We often run into debt problems because of our spending habits. Most of us don’t bother to plan our expenses and thus easily lose track of it. Though it’s important to practice the habit of budgeting from young age, we hardly do it and let our spending spree to take the driving sit of our finances. Anyway, it’s never too late to start.

Now, how do you prepare a budget?

Make a note of all your expenses: Write down your expenses for a month in a piece of paper. List them according to their priorities by keeping the most important ones at the top of the list.

Determine your total income: Identify all your sources of income to get total income for a month. It’s important to know how much you can actually spend.

Assess your budget: Once you have all information regarding your expenses and income its time to check the viability of your budget, i.e. whether or nor it’s possible to stick to it. At the end, the column with expenses should have a lower value than the income column. If it’s not happening, identify the areas where you can curtail your expenses. You can then set aside the extra fund towards your debt elimination goal.

Benefits of making budget

• You’d be able to keep track of your expenses. Therefore, chances are less that you’d overspend.
• The budget can become an important tool of saving.
• It’ll save you from piling up credit card debts and payday loans.
• It’d help you in building a fund for emergency purposes.

Stick to your budget

It’s important that you take the budget seriously. It’d be of no use to prepare a budget if it is not followed. However, it is also important to review your budget time to time to make necessary adjustments to it. There are budgeting software like, YNAB (You Need A Budget), Quicken, SimpleD, AceMoneyLite and others available to help you in preparing a budget. You can even get any of these downloaded in your computer for better management of your budget.

Budgeting would prevent you from running into debt problems. If you know beforehand about the areas that you need to spend on, you can accommodate those accordingly. This way you’ll know the important bills that you need to pay before spending on less important items. It’ll make the sudden requirements for loans less frequent and would help you in learning to live within your paycheck. If you want to maintain the lifestyle that you’re maintaining now and really don’t want to cut down expenses, you may then need to find well paid job.

It often makes a hard choice for one to choose between secured and unsecured consolidation loans. We are aware of the secured consolidation loan where the home is considered as the collateral. Though it’s popular yet many would try and avoid putting their home as collateral to obtain further loans in the fear of losing it in the future. For these people, the idea of unsecured debt consolidation loans may seem appealing.

There are private lenders who would offer unsecured debt consolidation loans to borrowers. You may qualify for one under the following conditions.

• You may be overwhelmed with debt burden.

• You are continuously being harassed by the creditors and collection agencies.

• Or, may be you may be at the verge of filing bankruptcy.

Why is unsecured consolidation loan so popular?

• The biggest advantage of unsecured consolidation loan is that it doesn’t require collateral, i.e. you wouldn’t lose your home if you fail to comply with the loan terms.

• Getting an unsecured consolidation loan is easier since it involves less paper work. It also takes lesser time to process the loan as no collateral is involved.
• Another advantage with it is that you can include the unsecured loan under bankruptcy when you default and can still save your house since a collateral is not required here. But when you file a bankruptcy with a secured loan included in it, you may end up losing your home.

But the picture isn’t all that rosy

Yes, the unsecured debt consolidation loan has its share of negatives too.

• Since there is no requirement of collateral, the rate of interest on an unsecured loan is higher than secured debt consolidation loans.
• If you have excellent credit score, you might not face any difficulties in getting an unsecured consolidation loan. But for people with average and poor score, it might not really be an option.
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The ‘real estate bubble burst’ has been identified as the major contributory factor towards the current economic meltdown. The real estate industry tumbled as the home values dropped below the purchase prices, forcing many homeowners to foreclose. In order to stabilize the situation the Obama Government has introduced the Home Affordable Modification Program or HAMP. This program is expected to benefit around 5 million American homeowners.

The objective of the program

The principal objective of the program is to offer the much needed relief to homeowners. It’s also aimed at stabilizing the real estate market. For this purpose, the program is being offered free of cost and the borrowers are discouraged to use any third party negotiator to join the program. A fund worth $75 million has been set aside as an incentive for the participating lenders. The three main targets that the program aims to achieve are,

• Bringing the interest rate down to as much as 2%.
• Bringing the debt-to-income ratio of the participating borrowers below 31% of their earning. This has been targeted to achieve even by forbearing the principal amount.
• The amortization period can be extended to 40 years to accomplish the DTI target.

Mortgages that would qualify for HAMP

• The loan should have been taken before January 1st 2009.
• The mortgage shouldn’t have been considered before for modification under HAMP.
• Only primary residence (owner occupied) would qualify for this program. Size of the property may vary from one unit to four units.
• The value of the property mustn’t exceed the amount $729, 750 for a single unit home. However, there is a relaxation in limit on properties with more than one unit.

Qualification for the owner

There are some criteria set for the owner too in order to qualify for the Home Affordable Modification Program.

• The owner needs to be current on her mortgage payment while applying for HAMP.
• She mustn’t also file bankruptcy if she seeks to join the loan modification program.
• The debt-to-income ratio of the household must be more than 31% of its current monthly income.

Home Affordable Modification Program has been strongly opposed by investors, who have heavily invested into mortgage securities. Further, the lenders are asked to enroll in HAMP within 31st December, 2009, which will then require them to offer modification to all eligible borrowers.