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It is sad that being in debt is a reality that lots of people experience, and robs them of enjoyment of life.  IF you haven’t already read my post on Negotiating Debt Settlements, I encourage you to do so.

There are people with credit card debt, some have debts from medical expenses, while others carry the burden of being in debt for mortgage and loan payments. People also experience different kinds of debt for extravagant lifestyles.

Whatever the situation, it is a glaring reality that if you have a debt, you want out. This is where a get-out-of-debt plan is needed.
It could have started from a few small loans from other family or friends; you may have used too many credit cards at the same time; or you may have decided to buy something which you find you cannot really pay for after all. Whatever kind of debt was incurred, the important consideration is the person under debt should have the needed resolve to get out.

If you have a debt situation, the first thing you need to do is to gather determination to actually get out of it. This may be difficult for some because not everyone is brave enough to look into their finances to see if the debt was really out of proportion.  It takes courage to really stop and look into your finances to find out if you’re truly incurring more debt than you can handle.  You need to get on a budget, and there are many reasons to get on a budget. After looking into your finances objectively, it is important to make a get out of debt plan.

This plan should be more than a simple one with the goal of eliminating debt, or to paying these one at a time. It should also have details.

When you make a detailed freedom from debt plan, first list down all your debts, sources of income, the interest rates (or fines) that pile up from your balance, as well as the detailed step-by-step plan on what you’ll do with each one. This way, it is easier to reduce your debts, and eventually eliminate these.

It is so important to make your plan to get you out of debt. This is because many of us tend to simply set the task aside, hoping we can pay off the debts just like that.

Many also successfully pay off their debts with ease, but more lead lives which are dictated by debts and paying off of debts. It is with a clear plan that you can really begin eliminating your debts systematically.

With a good freedom from debt plan, you can visualize the time when you’re free of debts and also can take clear action as to how you can accomplish this goal. Personally, I know what it is like to deal with creditors harassing you day and night and there is a way to deal with creditors.

Sick and tired of dealing with your debt problems?

Pay the creditors 30-40% of you debt and stop the phone calls.

There are some things that you need to strive for in 2011, if you want to get approved for a mortgage with a good interest rate. Most lenders use a credit score designed by Fair Isaac Corporation (FICO) so that they can assess your credit risk. Using the FICO score as basis the ideal credit score for an approved mortgage loan is from 650 and above but if you are aiming for the best rates then you need a 760 or above.

Although your credit score may play a great part in whether your mortgage will be approved the final decision lies on your lender. Some lenders will still approved your mortgage even if you have a 500 credit score but they will ask you to produce additional documents such as bank statement and W2 to support your application. You need to pay a higher interest rate though. Not all lenders use FICO scores for their lending decisions. Some use Scorex and other FICO scales to fit their specific method of risk assessment. Keep on top of your risk factors by paying on time so that you will have more credit options.

Lenders still consider other factors such as:

• Employment and Salary. You will need a certain level of income. Lenders have different guidelines for the minimum salary that you may have to avail of the mortgage.
• Savings.
• Debt-to-income ratio. This ratio indicates how much money you pay toward your debts each month in relation to all of your income. Being debt free guarantees can boost your chances of being approved for the mortgage.

Mortgage under writers are not just concern about your income but also your expenses as well. If you have recurring monthly expenses like an educational loan then your chances of being approved is nil so better pay them first before applying for a mortgage.

1. Down payment. The amount that you need to make as down payment can be anywhere from 5% to 20%. This will be needed during the final approval. The lender will check your bank statement to make sure you can afford it.

Your mortgage budget is from 28% to 35% of your gross (pre-tax income) with this as your basis you will be able to know whether you can afford a mortgage.

If it is your first time to apply for a mortgage here are some terms that you need to familiarize yourself with:

Pre-qualification stage. After your finances are reviewed the pre-qualification application is done so that your lender will know how much you can afford to borrow. There is no guarantee that your loan will be approved during this stage.

Pre-approval stage. An in depth review of your financial history. You are required to file a mortgage application which takes place before you have selected a home. This is non-binding like the pre-qualification stage.

Approval stage. This is the final phase after you have chosen a home and made an offer. A home appraisal is needed during this phase.

You can apply for a pre-approval before you hire a real estate agent or even before you shop around for a house. The main reason for this is that you are showing your sellers that you are capable of buying their home.

If you are a home owner and are thinking of refinancing your mortgage loans to reduce your debt this can be a smart move but if the reason for the said refinancing is because you want to borrow for consumer purchases think again since this cause you a major setback. In every contract it is always wise to read the fine print since there may be things that are stipulated there that can add penalties or fees once you get out of your loan at an earlier period. It is always advisable to do your homework thoroughly to evaluate whether this will or will not work for you.

If you are planning to stay at your home for at least eight months or more then refinancing will work for you but if you are planning to sell your house before that then don’t bother applying for refinancing.  Do not fall into that mistake in thinking that you can choose the best mortgage deal based on its Annual Percentage Rate (APR) alone because there are still some factors to consider such as:

• Choice between long and short term loans.  Short term mortgages are known to offer lower interest rates but they do charge higher monthly payments than long term mortgages
• Fixed versus variable interest rates versus adjustable rate mortgage. Fixed rates are those that do not change their interest rates whereas variable rates can change after a predetermined time such as one year or five years. Adjustable rate mortgage (ARM) offers a low introductory rate this can be useful if you are planning to sell before the rate goes up. If on the other hand you are planning to stay in your home then fixed rates will work for you
• Discount fees (Points) are fees that you pay to a broker or lender to close the deal. The trick is in determining whether the savings that you got from a lower rate should justify the additional costs of paying points (1 point=1%).

As with your previous loan pay attention to the fees and closing costs which includes the cost for home appraisal. Limit the term by making it not longer than what is left in your current mortgage since you may end up paying a much longer mortgage. Have your tax returns, bank account and credit card statements, W2s, brokerage account statements, title, purchase agreement, proof of home owner’s insurance, taxes and other documents prepared before you apply for your home refinancing. You can also use the online refinancing calculator.

In making a choice on which lender to apply your home refinancing loan make sure to shop around for the best deals that are offered. Some online reviews can be helpful in guiding you how to decide on which lender you should go to. Do not let yourself be pressured to sign the contract, remember a making a hasty decision can bring disastrous results.  If you’re refinancing results to a lowered monthly payment make good use of what you save by investing on your child’s college education or your retirement plan.