The 5D’s: Debt

We always say the 5D’s can happen to anyone at anytime and Debt is no exception. More often than not debt comes with another D, denial, which leads us to Teresa Guidice’s story. The Real Housewives of New Jersey reality star and her husband, Joe Guidicee, made headlines  when they filed for bankruptcy after accumulating 11 million (!!) dollars in debt. The press continuously criticized Teresa for her excessive spending during the period leading up to the bankruptcy.

Notorious for being extravagant, it may come as no surprise that Teresa racked up $20,000 of debt on her Bloomingdales credit card and more than $100,000 on others. In an attempt to justify her excessive spending, Teresa stated in multiple interviews that she had no idea that her family was in deep debt.

“Joe kept me in the dark about our financial situation because didn’t want to worry me,” she told People Magazine. “He didn’t tell me at first because he thought things were going to get better.” 

Teresa addressed her family’s current financial situation on her blog for BravoTV, “The economy was really tough two years ago, especially if you were in construction and owned buildings like Joe and I did. When our tenants couldn’t pay their mortgage, we couldn’t pay the building mortgage. We filed for bankruptcy, and the amount was huge because it included the full mortgage on several buildings. Of course, good news isn’t reported as often as bad news, but here’s our good news: the banks were able to sell our buildings, which was most of our debt, so we withdrew our bankruptcy petition and are working on paying off the rest of our debt ourselves!”

Life After Bankruptcy: Not So Hot

Teresa addressed her family’s current financial situation on her blog for BravoTV, A bankruptcy notation will appear on your credit report for 10 years. It’s a serious blemish that can affect you in many ways. Aside from the difficulty it will cause when you try to get new credit, insurance companies may correlate your ability to pay your debts with your ability to make premium payments. As a result, a bankruptcy notation on your credit report may make it difficult (and more expensive) to get certain types of insurance. What’s more, an employer may take your credit history into account when deciding to hire or promote you. Instead focus on living within your means and managing your debt!

If you have a lot of debt, you’re not alone. Today, more and more Americans are burdened with credit card and loan payments. So whether you are trying to improve your money management, having difficulty making ends meet, want to lower your monthly loan payments, or just can’t seem to keep up with all of your credit card bills, you may be looking for a way to make debt repayment easier. Debt consolidation may be the answer.

What Is Debt Consolidation?

Debt consolidation is when you roll all of your smaller individual loans into one large loan, usually with a longer term and a lower interest rate. This allows you to write one check for a loan payment instead of many, while lowering your total monthly payments.

How To Consolidate Your Debts 

There are many ways to consolidate your debts. One way is to transfer them to a credit card with a lower interest rate. Most credit card companies allow you to transfer balances by providing them with information, such as the issuing bank, account number, and approximate balance. Or, your credit card company may send you convenience checks that you can use to pay off your old balances. Keep in mind, however, that there is usually a fee for this type of transaction, and the lower rate may last only for a certain period of time (e.g., six months).

Another option is to obtain a home equity loan. Most banks and mortgage companies offer home equity loans. You’ll need to fill out an application and demonstrate to the lender that you’ll be able to make regular monthly payments. Your home will then be appraised to determine the amount of your equity. Typically, you can borrow an amount equal to 80 percent of the value of the equity in your home. Interest rates and terms for home equity loans vary, so you should shop around and compare lenders.

Some lenders offer loans specifically designed for debt consolidation. Again, you’ll need to fill out an application and demonstrate to the lender that you’ll be able to make regular monthly payments. Keep in mind, however, that these loans usually come with higher interest rates than home equity loans and, depending on the amount you borrow, may require collateral on the loan (e.g., your car or bank account).

Should You Consolidate? 

For debt consolidation to be worthwhile, the monthly payment on your consolidation loan should be less than the sum of the monthly payments on your individual loans. If this isn’t the case, consolidation may not be your best option. Moreover, the interest rate on your consolidation loan should be lower than the average of the interest rates on your individual loans. This allows you not only to save money but also to lower your monthly payment.

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