Lehman Brothers

1. Q. Why has Lehman Brothers collapsed . It was one of the most exposed banks to the US sub-prime mortgage market. It did not give out mortgages to ordinary American citizens. Rather, it bought up billions of dollars worth of These loans from US banks, re-packaged them, and sold them on to global.
2. Q. Why has Lehman Brothers collapsed . It also invested heavily in property, both commercial and residential. With the US housing market in free-fall these re-packaged loans and its property portfolio have plummeted in value. In June to August last year, the bank said it would write off $700 million (£390 million), from its balance sheet as a result. In the same three months this year, this figure soared to $7.8 billion (£4.34 billion). The bank tried to sell itself but no one – including the UK's Barclays – was willing to take on these "toxic" assets
3. Q. Could others follow Lehman Brothers? A. Yes. Merrill Lynch, one of the most venerable Wall Street firms, has been bought out by the Bank of America to save it going under. AIG, the world's largest insurance company is also running short of funds, it is understood. It is almost certain another major financial institution will collapse
4. Why does it matter that Lehman has collapsed and others are in trouble? A. Lehman does not have any High Street branches, ordinary savers or mortgage customers. However, its collapse will have profound implications for people around the world – and not just for its 25,000 staff, 5,000 of them in the UK who are almost certainly out of a job. Crucially, the US's central bank, the Federal Reserve has refused to step in to rescue the firm, even though it bailed out Bear Stearns, Fannie Mae and Freddie Mac earlier this year. This has rattled Wall Street and the City as investors realise that others could be allowed to go to the wall. As a result, share prices have fallen heavily on stock markets around the world
5. CHRONOLOGY OF EVENTS(NEWYORK LOCAL TIME) FRIDAY 16:00: U.S. market closes after a see saw session dominated by the fate of Lehman Brothers. After initially opening 140 points down in the wake of disappointment that Lehman had not secured a rescue by early Friday, the Dow Jones Industrials index recovered and closed down just 10 points. 16:25: Sources say Lehman Brothers has received bids for its asset management division from private equity firms Clayton Dubilier & Rice and Bain Capital. 20:00: U.K. newspapers say Barclays is considering a bid for Lehman Brothers
6. CHRONOLOGY OF EVENTS(NEWYORK LOCAL TIME) SUNDAY 12:00 The rest of Wall Street's banks and brokers are called into work to start addressing Lehman Brothers outstanding trades in the over-the-counter derivatives markets. 12:57: Barclays says it is pulling out of its bid for Lehman Brothers 15:11: Newspaper reports say AIG is seeking to raise between $10bn and $20 billion from buyout investors including Kohlberg Kravis & Roberts and J.C Flowers & Co to bolster its balance sheet. 15:45: Bank of America says it is pulling out of talks to acquire Lehman Brothers 16:18 : The Wall Street Journal reports that Bank of America and Lehman Brothers are in merger talks 22:00: A global consortium of 10 banks announces it is provide a total of $ 70bn for a U.S. borrowing facility aimed at providing liquidity.

Bankruptcy

Bankruptcy legislation was originally intended to be primarily a “businessman’s” statute. Its original purpose was often stated to be twofold:

1. To permit an honest debtor, who has been unfortunate in business, to obtain relief from his/her creditors; and 2. To provide a regime whereby the creditors of a bankrupt can pursue their claims by collective action through a Trustee so that the assets of the bankrupt can be realized and distributed on an equitable basis subject to the rights of secured creditors and the priorities of preferred creditors.

In 1992 the Bankruptcy Act was radically reformed (and renamed the Bankruptcy and Insolvency Act) in a number of ways. One such reform was arguably inconsistent with the original purpose of the Act, and it ironically has had the most significant impact on how the Act is used today. I am talking of course about the addition of provisions to the Act to make it more easily accessible to consumer debtors. The statistics are mind boggling. Consumer debtors have and continue to seek relief from their debts under the Act in record numbers. The theory and reality behind what happens when a consumer debtor declares bankruptcy is as follows:

1. All unsecured claims against the bankrupt as at the date of bankruptcy are stayed. This is the immediate relief a consumer debtor obtains, and the main reason for the bankruptcy; 2. The trade off is supposed to be that all of the bankrupt’s property in existence as at the date of bankruptcy, or acquired thereafter up to the date of the bankrupt’s discharge, vests in his or her Trustee for distribution among the bankrupt’s unsecured creditors. However, in the case of property with a registered lien or mortgage, the Trustee’s interest only attaches to any equity available in the property, and the Trustee is not entitled to any property held in trust by the bankrupt for third parties, or any property exempt from seizure or execution by statute (like the $5,000.00 exemption for an automobile). In a typical consumer bankruptcy situation, there aren’t any significant assets for the Trustee to seize and sell and thus there is usually little or no return available for the unsecured creditors; 3. The Trustee has the power to review the affairs and conduct of the bankrupt with a view to setting aside any payments made or assets transferred by the bankrupt to third parties prior to bankruptcy if these payments or transfers constitute a preference, settlement, or reviewable transaction. However, Trustees are running a business themselves, and unless there are assets that can be converted to cash to fund litigation they generally will not spend their own money to litigate these matters. Under the Act there are procedures to allow a creditor to take over a Trustee’s right to pursue such transactions and thus the onus shifts to the individual creditors to take (and pay for) action; 4. Individual bankrupts are required to make monthly “surplus income” payments to their Trustee in accordance with published guidelines. In a typical consumer bankruptcy situation, the bankrupt is not a high income earner and has dependents. The reality is that these surplus payments are usually just enough to cover the Trustee’s fees and disbursements (with nothing left for the unsecured creditors); 5. First time individual bankrupts are entitled to an absolute discharge from bankruptcy after nine months unless an objection is filed by a creditor, the Trustee, or the Official Receiver. First time consumer bankrupts cross their fingers and hope no one files an objection thereby allowing them to get in and out of the bankruptcy system after nine months, and with relative ease (except for those bankrupts who still attach a stigma with going bankrupt); 6. If a bankrupt is required to proceed to a discharge hearing, the Registrar will consider the circumstances and either grant an absolute discharge, or refuse or suspend the discharge, or order that the bankrupt has to pay a sum of money to his or her Trustee as a condition of being discharged. An absolute discharge will be granted if the bankrupt can show the objections are not valid and that he or she “can not justly be held responsible” for going bankrupt. Refusals are only ordered in the rarest of cases where the bankrupt has engaged in really offensive conduct. The most common disposition at a discharge hearing is for an order to be made that the bankrupt’s discharge is to take effect after the bankrupt pays a certain sum of money to his or her Trustee, usually in monthly instalments of between one to three years. However, the amount of the monthly payments will depend on the bankrupt’s monthly household income and expense situation and much reliance is usually placed on the guidelines referred to above for determining “surplus income”. Again, unless the bankrupt is a high income earner these monthly payments may be a lot for the bankrupt but provide little or no return to the unsecured creditors; 7. Upon being discharged from bankruptcy, all claims against the bankrupt in existence as at the date of bankruptcy, which were stayed, are released and discharged. There are some exceptions. Most notably these are for family law support obligations, debts incurred by fraudulent misrepresentation, and criminal fines or penalties. These claims continue to survive and can be pursued against the bankrupt.

Investment Companies

Investors participate of these investment companies depending on the amount of their investments. Which means that even with a modest investment the investor is the owner of a share in diverse stock and bond portfolios.
Investment companies have reached near in relation to providing the ideal type of investment for millions of investors that do not want to manage their own investments. Managers of these investment companies invest funds from investors in varied stock portfolios, bonds and instruments in the money market.

An advantage of this kind of investments is that investors that do not have time to manage their own financial investments or do not have the knowledge of individual financial values can invest their money in a diversity of stock and bonds portfolios, as well as in the money market instruments that offer mutual funds. Even so mutual funds are more often being monitored by regulators (Securities and Exchange Commission and the New York Attorney General for example) because of the excessive fees charged and for using the market timing shares in some mutual funds.

This shocking practice done by some mutual funds have put them on a dilemma on whether to invest or not in mutual funds. Many of them have turned to the exchange-traded funds as a more popular investing alternative.

Money growth that are managed by mutual funds companies have made them become important pieces of the stock market. According to the Investment Company Institute by the end of 2004 the mutual funds industry had moved around a $16.06 trillion of investors capital all over the world. With that many mutual funds from where to choose the investor should be very careful when selecting a mutual fund as well as to invest in individual stocks.

Stock Exchange

The stock exchange, also denominated as the stock market, is one of the markets of the financial system were in an organized way professionals gather periodically to negotiate public or private securities.

A financial system is that which puts in contact, through a market, two types of economic agents: Those economic agents with a surplus of funds (money suppliers) and those economic agents with a shortage of funds (money requesters), being the financial assets the merchandise which is object of the exchange. So then, a financial system s composed of markets, assets and of contact all those participants in the market. The financial assets money and it constitutes for them a liability. It is a way to maintain wealth for those who posses it. Therefore, financial assets and liabilities are the two sides of a same coin (investment-financing). According to the source of emission of these securities we will talk about public securities (issued by public institutions or private (issued by private institutions).

Share Market

Stocks and shares are primarily issued for raising funds from the general investors and these funds are either used by the private companies for business expansion or are used by the government. In return, all the investors who invested in the company share the company's profit. Thus this market has become an important source of raising funds for the companies and it allows company to be publically traded. To control and regulates the functioning of stock exchanges, brokers, sub-brokers, portfolio managers, and investment advisors the government has formed the statutory body . Based on the performance of the stocks of 30 sound financial companies, sensex is compiled.

This financial market is majorly divided into primary and secondary markets. In primary market the shares are issued directly by the company and the transactions are made through the share brokers, which are appointed by the company. In secondary market, share brokers represent stocks of different companies listed on stock exchange on behalf of customers.

Trading Forex

Forex Trading has become a hot topic all over the world today. The interest has 'compounded' post the big crashed in the stock markets of US and UK, as more proactive investors have already started searching for greener pastures. And amongst all this talk of forex market and , one can't help but feel the need to learn to trade forex and keep oneself up-to-date with the present knowledge. So you can learn to trade forex, courtesy this article!

Unlike the national stock exchange, a forex market is multinational and a lot more volume is traded on it. Hence you, as an individual investor with foreign exchange, might not have much of a say in the price fluctuations and demand, as there are other institutional investors that are trading in a much greater volume.

While your broker is managing your investment, you can keep a track on your investment using some charting software. You can also chart the progress of other currencies and keep notes. Keeping an eye on the news and the newspapers is also a good practice.

Remortgaging

Remortgaging is when you replace an existing mortgage with a new mortgage without moving home in order to release capital or reduce interest payments. It might involve changing mortgage lender or opting for another product with your existing lender.

Remortgaging has historically been a popular way of reducing repayments and releasing capital as well as paying off a mortgage early and can be useful as a means of consolidating debts. Taking remortgage advice can therefore be beneficial financially.

Remember that the value of your home may have increased since you bought it and the current market value may affect the choices you have.

Can I remortgage to pay off debts?

Remortgaging can offer some relief as a debt solution for people experiencing a certain level of debt. If you have owned your property for some time, the chances are it could be worth more than your outstanding debt.

Reduced monthly payments at a better rate will mean that you have more disposable income - and this in turn could help you pay off higher rate debts such as credit cards or loans as well as releasing money for home improvements, etc.

I've got a bad credit history - will I be eligible for remortgaging?

In the current economic climate, it's reassuring to know that there's a company with experience and expertise in sourcing appropriate mortgages or remortgages for people with credit difficulties or debt issues. Therefore, it makes perfect sense for Payplan clients to seek free remortgage advice from an organisation like Who's Lending who specialise in adverse credit mortgages.

In recent months, many lenders have withdrawn from the sub prime mortgage market (mortgages for people with poor credit ratings) which has strong implications for people with debt issues seeking to remortgage. Fortunately, Who's Lending has forged strong partnerships to facilitate mortgages for people with poor credit ratings or debt issues.

Auto Insurance

Third-Party Liability Coverage:
This section of your automobile insurance policy protects you if someone else is killed or injured, or their property is damaged. It will pay for claims as a result of lawsuits against you up to the limit of your coverage, and will pay the costs of settling the claims. By law you must carry a minimum of $200,000 in Third-Party Liability coverage.
Statutory Accident Benefits Coverage:
This section of your automobile insurance policy provides you with benefits if you are injured in an automobile accident, regardless of who caused the accident including supplementary medical, rehabilitation, attendant care, caregiver, non-earner and income replacement benefits.
Direct Compensation - Property Damage (DC-PD) Coverage:

This section of your automobile insurance policy covers damage to your vehicle or its contents, and for loss of use of your vehicle or its contents, to the extent that another person was at fault for the accident. It is called direct compensation because even though someone else causes the damage, you collect directly from your own insurer, instead of the person who caused the damage.

Note: Coverage under the DC-PD section of your automobile insurance policy only applies if the following conditions are met:

• the accident took place in Ontario;
• there was at least one other vehicle involved in the accident; and
• at least one of the other vehicles is also insured by an insurance company that is licensed in Ontario or has signed a special agreement with FSCO to provide this coverage.

If these conditions are not met, then you can make a claim on your optional Collision coverage (if you have it), whether or not you are at fault. If you don't have Collision coverage, you may be able to pursue recovery from the at-fault driver to the extent you were not-at-fault for the accident.

Refinance Mortgage Rates

Choosing Viable Refinance Mortgage Rates:

Various mortgage refinancing rates should be compared to choose the best rates before you decide on a good mortgage refinancing. The list includes more than 10,000 mortgage rates offered by various mortgage lenders which become quite overwhelming. The rates offered by these lenders may change depending on your case. For example, if a lender offers the best rate with a 25% deposit, those only able to make a 10% deposit will have to pay an extra 0.2% interest.

Factors Influencing the Best Refinance Mortgage Rates:

Some of the main factors that influence the best and lowest refinance mortgage interest rates are:

• Credit score of you as well as your spouse
• Repayment frequency - regularity compared to the number of times you have defaulted
• The kind of the refinance loan and its duration
• Security that can be provided with regard to the value of the property
• Whether the property is bought as a primary residence or just as an investment
• The prevalent interest rates in the current loan market

Refinancing your home mortgage is useful if the current mortgage refinance rates are less than the ones in the original mortgage. If you need better rates on an adjustable rate mortgage, mortgage refinancing is the best option. It is viable if the present loan is 2 percentage points higher than current rates.
You must keep in mind the timeline for occupying the property when considering a good refinance mortgage rate. You can even pay a lower collected interest rate during the loan term if you shift the refinancing from a 30 year fixed rate mortgage to a shorter period loan. Alternatively, you might need to refinance your mortgage rate from the ambiguity of an adjustable rate mortgage to the known rates of a fixed rate mortgage.

Forex Market

With the experience in forex trading comes a rather disappointing realization that forex is difficult. You have read the basics, you have learned the indicators and charts, and you even found the right broker and opened a demo account. You’ve got the tools, the tricks and a “winning” strategy. If everything is in order, how come you are still not on the way to forex riches? Where are the promised piles of money?!

The advice you hear the most from other forex traders is to develop your own trading strategy. Plan it well and trade according to it. Be disciplined and follow the trading plan religiously. You spend months polishing up your strategy in hopes that now you have cracked the code of forex market.

The truth is, forex market is dynamic and elastic. Forex market does not follow anyone’s rules and guidelines, especially not your detailed and strict trading plan. In order to be successful, you have to become dynamic and elastic yourself. In other words, instead of trying to mechanize it, you have to FEEL it.

Think about it. If automated mathematical EA was a perfect solution, there wouldn’t be a need for traders at all. EAs do not react right to news and sudden market moves. If you rely on EAs, an unexpected turn in price can wipe your account clean within seconds. I guess, no matter how advanced the technology is, there is no substitute to human touch, even in forex.

When you trade manually, you follow the basic principles and, at the same time, you are aware of the news and the possible market swings. The instincts play an important part in trading. You trade your plan when it feels right.

Now, here is another thought – what makes the market move? Imbalance of supply and demand? Economic factors and financial news? Political fluctuation and instability? Greed and fear? Market psychology and traders perceptions?

People move the market. Millions of forex traders just like you are in front of their computers starring at the same charts, buying and selling, analyzing, seeing the same patterns and making decisions. The traders’ decisions are based on emotions, trading trends, technical trading and/or intuitive techniques etc. By traders I mean both independent traders and huge financial institutions such as banks, since they are also controlled by people! In the center of it all stands the ultimate winner – a broker. Around the broker, some traders win, others lose.

So how does EA mixes in all this? Why are there so many so called “Holy Grail” trading strategies? With EA traders try to predict. Even when the market may seem random, it is still driven by people who expect the market to repeat itself. And this is the true reason why it does.

On one hand, manual trading can be more profitable, since a forex trader can read the market continually with manual trading and therefore spot a fundamental event which may change the direction of the price despite the technical analysis factors.

On the other hand, there is a psychological disadvantage of manual trading - a trader may close a trade as soon the money seems to decrease (retracement) just to see the price turn around again. Therefore, set and forget technique may be less profitable, but it is sure easier on your nerves.

To summarize:

· The percentage of traders who actually follow a trading strategy is slim since it is important to bend the rules once in a while and follow the instincts.

· The percentage of successful traders who use common sense, their knowledge and their intuition to make a decision is low since many beginners in forex trading are dropping out after couple of unsuccessful tries to hit the jackpot!

Forex

The foreign exchange market (currency, forex, or FX) trades currencies. It lets banks and other institutions easily buy and sell currencies.

The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars.

In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

The foreign exchange market is unique because of

• its trading volumes,
• the extreme liquidity of the market,
• its geographical dispersion,
• its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
• the variety of factors that affect exchange rates.
• the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
• the use of leverage

Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.

As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements,^[2] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:

• $1.005 trillion in spot transactions
• $362 billion in outright forwards
• $1.714 trillion in foreign exchange swaps
• $129 billion estimated gaps in reporting

Benefits of Debt Consolidation

If you have several credit cards with outstanding balances in the thousands of dollars at a high interest rate, outstanding medical and dental bills, a student loan, store credit or other unsecured debts, debt consolidation can be a way for you to make only one payment a month rather than payments to each creditor.
payment may be less than the total payments to all your creditors. You can pay off your credit card debt.

The benefits of debt consolidation include:

Lower payment The consolidation loan payment can be much lower, as much as 50% lower, than all the other payments combined. This gives you some breathing room in your budget.

Only one monthly payment rather than one for each creditor. This saves you time because you write only one check. It also saves you money because you don't have to send a check to each creditor. There are no credit card annual fees, transfer fees, membership fees and of course no more late fees. It's easier for you to keep track of your loan balance as well.

A lower interest rate is most likely on the new loan when compared to the somewhat exorbitant interest rates most credit cards carry. Credit card interest rates can reach 25% a year while most consolidation loans range from 6% to 8%.

Peace of mind. No more creditors calling at your home and place of work. No more struggling trying to figure out which bill to pay this month and which has to wait until next month. You can relax and get back on track knowing that you only have to make that one lower payment instead of all those payments.

Damage to your credit standing is reduced. Debt consolidation means your creditors are paid in full. You can begin to rebuild a solid credit report. Of course it makes sense that you close most of these accounts, perhaps keeping one credit card for emergencies only.

Debt Consolidation - Consolidate Loans & Credit Card Bills

Debt consolidation is a form of debt management where you are able to work with an experience credit counselor to find a loan and method of debt consolidation that can help get your finances under control and plan for a stronger financial future. You can use this method to consolidate credit card debt and should consider it before bankruptcy or your other drastic financial measures take over. Credit card debt affects millions of households around the world. When you are looking for a way out from under suffocating credit card debt, you need a plan that will work now and prevent debt in the future. Debt consolidation can offer that.

First, take the time to find a credible debt consolidation company and make sure they have credit counselors experienced in credit card debt. The best method is to work with a local debt consolidation office (as opposed to an online company) because of the heightened level of responsibility and ability to check them out. You can contact your local BBB or financial regulatory agency to find out if the debt consolidation companies you are considering are reputable.

Next, meet with them about the services they offer to find a company who will give you what you need in the way of credit card bill relief. You should not be asked for payment until the services have been completed and they should be offering you a range of services to find relief from your debt. Included in these possible services should be debt negotiation and credit counseling. Debt negotiation helps settle your debt for lower amounts and credit counseling helps you plan for the future.

Once you are through the process of finding the right credit counselor to work with they should walk you through the process in the easiest and most reassuring way possible. You should feel confident about your journey and have hope in the future for your credit card accounts. The credit counseling is important and you should pay attention and work with the credit counselor to make sure you have a plan in place to help you avoid making the mistakes that got you into debt and instead learn how to budget, plan and spending your money wisely. You can find a way to consolidation credit card debt and plan for a stronger financial future with a little help.

Using a debt consolidation loan can help you save thousands of dollars in interest costs and fees.

How to Consolidate Loans?

1. Get your credit report and FICO score. Any loan you get will be based largely on your credit score, so you should find this out. However, if your credit score reveals that you actually score quite well and have a reasonable credit rating, you may easily be able to consolidate loans at a lower rate, especially if your credit has improved since you got the loans. Go over your entire credit report carefully to make sure it's accurate. Inaccuracies can hurt your score and keep you from getting the rate your deserve.
2. Consider all your options. Before you jump into a debt consolidation loan, think about your other options.
   
   
   • If you just want to save money, but you're not in dire straits, simply pay off your debts fast by prioritizing them. Pay as much as you can each month on your highest-rate loan while making minimum payments on your others. This way, you are able to lower your monthly finance charges as quickly as possible.
   • Call your credit card company. If you have relatively good credit, you may be able to simply talk to your credit card company and negotiate a lower interest rate. If they won't give you a lower rate, you may be able to transfer your balance to a credit card with a lower long-term rate or a no-interest introductory rate--just make sure you know what your rate will be after the introductory period.
   • Contact a credit counseling agency. A reputable credit counseling agency can provide you with free or low-cost advice on how to manage your debt, and they can help you prepare a budget to get your finances under control. Credit counseling, however, does not necessarily mean entering into a debt management program, and you should beware any organization that tries to push you into such a program immediately. In general, be careful when choosing a credit counseling agency. Even agencies that are registered non-profits frequently charge high fees.
   • Sell your car. If you can't afford your car payments, try to sell your car to pay off the loan. If the car gets repossessed, it will end up costing you even more money.
   • Talk to your mortgage lender. Reputable mortgage lenders will usually work with you if you have some temporary trouble paying. Call them as soon as you know you'll have trouble, and they may temporarily suspend your payment or accept reduced payments. You might also be able to extend the time for repayment, thereby reducing your monthly payments. Make sure you find out about any additional fees or penalties for any arrangement, and consider refinancing your home if you can get a better interest rate.
   • Borrow from your life insurance. Whole life policies usually allow you to borrow against the cash value of the policy. This easy, usually low-interest, loan can get you quick cash to pay off debts. Be sure to check on the tax implications of borrowing, and understand that if you don't repay the loan it will be subtracted from the amount your beneficiary receives.
3. Understand the difference between a consolidation loan, a debt management program, and debt negotiation. Companies that claim to be able to help you lower your payments or get out of debt quickly may appear to be offering consolidation loans--they may even have the word "consolidation" in their names--when in fact they use methods such as debt management, settlement, or even bankruptcy. There are major differences between these options.
   
   
   • A consolidation loan is simply a loan that pays off your other loans. Once you consolidate a loan, you owe that money to the new lender, not to the original creditor. A consolidation loan may lower your monthly payments, either by reducing your interest rate or by extending the length of time for repayment, but it pays off the other creditors completely. Consolidation loans may temporarily blemish your credit, but generally to nowhere near the extent of debt management programs or debt negotiations.
   • Debt management programs may also reduce your payments, but they work differently. A debt management agency acts as a middleman between you and your creditors and tries to negotiate a reduction in the interest rates or fees on your loans. You then pay an agreed amount to the debt management or credit counseling agency, and they disburse the payment (usually minus a fee) to your creditors. Participation in a debt management plan usually shows up on your credit report, and may adversely affect your credit rating.
   • Debt negotiation is the act of settling a debt for less than what you owe. You pay a part of what you owe to a creditor, and the creditor writes off the rest of the debt. Credit card companies often offer lump-sum settlements as a way to recoup part of their losses. While you end up owing less, a settlement will bruise your credit, badly. Worse still, third-party companies that offer debt negotiation have been known to disguise their practices as consolidation, and these companies frequently charge exorbitant fees while simply passing along payments to your original creditors, sometimes failing to even negotiate any difference in your repayment terms.
4. Aim to pay off your debt quickly. One of the most attractive features of consolidation loans is the potential for lower monthly payments. But if the reduced payment is just the result of spreading your repayment over a longer period of time, you'll most likely be paying more--sometimes far more--with the consolidation than you would have otherwise. Figure out your budget and set your monthly payment as high as you safely can. You'll end up paying less, and you'll get out of debt quicker.
5. Get the right loan for you. Debt consolidation loans can be secured (backed up by collateral) or unsecured (also often called "personal loans").
   
   
   • Secured loans, such as second mortgages, secured lines of credit, or home equity loans, will typically have lower interest rates than unsecured loans because if the borrower defaults on the loan, the lender can recoup the money by selling the underlying asset. Interest on a home equity loan may also be tax-deductible, a feature that may save you more money. Keep in mind, however, that if you fall behind on a home equity loan, the lender can foreclose on your house. Carefully consider the risk before opting for any secured loan. Also keep in mind that such loans may include hidden fees such as "points" (a point equals one percent of the amount borrowed), that may drive up the cost of your loan.
   • Unsecured loans are a safer option, because you don't have to risk your house or other assets. If you have good credit, you should be able to get a decent rate (at least compared to credit cards) on an unsecured personal loan. Depending on your situation, however, especially if you have poor credit, you may find that only a secured loan will get you a lower rate than what you're currently paying.
6. Shop around. Get quotes from several different lenders, and compare the terms and interest rates carefully. Your own bank or credit union is often your best bet, particularly for personal loans, but it's a good idea to shop around. Get quotes in writing so you can compare lenders side-by-side. There are also websites that allow you to compare several lenders. Make sure you understand all the fees associated with the loans, as well as the conditions of the loan. If you want to get a solid price for the loan, you'll need to actually apply, as the final interest and fees may vary considerably from those quoted. Get as accurate a quote as possible by providing only accurate information.
7. Compare the total cost of consolidation to your current situation and to other consolidation loans. Don't just pay attention to the monthly payment. That's how consolidation companies lure you in, but even with the lower payment you may end up paying a whole lot more under the consolidation. Instead, consider how much you'll pay for a consolidation loan, including the interest, upfront and recurring fees, closing costs and points (for secured loans), and any tax implications, over the life of each loan. Choose the best option and then compare it to the total amount you'll have to pay to pay off your current loans (if you were to not consolidate). If you can realize substantial savings on the total cost of the loan, consolidation is probably a good option.
8. Read your loan contract carefully. Read every word, and then read every word again. Ask any questions you may have, and make sure you understand the answers, no matter how many times you have to ask. If in doubt, get a lawyer or another knowledgeable, independent source to take a look at the documents for you. Something that seems inconsequential in a contract can end up costing your thousands of dollars or even your home, so do your due diligence.
9. Reject credit insurance. Some lenders will attempt to pressure you into buying credit insurance, either by extolling its virtues, implying that your application will be rejected, or hiding it from you. If a lender does either of the latter two, get out of there and file a complaint with the appropriate authorities (in the U.S., the Federal Trade Commission (FTC) handles complaints, as do many state attorneys general). Credit insurance can add a huge cost to the loan, and it generally offers you very little protection. The lender may make the cost seem small by telling you the monthly price, but don't be fooled.
10. Finalize the loan. If your loan hasn't already been approved, complete the full application process. This should be straightforward, but it can take some time and footwork. If your loan rate is different from that which you were quoted, find out why, and then check with your next best option. Don't get taken by the old bait-and-switch.
11. Control your spending. If you're looking to consolidate because you've gotten in debt over your head, there's no time like the present to take a good look at your budget and balance it so that you don't continue to dig yourself in.