Finding Ways to Avoid Debt

Was becoming financially secure one of your New Year’s resolutions? If so, it’s important to take note of some of the most effective ways to consolidate debt and save thousands.

Certain quick fixes such as a debt consolidation loan, moving debt to a zero-interest credit card or getting an advance on an income-tax refund are often recommended to those in need. While each of those strategies can be justified in some cases, said Greg Kiefer of the Consumer Credit Counseling Service of Central Florida/Gulf Coast, they should be coupled with an overall plan for getting balances paid down.

“A person has to determine what’s the reason for being overextended. Is it a one-time crisis like a divorce, or an illness or a layoff, or is it a problem that’s occurring month after month because spending is out of control?” Kiefer said.

Another agency that offers free financial instruction is the Mid-Florida Housing Partnership, a Daytona Beach agency that helps families close to the poverty line obtain financing for their first home. This company makes it possible to afford a Florida home loan, even when obstacles appear to be in the way.

Mobile Florida credit counseling

A new source of help is a mobile counseling service that Fifth Third Bank is sending around Volusia County this month. A bus equipped with a dozen desks and computers provides space for individuals to meet with bank staffers and examine their credit history online, a first step toward obtaining a Florida home loan.

“We’re telling people not to be discouraged. It’s easier to qualify for a mortgage than they think,” said Gretchen Skoglund, a professional that specializes in loan origination who helped staff the bus Tuesday when it was parked at a Wal-Mart Supercenter on Beville Road.

All three counseling services pay close attention to a client’s debt-to-income (DTI) ratio.

John Gagnon, a Fifth Third loan officer, said a client using only 30 percent of his income for fixed monthly payments would be considered an excellent mortgage candidate, while one whose bills consumed 70 percent of his income would be rated a poor risk. Most people fall somewhere in between.

Many banks claim they want debt limited to 45 percent or less of a client’s income, said Fran Gordon, executive director of Mid-Florida Housing. “But in the real world, most banks will accept something like 50 to 55 percent,” she said.

To lower their monthly payments, some consumers turn to consolidation loans, often by refinancing or adding a second mortgage.

Kiefer said such loans are helpful if they replace high-interest payments with lower-interest ones, cutting financing costs. This has become more of an issue recently as an inverted yield curve has resulted in difficulties for those with adjustable Florida home loans.

However, many consumers succumb to the temptation to borrow a little extra to give themselves some spare cash. As a result, they end up with a higher debt-to-income ratio, hurting their credit standing.

Another common strategy is to move credit-card balances from a high-interest card to a low-interest one, often an account with an introductory teaser rate of 0 to 6 percent for six months.

Marc Eisenson, a financial writer at Good Advice Press said card-balance juggling can work if the borrower is disciplined enough to avoid further charging and pay off the balance before the teaser rate expires. Another caveat is to make sure no special “transfer fees” will be incurred for moving balances. Some banks will waive the fees if a borrower is bold enough to ask, Eisenson said.

Tax refund anticipation loans are touted by some tax preparers as another painless way to pay off holiday bills. Kiefer said consumers often overlook the fine print showing the annualized interest rates on the brief loans amounts to 60 to 100 percent or more.

Summary: Don’t allow debt to get you down. If you’re interested in obtaining a Florida home loan, there are credit counseling specialists prepared to devise a personalized strategy for savings and prosperity.