’ve had in the past – all isn’t lost. Even with bad credit, it’s still possible to open a bank account with the right provider.

Basic bank accounts can offer many of the same services you’d get with a standard bank account – from a debit card to internet banking and SMS text message alerts – without requiring a credit check. So a basic bank account could be an ideal option for someone who can’t open a standard current account.

It’s worth remembering that all accounts are different, so it’s important to work out exactly what you want from your bank account. Bear in mind that bank accounts for bad credit don’t usually offer overdrafts or pay much interest on your balance, so if these features are important to you, you might want to find out what you’d have to do to get a standard current account, so you can get one as soon as possible.

Banking your way out of debt?
A lot of people face debt problems because they’ve lost control of their finances – and found themselves with an unmanageable level of debt as a result.

Some bank accounts could actually help you to get out of debt, by helping you to manage your money and realistically budget for all your costs. For example, some basic bank accounts let you split your money up into separate accounts – one for all your essential expenses, such as Council Tax, gas bills and food costs, and one for your ‘spending money’.

This could really reassure you that you won’t accidentally spend more than you can sensibly afford, and that all your priority costs are being met.

Change your energy provider
You may be able to find cheaper energy bills when you change energy provider. Price comparison websites offer a convenient way to compare lots of different providers and tariffs at once. You may also find contacting providers directly could get you a cheaper deal.

Check your meter readings are correct
Still on the subject of energy bills, it’s not uncommon for energy providers to estimate your annual usage and charge you based on that estimate. When your supplier gets a meter reading, you may find you have been overpaying and could receive a refund. Be aware that you may have been underpaying too. If so, it’s better to find out now, than receive an unexpected – and perhaps expensive – bill in the post.

Use coupons
These days, more and more people are looking for ways to save money where they can. No one wants to live without any luxuries, so see if you can treat yourself with coupon purchases. There are dozens of online voucher websites where you’ll find generous discounts and special offers on everything from a bottle of designer aftershave to a day at the spa.

Cook from scratch
Cooking meals at home can be healthier and better for your wallet too. You could make significant savings on your food bill by creating a menu and preparing meals in advance.

That £2 daily sandwich at work will add up to over £40 every month. Eat your home cooking / leftovers for lunch instead.

Some people find that cutting back in ways like these is enough to see them through the month. However, some people find that they’re still struggling financially. If you find tips like these aren’t helping you and you’re really struggling with your finances, it may be time to get expert help.

And if your financial problems are because of debt, it may be time to look into the different debt solutions that could help you, such as debt consolidation or debt management. Debt Advisory Centre Scotland can tell you more about this.

In order to make your credit the best it can be, you need to keep in mind that the credit score plays a large role in the determination of your credit limit and, in turn, your credit limit impacts your score.  A credit card company uses various tests and analyses to determine your appropriate credit limit. The process, which is known as underwriting, determines which persons they will approve for credit as well as what rate and limit they will be approved. Very little is known about this process.

A study was performed which compared the credit limits of various individuals to their credit scores. The research determined that there was a clear correlation between a higher credit limit and a higher credit score, which is also publicly stated as a credit scoring fact by FICO, the main credit scoring agency. The credit score of the cardholder can indicate whether or not they are likely to default, whether they are likely to pay the bills on time, and whether they manage their credit responsibly. With the help of the credit score, the credit card company is able to calculate the anticipated default rate of the consumer so as to determine whether it would be wise to increase the credit limit. If they believe there is a possibility to receive additional revenue through an increase in a credit limit, they may choose to do so.

An example would be one consumer who has an average credit score and a $1,000 limit accompanied by a 10% rate of default. The calculated loss would be about $100. Another consumer has a credit limit of $10,000 and a 1% rate of default making the anticipated loss also $100.  In this case, the cardholder with the good credit score would be given an increased credit limit due to their preferred credit and lower rate of default. This would enable the company to increase their profit potential through interest, fees, and credit card purchases.

The guidelines for underwriting are sure to affect the credit limits for the cardholder. According to research, the highest credit limit average was held by Bank of America and was $11,288. Capital One held the lowest with $3,254. This is most likely determined by the varying customer base that they target as well as their differing approaches to marketing and the types of solutions offered.  Bank of America typically leverages their relationships with their customers by dealing with high credit score consumers, oftentimes offering an unsecured credit card debt consolidation loan. This certainly accounts for the larger number of high limits because they usually consolidate multiple credit cards under one loan. Capital One targets individuals with all credit scores, including those with no credit such as college students. This would explain why they have a lower credit score average as a well as lower credit limit average

Keep in mind that the relationship between the credit limits and credit scores is not a mutually exclusive one. Others factors also affect the score and limit including payment history, additional lines of credit, as well as credit utilization. Alterations in the consumer’s patterns of spending as well as household income can also contribute to a decrease or increase in the credit limits of the individual.  In short, the underwriting process dictates the game rules when it comes to determining the credit limits and the issuing of credit. Through the understanding of scores and limits, you are better able to maintain your credit score and your credit limits.

A consumer can be neck deep in debt where he owes the debt to a creditor and if he has been too much delinquent on his accounts, his accounts may be turned down to the collection agency. Now the question lies as to how would you settle your debts if you owe them to a collection agency. Read on to know about it.

1. Contact the collection agency: The first step to settling your debts that are owed to a collection agency is that you are required to contact them. As you feel that you’re ready for a settlement, write a letter to them informing them of a settlement.
2. Ask for a debt validation letter: With a debt validation letter you can verify whether or not you actually owe the money to that collection agency. Reply only if you get the proof that the particular collection agency has been given the duty to collect the debt on the creditor’s behalf. If you do not find the reply of the collection agency to be satisfactory, you may inform the collection agency that it is violating the FDCPA and you can even sue them.
3. Offer a lump sum: As you’re done with the inquiry, offer a lump sum amount to the creditor so that he remains satisfied with the money. On this depends the way he will report this payment to the credit bureaus. If he reports it as “paid in full”, you will not hurt your credit score to that extent. But if he reports as “paid as settled”, you may tremendously hurt your credit score. Negotiate with your creditor in order to protect your credit score from being hit.

Financial experts are very prompt in informing consumers that the biggest disadvantage of debt settlement is the damage that it causes to your credit score. After the new FTC rules, all companies are required to disclose the pros and cons of settling their debts through a debt settlement company. Thus, if you’re looking for settling your debts that you owe to a collection agency, take into account the above mentioned steps to get a better result.

Image Courtesy of theautochannel.com

Seriously contemplating the purchase of a new auto in this economy can be a bit scary. Knowing exactly how much you can afford is the single most important question. There is a plethora of excellent deals on the market, but does it make sense to take on another payment right now? Make a checklist of the pros and cons before saying yea or nay.

Do you have secure employment? Many who thought they did have found out in the worst way that the company in which they worked for 30 years–and planned to retire from–is suddenly downsizing. Be sure that the money you plan to expend on a monthly car payment will not overtax your bottom line in the event you become unemployed. Budgeting is easier to do when you know exactly how much money you make every month. Always be sure to leave plenty of cushion after your other payments have been deducted. It is not easy to save, but it truly is better to be safe than sorry.

Is your reason for wanting a new or used car strong enough? There are many reasons for needing to trade up–or even down. If your current ride has a number of issues that will cost much more in the long run to keep repairing, then certainly trading up is a very good reason. Conversely, if your vehicle is a high-end model and the payments are too steep along with the insurance payments, selling it outright or trading in for a more affordable model makes sense to reduce debt. If you have no car at all and you desperately need one, saving up for a few months to buy a decent used auto is a good way to purchase one without having an unwieldy payment hanging over your head every month. In addition, if you have recently been in a wreck, search for an auto with approximately the same terms as the previous unless you know without a doubt you can afford more. Buying up just for the pure enjoyment of having a new car does not make the most sense if you barely cover your current expenses.

The rate of interest you get is contingent upon your credit rating and the loaning entity. Currently they run anywhere from 3.99% up to 12.99%. Many banks have up front application fees and require a down payment in order to give you a lower rate. The bureau of motor vehicles in your state may charge a title transfer fee in addition to the excise tax for your license plate, and in some states the amount they charge is relative to the value of the auto you purchase. Insurance premiums are another consideration and cannot be overlooked when figuring your out-of-pocket expenses to purchase a vehicle.

Now may be the best time to purchase if you are in a solid job with extra cash to spend. However, it may be wiser to save up and purchase with cash rather than take on a payment for 36, 48, or 72 months. Signing an auto loan is a serious commitment that requires some serious consideration. Failing to meet your financial obligations can cause grave consequences to your good credit standing. You may decide it is best for you to stay out of debt at this time.

Avoid All New Debt

Any new credit card debt that you incur will only put you farther into debt – with interest. This is sure to keep you there longer. This includes having to stop using credit cards to get you through to the next paycheck. When you do that you’re paying interest on your salary, too – a no-win situation.

Start with a Family Budget

Having some kind of goal in mind for your finances and knowing how much comes in and how much goes out is essential to successful money management. Having a home budget will enable you to have a starting point for getting and staying out of debt.

Build into your budget amounts for an emergency fund, an unexpected bill or two, and provide a little extra money for special things you like to do. Also, set aside some cash for an occasional controlled splurge – if you love to shop.

Watch your spending for a month. This will help you see where you are spending an extra amount of money unnecessarily. Then, you can work on reducing unnecessary expenditures in that area and direct it elsewhere – preferably either into savings or further debt reduction.

Make a chart and put it where you can see it regularly. Put on it your total amount of debt, and also how much you reduced your overall debt each month. This will help you see that you are making progress and that there actually will be a day when you can be debt free.

Determine to Avoid New Credit Debt

Once a budget is set up, you need to make up your mind that staying out of debt is worth it. Without this decision, the powerful ads and fancy toys will soon be trying to grab your attention and purchases on credit are apt to soon follow.

Help yourself to avoid credit debt by not carrying those credit cards around with you any more. A debit card is better if you need to make some purchases and do not want to carry any cash around.

Reduce Your Debt As Quickly As Possible

Having credit debt hanging around can be depressing. You know you are paying more for the items bought with credit than you would have paid for them otherwise. With the interest added in each month, you might actually begin to wonder if the debt would ever end.

Don’t believe any advertisement that says that you can’t be happy without some product or device – no matter if your friends have one. They aren’t going to be paying your bills for you. Think about your purchases. If you are weak in this area, be sure to talk to your spouse about purchases – before you make them.

There are many ways to bring in some more money to reduce your debt faster, if needed. This will mean less TV time, and less leisure, but it will be worth it if you can start enjoying being out of debt. You can get a part-time job, sell stuff online through eBay or Craigslist, mow lawns, baby-sit, or one of many more possibilities. Do what you can to get out of debt – it’s worth it.

Plan for Future Bills

This step will help you to avoid going into debt when new bills are due. Setting some money aside each week, or month will help you be ready to meet the debt when it comes – and also avoid late fees.

Create That Emergency Fund

Having an emergency fund will help you to be ready for those unexpected events and bills. This should also include enough for deductible amounts for car and health insurance. It should be an amount that is equal to your expenditures for about six months, unless you are self-employed. In that case, you want to have about a year’s worth of income set aside. This money should not be touched for any reason – except emergencies.

Set Money Aside in Savings Programs

There are many different ways to save money, depending largely on how much money is available. Start thinking long-term, as well as short-term, and then create savings accounts for those purposes. This will help your focus to be on more worthwhile causes for your money, giving you a reason to plan for the future – and save for it. Because of recent problems with some companies misspending client’s money, be sure to invest wisely and do not put all your eggs in one basket.

It will also help you if you make it a little harder to withdraw these funds, too. You can do that by putting some of it into programs like 401(k)s, IRA’s, or HSA’s. In fact, when you use this type of instrument, you may even be able to get tax deductions – letting you save even more money.

Leave Some Money for Fun

You do not want to create such a tight budget that there is no room for those things you enjoy. Many things, however, can be done with less cost, if you take some time to think about it first. For instance, if you love to watch movies, you can avoid paying top dollar by either getting them from a machine for $1, or go to the library and borrow them for free.

Plan for Wealth Creation Rather than Debt Payments

Realize that having some wealth is much more fun than making regular credit debt payments, you can start thinking right. Let others have the debt, you can go for the wealth. There will be time to enjoy some things later, but learn how to save money regularly and let it build interest.

It is also a good idea to work toward being completely out of debt before retirement. This will let you enjoy some of the wealth that was created.

Find Out How Much Debt You Really Have

When it comes to knowing just how much debt there is, many people only guess. Unfortunately, this leads many people to think that they have much less than what they really have. Take some time and add up all your fixed bills and see exactly what kind of debt you currently have. This includes all re-occurring bills that are the same every month, such as your monthly house or rent payment, credit card payments, car payments, etc. Do not include bills that change every month such as your utility bill.

Now, find out exactly how much income you have each month. Be sure to add all money that comes in regularly, but do not count money that you cannot be sure will be there.

Discover Your Debt to Income Ratio

Your debt-to-income ratio is basically what a potential lender or credit card company will consider when you apply for credit. If it is too high, then you will most likely be turned down for new credit.

Finding out what your debt-to-income ratio is will only require a simple calculation. Simply take the amount of your monthly payments calculated above, and then divide that number by your income. Look at he resultant number as a percentage, such as 25 percent, or 30 percent.

The Number the Creditors Want to See

When you apply for a loan, or some other credit, the lender (or computer) will calculate this number from your credit report. Lenders do have a number that is generally considered a maximum percentage of debt-to-income, and that number is usually 36%. In other words, if the new credit amount you want takes the percentage higher than that, you can almost be sure to be rejected for any new credit from a reputable lender.

Even if your new credit amount may be less than that, it is still possible to be rejected. Another ratio that may be considered is the amount of debt you have compared to the amount of credit available. Ideally, you want your debt-to-income ratio to be around 20 percent. This shows that you are rather conservative in your spending habits

A Higher Ratio May Mean Less than Ideal Credit Terms

It is important to remember that getting more credit when you have a higher debt-to-income ratio may mean that you are not going to get the best interest rates or payment options. Those are reserved for people who have their debt under control.

Having higher interest rates means that you are going to pay more on your debt than you really should. Paying the debt down as quickly as possible will help you to greatly reduce debt and the amount of interest you will pay to the lenders.

How Credit Problems Affect Your Credit Score

There are several items that will hurt your credit score more than other things. It is also true, according to MyFICO, that a higher credit score will be hurt more – percentage wise – than a lower score for any one of these problems. The things that will hurt it the most, of course, are a bankruptcy or a foreclosure. The other things that will hurt it are a delinquency at least 30-days old, settling a debt on a credit card, or taking a credit card to its max limits.

Start a Program of Debt Elimination

If you have had problems with these things in the past, then you want to start working toward debt elimination and credit repair. The good thing is that you can do this yourself, and it will not cost you.

The two best things you can do are first to reduce your debt as much as possible – and as fast as you can. The second thing that will help is to make sure that you pay at least the minimum on time each month.

Paying your bills on time is the single most important thing you can do to raise your credit score. Unfortunately, even though the ads say differently, you cannot go to a debt consolidation service or to a debt counselor and pay money to improve your credit score. Many of these agencies will only recommend or actually help you to declare bankruptcy, which will hurt your credit score more than anything else and it will also remain on your credit report for ten years.

Paying more than the minimum each month will actually help reduce your debt and the amount of interest you owe. It is not a good idea to try and get more credit in order to lower your debt-to-credit ratio. Any lender will be able to look at the credit report and be able to see what you have done.

Make Getting Out of Debt a Real Goal

Deliberately determine to get out of debt and to never let debt get the best of you again. All advertising is aimed to make people unhappy unless they have a certain product. The problem with that is that you have to keep buying to be happy – an attitude the corporations have to love. Being in debt because you continually buy things leads to a rat race of debt. Start now to pay down your debt and build your credit score for better terms on things like a car or house – once the debt is eliminated.

Once you reduce your debt and start getting a greater financial freedom, it may actually free you from the monthly stress of having to work so hard to pay those credit bills for things you probably really did not even need in the first place. It will also enable you to pay less when you start paying cash, too, and are able to stop paying the interest.

Check Credit Report for Errors and Repair It

If you have not checked your credit report recently for errors, you really do need to start here. It is not at all uncommon for errors to be put onto a credit report, and a mistake that you may not even be aware of can have a strong negative effect on your ability to get decent interest rates on anything.

Any problems that you might have had with identity theft could also be very detrimental to your credit score. Fixing it now – especially if there is a definite error – could enable you to get better rates on everything from credit cards to loans and even on your auto insurance. Corrections take about six weeks to show up on your credit report.

Remember to look at a copy of your free credit report from each of the three major credit bureaus – EquiFax, Experian, and TransUnion. More creditors are reporting to all three of these agencies than before, and each one of your reports may have slightly different information on them. Besides, you never know which one of them a potential lender will check with when looking at your records.

Contact Creditors for Reduced Interest Rates

Once your credit report is taken care of, you want to talk to your creditors. This is only necessary, however, if you cannot meet your current bills, or if you simply want to try to reduce your interest rates. Often times, they are willing to put your account on hold for a short time and reduce your payments, especially if there is a brighter future in which you think you will be able to make the payments.

Do Not Open or Close Other Credit Cards – Except One

Having too much debt or too much credit does affect your credit score. There is a ratio the creditors like to see, and it is generally about 20% of debt to the amount of credit you have, according to Experian.

Experian also mentions on their Website that opening or closing a credit card could lower your credit score. Many people sometimes learn about the debt to credit ratio and then try to either open new credit cards, or close existing ones, in order to attempt to change their ratio, and then discover that it actually made their credit score lower.

Remember that potential lenders can see that the older cards were closed and they will probably guess that it was to hide a low credit score – which unfortunately, is even lower now. Another factor in your credit score is how long you have had and maintained open credit. If you close your oldest credit cards, this will reduce the length of your credit history – and probably hurt your credit score.

The only new credit that you may want to open is a new balance transfer credit card. This will enable you to possibly get 0 percent interest (or low interest) on the balances that are transferred. This is the only new credit you should get, and it will help to reduce the overall debt you have because of less interest.

Pay Your Debts on Time without Fail

The largest factor in raising your credit score is simply making your payments on time. According to FICO, it counts as 35% of the calculation of your credit score. This is the lender’s biggest concern and it is certainly one you do not want to overlook.

When you are working on a particular bill to eliminate it, you do not want to forget to pay the minimums on all your bills, and especially pay them on time. Although one late payment may not be reported on your credit report, several late payments most likely will appear there.

Do Not Use Credit Repair Services

Many credit repair services are just a scam to get your money. The truth is that about all they can do is to challenge information on your credit report to try and get it either corrected or removed. While being challenged, the information may disappear for a short time, but if it is true, then you can be sure that it will be back.

Experian says that there is no quick way to repair your credit. It has to be earned. You do this primarily by efficient handling of your finances and paying down your debt. Your credit score is constantly changing as you continue to make payments and change your debt or credit levels.

If you have business credit that needs good credit scores, then it is necessary to keep some balances on your credit cards. It is different with a business. By keeping some charges on your card and continuing to show that you can make payments on time, you establish a history of financial credibility, and this will let a lender know that your business is still in good financial condition.

Do It Yourself and Save Money

Debt settlement services, or a debt consolidation loan, are apt to add to your overall debt. Even if the company is able to reduce your bills, the added charges that they add on to it, may mean that there is little, if any savings.

The truth is that all of these things you can do yourself. Simply start with the smallest bill and pay it off. Then take that money and put it all toward the next bill, and keep on doing this until all your bills are paid. Being debt free and having an excellent credit score is a tremendous experience that you can enjoy – once it happens.