The number of consumers seeking debt consolidation advice has soared exponentially due to the economic recession, loss of jobs and lack of bank lending. However, many people look for debt relief by putting themselves into more credit card debt. Financial advisers say the relief may come when consumers borrow only when it makes financial sense.
The economic recession is still clear when one compares 2009's bank profits with 2008. Banks made $9.6 billion dollars during the first three quarters of 2009, which is a 70 percent decline from the $32.5 billion in profits made in the first three quarters of 2008. Lending continues to slump. Analysis shows a 2.8% decline in loan balances during the third quarter in 2008, which is the largest decline in loan balances since 1984. Is the problem centered around consumers giving up? Or banks not lending?
"No one wants banks making the kinds of risky loans that got us into this situation in the first place," the president stated after a meeting last Monday, "But given the difficulty business people are having as lending has declined, and given the exceptional assistance banks received to get them through a difficult time, we expect them to explore every responsible way to help get our economy moving again."
Banks aren't lending as graciously as they were. Eager borrowers need to be borrowing for the right reasons, otherwise, the banks will continue to keep their pockets sewn shut. What is the best way to borrow wiser without putting yourself into more debt?
Getting an investment loan that will eventually add to your net worth over time is important. Borrowing money to pay off old debts goes with the saying “stealing from Peter to give to Paul.”
Debt consolidation always seems to be an easy way out, but the side effects can be seen on the front pages of the newspaper every day. If you do decide to borrow, why not look for ways to save while you're borrowing? For example, getting a loan whose interest is tax deductible could help you make loan payments.
Qualifying for a loan that has a low interest rate could also save you money. If your credit score isn't up to par, then only borrow within your means and work on improving your credit score before borrowing a lofty or risky amount.
Researching the types of loans that help retain or gain value is beneficial – buying a home or getting a degree, historically, have shown to aid in a person's net worth. Borrowing for a new projector flat screen with a Playstation 3 to boot – will only decrease your value.
According to a recent AP poll, 48% of Americans are stressed about their debts. Before getting a new loan, try tightening up your budget first. Live within your means and pay off those pesky credit card debts or any other debts with high interest rates.
Building up an emergency fund over time can also show lenders that you will be able to make loan payments in case of unemployment.
Good behavior or no, the recession will have a long term effect on the cautiousness of banks. Borrowing money is more difficult for consumers, but the lenders are seeing restrictions as well, especially credit card companies.
Trust on both sides is important in the economic game of give and take. However, being smart about your personal finances could be the first step to recovery.
Written by Amy Munday
HULIQ.com
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