– Shiv Nanda
If you have to repay multiple debts like credit cards or personal loans, consider debt consolidation. It is a way to pay off existing debts with a new loan. You can turn multiple loan payments into one and pay it off at a lower interest rate. Since there are a lot of options under the umbrella of debt consolidation, understanding its ins and outs can get complicated. You need to be aware of the common debt consolidation myths floating around.
In this article, we will debunk 6 common debt consolidation myths.
- Myth 1: Debt Consolidation Reduces Debt
Debt consolidation will not reduce your debt. Instead, all your debt will roll into the loan and you will have to make the monthly payments against that balance. You can consolidate students loans, home loans or credit card loans. Debt consolidation will help you pay off these loans in one go, but you will have to pay off the debt consolidation loan within the specified time period.
- Myth 2: Debt Consolidation Will Hurt Your Credit Score
Debt consolidation loan shaves only a few points from your credit score. The method you choose also determines how many points are taken off from the credit score. For instance, choosing a personal loan will affect your credit score differently than a balance transfer credit card.
Your credit score will be affected only temporarily but it will be worth it if you can repay the loan on time. In fact, making timely payments will improve your credit. Payment history accounts for 35% of your credit score.
Myth 3: Debt Consolidation is Expensive
The interest rate on debt consolidation loans varies from one lender to another. However, they are lower than the average rates on credit cards. For those with an excellent credit score, the interest rate will be as low as 6%.
The interest will be the only cost as most debt consolidation loans do not carry any extra fees. If you choose any other loan, you may have to pay a one-time origination fee which covers the costs of processing the loan. It may also carry a small fee for late payments or processing checks.
- Myth 4: Applying for Debt Consolidation Loan Takes a Long Time
Many think that applying for a debt consolidation loan and its approval takes a long time. However, most lenders are offering instant debt consolidation loans and the entire process is online.
If you have the necessary documents ready, the online loan application process will take just a few minutes. Even the e-approval and loan disbursal is quick.
- Myth 5: All Debt Consolidation Loans are the Same
There are several types of debt consolidation loans. The main types include:
1. Debt Consolidation Loan: These loans are designed to help you consolidate your existing debt. Ideally, the lender will offer lower rates or better terms as compared to your existing debt. If the loan is approved, the lender will pay your existing debt on your behalf. You will have to pay the lender a lower monthly amount. The approved loan amount depends on how much debt you have.
2. Home Equity Loan: If you own property and have outstanding personal loans, you can consider a low-interest equity loan to consolidate your debt. Your home will be the collateral in this case.
3. Unsecured Personal Loan: This can help you pay down your outstanding debt on your own. But, there is no guarantee that you will be approved for the entire amount you need to repay.
4. Balance Transfer Credit Card: With balance transfer credit cards, you can consolidate debt from separate accounts into one card. You can then pay it back over a low- or no- interest period.
- Myth 6: You Can Consolidate All Types of Debt Together
All types of debts cannot be consolidated together. For example, a debt consolidation loan can be used to pay off multiple types of high-interest debt like credit card debt. However, it cannot be used to pay off student loans. For that, you have to consider student loan consolidation. Consider the debt you want to consolidate and choose the right option.
Research your options carefully and seek professional guidance if necessary. Choosing the right debt consolidation will help you pay off debt quickly. Apply online for a debt consolidation loan instant approval.
‘MOVE FAST BUT DON’T BREAK THINGS’ – WHY FINTECHS WILL COME TO LOVE REGULATION
Alex Johnson, Director of Portfolio Marketing, FICO
The guiding ethos of fintech is move fast and break things. It’s the fundamental advantage that disruptors have over the incumbents they’re disrupting — the ability to move quickly and make mistakes, learn from them and deliver innovative services to customers. Generally, this ethos is presented as a virtue. Banking is ‘broken’ so any investments in improving it are both notable and noble – even if there are bumps along the way.
Conversely, anything that stands in the way of this ‘march of progress’ is generally cast as a villain.
The most prominent villain for fintech companies is regulation. From their perspective, it’s a competitive moat, based on rules written for a different century, that protects banks’ ability to make money without needing to innovate and offer more or improved services to their customers.
So, it’s easy to see why a fintech company — believing fully in the virtue of its mission and faced with a litany of illogical and intractable regulations — might just say ‘we’re doing it anyway.’ That’s what Robinhood co-founder Baiju Bhatt reportedly did when his company tried to roll out a checking and savings product that it claimed was insured without confirming that with regulators first.
The problem is that while we may mythologise the ‘move fast and break things’ ethos in the abstract, consumers don’t love it when their stuff breaks in the real world.
And when fintechs and challenger banks aren’t constrained by regulation (as they mostly are in the U.S and Europe) the harm caused by this ‘move fast and break things’ approach can be much more severe than a service outage or a false claim of deposit insurance.
Stories from overseas
In China, online P2P lending exploded in popularity, with the number of P2P lenders growing from 50 in 2011 to 3,500 in 2015. Then the whole industry imploded when it was revealed that 40% of P2P lending platforms were Ponzi schemes.
In India, online lending companies raised a record $909 million in venture capital last year (the third-biggest market behind the U.S. and China). And those lenders are now using personal data from borrowers’ mobile phones to make lending decisions – which although illegal, is reportedly ignored by Indian regulators.
In the Philippines (another emerging market where venture capital dollars for online lending are pouring in), the National Privacy Commission is investigating hundreds of complaints from consumers about lending apps leveraging their personal data to shame them into making their payments.
A prediction for the decade to come
In the 2020s, I believe fintech companies will come to love – or at least quietly appreciate – regulation for two primary reasons:
Fintechs and challenger banks understand that brand recognition and affinity is key to their long-term success. Building their brands will be a challenge. A recent survey of 2,000 Brits found 40% don’t trust challenger banks at all and 67% said they are more likely to do business with banks that have branches on the high street. As Zach Bruhnke, co-founder and CEO of U.S. challenger bank HMBradley recently said, ‘We’re going to have to grow by word-of-mouth and doing the right things for our customers.’
Fintechs and challenger banks focused on the long-term task of building brand affinity and trust will, over the next decade, come to despise bad actors that skirt the rules and dress up get-rich-quick schemes in the same language they use to describe their own firms. Regulations that constrain and/or shut down these bad actors will be increasingly appreciated by legitimate market participants.
In the 2010s, we saw the beginning of a trend that will strengthen in the 2020s — regulations designed to foster competition between incumbents and new market entrants. To date, such regulatory action has run the gamut, from vague (innovation sandboxes and special-use charters) to hyper-specific (U.S. regulators’ cautiously approving the use of alternative data, or the Bank of England considering giving non-banks access to its 500-billion-pound balance sheet). Perhaps, most promising, has been the work done by the Competition and Markets Authority (CMA), which has been proactively driving the adoption of rules and standards around Open Banking for past couple of years. O
ver the next decade, through careful management of public perception and increased investment in lobbying, fintechs and challenger banks will further reshape the regulatory environment from a competitive moat to a more level playing field.
Reaching fintech maturity
’As a licensed broker-dealer, we’re highly regulated and take clear communication very seriously. We plan to work closely with regulators as we prepare to launch our cash management program’.
This was the statement issued by the chastened co-founders of Robinhood shortly after they backed away from their plan to launch a checking and savings product without government insurance. And here’s the crazy part — that’s exactly what happened! Less than a year later the company announced a new deposit product, this time insured by the Federal Deposit Insurance Corporation (FDIC).
As fintech companies mature in the 2020s and the focus of their strategic objectives shifts from growth to profitability, regulation will play a vital role in transforming the ethos of those companies into something a bit more sustainable. Call it ‘Move fast, but don’t break things’.
HOW TO MERGE YOUR FINANCES AS A COUPLE?
By Nelisiwe Ndlovu, Certified Financial Planner at Alexander Forbes
There is never a good time to discuss finances with your partner, married or unmarried, and one key issue that needs to be discussed is whether you should merge your finances.
Joining all your money matters can seem overwhelming at first, so you don’t have to combine every bank account and credit card from the get-go.
Start by having an honest discussion with regards to your individual money management and financial commitments before deciding to merge or co-manage your household finances while deciding if you want to fully merge all your finances. Detail all individual income, expenses, and all your financial commitments. The best way to achieve this would be to first take your individual budgets and combine them. This will tell you what you can and cannot afford as a couple. If one partner does not usually budget, this is a chance to start doing so as this will ensure that your household finances are under control.
Before you think about merging your finances, be open and honest about:
- How much you earn – what is the income that you will bring home? What is the frequency of your income? Are you permanently employed or a contractor?
- What are your current individual expenses and financial commitments? List your assets and your current debt.
- Your individual financial goals and money management techniques – don’t worry if you might have not figured this out at the time of merging your finances – the important thing to do is to be open and honest so that you both build a stronger money foundation
- Disclose your financial obligations, this becomes very tricky if left until too late and may cause unnecessary tension in the relationship
- What are your goals as a couple – what is the purpose for merging your finances?
Married couples can formally or informally merge their finances as detailed above where household expenses are split between the couple (the split could be 50/50 or any fair split agreed upon by the couple, which could be based percentage-wise depending on one’s income). Some couples tackle finances by adopting the ‘pick a bill’ approach, where one couple pays the water and electricity while the other covers the food.
Being married does not mean necessarily that you need to have one joint account. You may also just want to open one joint account where you each deposit money to pay just your monthly household expenses.
The top five things to remember when merging finances as a couple:
- Have the ability to manage your own finances before expecting another person to merge their finances with you.
- Be mindful of your potential spouse/life partner’s money management behaviour and skills so that there are certain things you can address together before considering merging your finances
- Always keep an open line of communication – honesty is the best policy
- Set a money limit which you can each spend without having to consult each other
- Don’t forget to change your wills and beneficiaries on pension or provident funds as required.
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