The best way to get out of debt is to avoid falling into debt. That's easier that than done. However, there are fairly simple ways to get out of debt or at the very least, to pay down your debt. Most debt is accumulated by over consuming, i.e. making unnecessary purchases and making them with credit cards.
Consumer debt is on the rise in more than just a few countries around the world. According to numbers released in March 2006 by the U.S. Federal Reserve Board, household debt has topped the $2-trillion mark in the U.S. - and that doesn't include mortgage debt. Consumer debt is a common topic of discussion and analysis, but it should not be considered a way of life. How can consumers get their debts under control? For an ever-growing number of them, the answer is debt consolidation.
Debt consolidation basically involves taking all of your debts and moving them to a single source. When it is done properly, debt consolidation results in a lower interest payment, a lower monthly debt payment and an increased amount of discretionary income each month.
Ideally, the lower payment and reduced interest provided by debt consolidation free up enough income to enable you to live within your means. Once you can afford to make the monthly payment on your loan, you can begin to get out from under your debts by making extra payments in order to retire your loan as quickly as possible. Debt consolidation is the first step toward getting your bills under control.
Ongoing debt minimization is critical to the long-term success of debt consolidation. Financial experts often note that your outstanding debts, including credit cards and mortgage payments, should not amount to more than 36% of your gross monthly income. That 36% figure is often referred to as a debt-to-income ratio. The ratio is calculated by dividing the amount of money you spend each month to service your debts by the amount of your income.
Debt and Consumerism
In the United States, more than 70% of the GDP comes from consumer spending. That consumer spending is mostly generated by debt. Last year, mortgage equity withdrawals (MEWs) accounted for $600 billion of consumer spending. However, as more consumers find themselves mired in debt, they spend less. This is changed the habits of the financial institutions. Banks and mortgage lenders have already begun to tighten up their lending practices and many have abandoned subprime loans altogether. (20% of the housing market in 2006 was subprime). Ameriquest was a big example of this. They had these loans, the 227 and 327 loans, they would be a fixed rate for two years or three years and then for the rest of the loan. And once they adjusted, you know sometimes people would understand they were getting an adjustable rate, but they would be told oh well the rates could go down.
There are many lessons to be learned from this. The first lesson is that there's no such thing as "free credit." Both the borrowers and lenders must exercise more due dillegence. If you are a borrower, make sure to read the fine print. If the legal language is too technical, then consult an attorney for clarification. As the old adage goes: "Buyer beware!"
Conclusion
The mortgage and credit market is a dangerous minefield. There are many types of home equity loans and credit schemes marketed to consumers. Many borrowers fall into difficulty by not understanding the rules of the game. To add to the troubles, many lending institutions do make the effort to explain the rules to borrower. Banks and lending institutions earn revenue by providing loans. Banks have nearly all to win to providing loans. In the subprime market, banks made money regardless if the loans are paid back late or not at all. It's the borrower who stands to lose the most.
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The world we are living in has thrown up it's fair share of challenges and money is generally at the root of many of the problems we are experiencing today, If you need Free debt advice visit our Website.
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