According to an old Indian proverb, the best way to cut iron is through iron itself. Therefore, in dealing with debts (the principal component of which is personal loans), the best manner will be to use debt consolidation loans (which too are personal loans).  Debt consolidation loans are among the most popular options available to residents of the UK to eliminate their debt load.

Ease in getting personal loans has largely influenced the spending habits of people. Instead of spending only up to the limits of their income, more and more people are using loans to purchase items of comfort and luxury. The habit has attained mind-boggling proportions, such that more and more people have been found with some or other credit deformities. The number of people in debts has also increased.

Debt consolidation loans, though personal loans, are different from the other loans that constitute ones debts. The primary objective of debt consolidation loans is to solve the debt problem. Therefore, debt consolidation loans have been designed thus. Personal loans earlier taken by borrowers may have been taken at higher rate of interest. In debt consolidation loans, one of the primary features is low interest rate or APR. Debtors must always try to arrange debt consolidation loans at a typical APR.

There is no shortage of debt consolidation loan providers in the UK. Nevertheless, ones chances of getting a good deal in debt consolidation loan are few; mostly when one goes all alone in the search of loan assistance. The stakes are high when using debt consolidation loans. A good deal can settle all your debts. However, if one is not able to secure a good deal, he is not able to settle all his debts. Moreover, he adds further to the debt load in the form of debt consolidation loan and its interest.

Brokers can significantly help debtors in their endeavour. Brokers are linked both to debtors as well as to loan providing banks and financial institutions. They are associated with debtors in the sense that they are endowed with the responsibility of finding proper deals. Brokers are associated with loan providers through an agreement, by which banks and financial institutions advance loans to their customers in exchange of a commission to broker.

Broker thus acts as a missing link between loan providers and borrowers. Once, borrowers get their desired deal through a loan provider, the role of broker ends.

Allowing brokers to find debt consolidation loans will be advantageous for borrowers on two grounds. Firstly, borrowers’ main area of specialization is the one in which they are employed. The field of loans is new to them, or they are not much conversant with it. Consequently, they cannot find deals with as much precision or professionalism. Secondly, loan providers respond much promptly and amicably to brokers than to borrowers, particularly when borrower has bad credit history. Borrowers with bad credit history too are able to secure good deals in debt consolidation loans at the reputation of the broker. However, in case of brokers too, borrowers need to contact only reputable lenders.

The beginning is the half of every action. Therefore, if you are able to locate a good deal in debt consolidation loans, you are almost up to your desired goal of freedom from debts.

When a debt consolidation loan provider receives the application for loan, it verifies and then approves and sanctions the loan proceeds. Borrowers can get maximum help through lender in the settlement of debts. The lender may assign a debt expert to assist debtor. The first thing that borrower needs to do is to total all his debts. The aggregate of debts serves as the measure for total amount of loan. Loan amounts in the range of £5000 to £50000 can be raised quite easily.

When debts are totaled and a sum equal to the debts has been raised, borrowers can get to the task of eliminating debts. Debt experts, equipped with their experience and excellent negotiation skills, can eliminate debts easily.

Debt consolidation loans are offered for a certain period, usually between 5 to 25 years. Borrowers will thus have to pay the loan amount along with the interest within the said time period. For the purposes of convenience, it will necessary that borrower discuss several repayment options with the lender and stick to whichever method chosen for repayment.

Tags: Debt Consolidation Loans, debt load, debt problem, debts, How To Pay Off Debt, loan assistance, Personal Loans, rate of interest

Inga Shivers was working holidays and overtime and lying sleepless at night, juggling the bills in her mind — $55,000 worth — for her nine maxed-out credit cards. The pharmacist’s exhaustion must have showed, because a kindly colleague who knew of her trouble pulled her aside and told her how he had needed help to dig out from a giant pile of medical bills.

In that moment, Shivers, then 34, made her decision. She found a credit counselor, cut up all but one of the credit cards and got on a payment plan. Three and a half years later, she paid off the last of the bills.

It’s hard to escape the news that Americans are drowning in personal debt, but you hear less about the many people who, like Inga Shivers, have been able to dig out of debt.

Getting sucked in

The personal-debt problem gets so much attention that it’s surprising to learn that many credit card holders — 40 percent, according to the Federal Reserve — pay their balances in full each month. High-income families typically carry a bigger monthly balance, but they can (and do) regularly pay off a bigger share of their debt, says Christian Weller, senior economist with the Center for American Progress.

People with little income are more likely to be sucked into the vortex of credit card debt, hidden fees and escalating interest rates. That’s because homeowners can transfer credit card debt to lower-rate mortgage lines of credit (rarely a good idea, by the way), but those without a home have to turn to high-interest payday lenders when credit card companies cut them off.

Former debtors have successfully used a wide range of systems, books or programs. For Sarah Maffei, the radical approach was the ticket. She amassed $30,000 in debt, about half of it in student loans, by the time she was 28. Her debt began as soon as she got her first credit cards, at age 18. When she graduated from college, “I must have had about 16 credit cards,” she says, including six major cards and a fistful from department and specialty stores.

Joining the workforce as a benefits professional in San Francisco forced a reckoning: “When you are in college, you keep thinking that you are going to graduate, get this great job, make all this money and you’ll pay it all off.” Instead, she owed $1,000 more than she would earn in a whole year. She was miserable: “You’d pay $30 and $16 of it went to interest. … Every payday, my whole paycheck was gone.”

Saving up for a movie

Maffei heard about Joanne Nagel, a consultant whose system requires an all-cash existence. It was a harsh system — exactly what Maffei wanted. She abstained from credit cards, even from ATMs. She learned to keep records, budget each week in advance, pay herself in cash and suck it up if she ran out of money midway through.

Her budget was Spartan: $39 for groceries, $5 for dry cleaning, $20 for lunches out, $5 for cat food, $5 for gas and $10 for clothing. Recreational shopping was just a memory. Entertainment was “staying home, renting movies, having friends over or going to friends’ houses.” Her recreation budget: “Four one-dollar bills. If want to go to the movies, I have to save up for two weeks. And if I want popcorn, I have to save up more.”

She gravitated toward friends she had formerly disdained as “cheap.” It became kind of fun. For a Christmas party, she splurged two weeks of her clothing allowance on a discount-store dress.

After two and a half years, the whole debt was paid. Today, she still lives almost entirely on cash, planning every category each week on a spreadsheet. Faced with big purchases, she compares the cost with her budget for that category, asking herself, “that’s a week’s worth, or two weeks’ worth — is it worth it?”

She’s a single parent now. While that’s tough, she says, “it’s great to look back and say, ‘Oh, my God, if I could live on that, I can definitely do this.’ … I never thought I could pay off one (bill), let alone all of them.”

Pick your program

Few statistics exist to tell how many debt survivors have paid down big balances and changed their habits, let alone how they did it. There are only reports describing the nation’s mounting load of personal debt. The average card holder had $4,800 in credit card debt in 2007, according to the Census Bureau, a number that’s expected to reach $5,500 in 2008.

A report from the Center for American Progress says:

• The number of American families carrying card balances is growing.

• Credit card debt is growing fastest among middle- and low-income families.

• Low-income families have the greatest debts, proportionate to their incomes.

• Families with higher credit card debt — not overall debt — are more likely to become delinquent on card bills.

Howell Edwards of the nonprofit InCharge Debt Solutions (formerly Profina Debt Solutions) says that about 40% of the roughly 30,000 people who enroll in the company’s debt management program annually complete the program. Of the rest, some file for bankruptcy, others use home equity to shift their debt and a substantial number feel they are able to manage their debt on their own, says Edwards.

5 traits of the debt-free

It is credit cards, with their easily triggered fees, escalating interest rates and hidden costs, that seem to push debt out of control.

Despite the odds, committed debtors manage to cut up cards, pay down balances and foreswear old habits. The system they use, whether a credit counselor or the 12-step self-help group Debtors Anonymous, appears to matter less than their determination to claw their way out. Some ex-debtors say they can’t touch another credit card as long as they live. Others do just fine with credit. Regardless, they all:

• Decide to leave their dream world, add up the damage and assign a cold, hard number to their total debt.

• Stop using unsecured debt — at least until they’ve reached a zero balance, and maybe forever.

• Focus intently — and stay focused — on their system, whatever it is.

• Plan and track where every dime of their money goes.

• Don’t quit until they’re done.

Motivation: Fear

Shivers has advice for people in debt trouble: Get educated. Her trouble began when she left her $89,000-a-year pharmacist career to start a home-based business. Her passion was marketing, so she pulled $30,000 out of her $65,000 savings and launched a direct-mail business.

Although she poured herself into the company, she had no business background, no marketing experience and no education in managing money. Her knowledge was from popular culture. “You read about all these people who started businesses with their credit cards,” she says. After burning through her starting capital, she ran up nine credit cards. “It would be, like, a $5,000 chunk here for a new computer system, $2,000 there for a new printer,” she says. She was shocked to find that she needed $2,000 worth of paper.

She returned to pharmacy work part-time, taking every available shift to support her business. She felt sick with fear over her inability to manage. “I didn’t have a social life at this point. Everybody at my job knew that I was paying off a big debt.” That’s when her colleague stepped in, pointing her to a local affiliate of the National Foundation for Credit Counseling, a national network of nonprofit agencies.

For a $10 monthly fee, the counselor took over, negotiating lower interest rates with most of the card companies. They lowered the 25% interest rate to 15% on her card with a $30,000 balance. They collected $879 a month from her and paid off her bills. She relinquished all the cards but one and took classes on money management and business. She never considered bankruptcy, she says, because, with her lucrative profession, she could pay the debt fairly quickly and maintain her credit rating.

How to spot trouble

Jerrold Mundis, author of “How to Get Out of Debt, Stay Out of Debt, and Live Prosperously,” says it’s easy to know if you’re in trouble: “Ask yourself, are you debts causing you any level of discomfort at all? If they are, it is almost certain that you are having a problem with debt.”

Here are the three suggestions from Mundis, a self-confessed ex-debtor, and others who have successfully paid off catastrophic balances:

• Avoid telemarketing “debt counselors” and for-profit organizations. Find a counselor certified by the National Foundation for Credit Counseling. (Recently the Internal Revenue Service found that 41 of 63 credit-counseling companies it examined were preying on debtors.) Read “The consumer’s guide to credit counseling” to learn more.

• Debt collectors buy uncollected debt from creditors for literally pennies on the dollar. This means there’s room to negotiate with creditors. Watch out: If you get a really big reduction, you may need to file an IRS form 1099 and adjust your taxes. (Read “Make a deal with debt collectors.”)

• Target bills and zap them one by one (while staying current on the others). Choose the smallest bill, post it on the refrigerator and mark the reduced balance with each payment. Celebrate each time you knock off a bill.

Once you get free, debt veterans say, the temptation to slide back into debt can be huge. It was a way of life, after all. As one former debtor says, “Be prepared for emotional ups and downs tied up in money. There is an enormous emotional content to money stuff for a great many people.”

Tags: card balances, credit card debt, creditors, Debt Hell, Debt Stories, debts, Escape Stories From Debt, mortgage