Reply #1 and #2: Post provides specific, constructive, and supportive feedback.
Reply #1: There can be advantages to filing for bankruptcy. Bankruptcy allows individuals to feel relief from financial burdens. It also prevents creditors from making harassing phone calls. Although there may be benefits to bankruptcy, there are numerous disadvantages. It can be expensive to file, and assets could be taken. Bankruptcy information becomes a public record so that it could influence a person’s social stigma. The new laws and regulations relating to bankruptcy have made it difficult for some to file.
The first thing that I would recommend to my clients is to receive credit counseling. This is one of the requirements when you file for bankruptcy. Credit counseling can increase individuals’ knowledge about finance and help people learn how to manage their debt. “By participating in the counseling session, consumers may pay more attention to the management of their income and their use of debt, which in turn may lead to lower overall levels of consumer debt” (Roll, 2019). Credit counseling can be very beneficial to everyone.
The next thing that I would recommend is to restructure their debt. There are various ways to restructure debt. It could involve reducing the interest rate or extending the loan term. Debt restructuring would help reduce the number of monthly payments an individual has. One monthly payment may be more manageable for some individuals.
The final thing that I would suggest is debt consolidation. Debt consolidation involves debt refinancing. “Debt consolidation loans, considered the only true form of debt consolidation, are offered by a bank or through a balance transfer offered by a credit card company” (Royal, 2022). An individual would take out one loan to pay off the numerous other loans. There are benefits to debt consolidation. Debt typically stays unsecured, so individuals don’t have to use collateral. Interest rates tend to be lower as well. There are alternatives to bankruptcy and ways to resolve debt problems. The options vary from person to person and their financial situation.
Reply #2: There are many ways to effectively resolve debt problems and filing for chapter 7 or 14 bankruptcy should always be a last resort. The key to getting out of debt is to figure out how you got there and then reverse course. There are many different ways that people end up in debt, but so long as you still have a job with money coming in, there is a way to get back out.
The first thing that should happen when resolving debt problems is to list out all of your debts, the interest percentage, and prioritize which ones to pay down first (article). For instance, you may have three credit cards with $10,000 charged to all three. The interest rate could be 16%, 18%, and 20%. In this case it would make the most since to pay down the 20% credit card first while paying the minimum on the other two. The goal of prioritizing your debts is to pay the least amount of interest in order to have more money to pay the debt faster. Another option that may work for you is to consolidate your debt into one loan.
In order to pay down the debt faster you will either need to make more money or spend less. Making more money is easier said than done, but spending less is easily attainable. The next step to decreasing debt is to identify your expenses and to prioritize those expenses into a budget (article). If in serious debt, I would recommend going back an entire year on all bank accounts and credit cards to identify what exactly you have been spending your money on. There are obvious needs such as food and rent, however eating out every night of the week may be the thing that needs to get cut. Just because something is a large part of the budget does not necessarily mean it needs to go, but it is important to identify what you have been spending your money on to identify where money can be saved.
The next step that people may not even think about doing is having a conversation with your creditors (article). Creditors would much preferred to be paid directly by you than to have to deal with the bankruptcy process to get reimbursed. If you have a conversation with your creditor then they may be willing to charge you the exact same amount, but give you more time to come up with the money, or possibly come up with an easier payment plan. For military members with debt problems it is always a good thing to ask about the service members civil relief act (SCRA). In many cases I have seen service member reimbursed interest fees over a certain percentage due to high interest loans obtained before joining the military. Bottom line is that when in debt, it never hurts to ask your creditor about different options to make good on your payments.
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Reply #3 #4 #5 and #6: Response is substantive, insightful, provokes further thought. ******* responses should be researched and must include a citation using APA format.********
Reply #3: Mortgage-backed securities (MBCs) with subprime loans played a crucial role in the financial crisis of 2008. The securitization of home mortgages has fueled excessive risk-taking throughout the financial sector. In such a situation, what causes banks to reduce lending rates is the rapid increase in house prices and the demand for mortgage-backed securities. It would reduce the quality of mortgage-backed securities and subprime borrowers defaulting and the housing market facing collapse. Falling home prices reduce the value of a borrower’s mortgage because the home’s value is less than the value of their debt. It affects the insolvency of banks. Today mortgage-backed securities have become the intermediary between home buyers and investors. MBCs are marketed because people can pay their mortgage. Also means that the bank processes the loans and then sells them at a discount to be packaged as MBCs to investors as a mortgage bond. Bad debt risk is one of the risks associated with mortgage-backed securities that arises when a borrower defaults on a loan.
Reply #4: The Credit Crisis of 2008 was a result of banks being extremely greedy when they learned they could borrow for almost nothing in the wake of 9/11. Banks were borrowing at 1% percent which allowed them to make millions off borrowing the money, putting them into CDL’s and selling them to investors with the collateral of the houses sold or mortgage-backed securities. The mortgage-backed securities were great for a long time because the housing market was extremely high. It was so high that the banks learned they could start giving subprime loans which didn’t require a stream of income or many of the other requirements that are needed today (Jarvis, 2011). The banks didn’t care because they were gonna put the money from the loans and put it into CDL’s then sell them to investors anyway. The problem came when eventually after a while the people could not afford the payments and had to have them homes foreclosed. This was fine at first but eventually thousands and thousands of homes were foreclosed and people could not afford them so there were a ton of homes and no demand for them (Jarvis, 2011). This meant that the banks had worthless investments and couldn’t do anything with them. Tons of banks did this and it led to a panic where investors weren’t buying worthless investments from the bank and it led to tons of companies becoming bankrupt.
Mortgage-backed securities today have much less risk compared to what they had in 2008. That is because in wake of the bailout from the government the fed bought most of the market and controls their prices. The FED stopped selling MBS in order to reduce the risk and allow the price to decline (Varunok, 2018). This along with many regulations put in place to stop the greedy practices of banks allows for a much riskier investment in MBS comparative to 2008.
Reply #5: The inverse relationship between bond prices and interest rates tell us that when interest rates go up, bond prices go down and vice versa. So to find rather or not we should invest in bonds, we need to find our current interest rates and forecast how they will change in the future. Current interest rates for 10 year fixed rates are sitting around 3.65% right now (Bankrate, 2022). 10 year bond yields are currently sitting around 1.8% (Wendling, 2022). We can expect bond yields to go up around a percent this year (Wendling, 2022). Still the yield is relatively low compared to interest rate yields. Rather or not we should invest in bonds all comes with what we would forecast. It is always smarter to put money into bonds rather than having cash sitting around doing nothing. Investments at this particular time can be scary with the possibility of war and extremely high inflation numbers. If you have the money but don’t want to be risky than bonds are a good move right now. If you have a little money that you are willing to take risks with than investing in shorter term stocks is the better move right now. If you are wanting to invest in stocks long term than I would rate for the market to drop as it has risen a little higher over the past few days.
Reply #6: Bonds are a kind of debt issued by a company or government that wants to raise some cash. There is an inverse relationship between bond prices and interest rates. With changes in market interest rates, the opportunity cost of holding bonds also changes. Assuming the prevailing interest rate increases and is higher than the Bond interest rate, that means investors can get a better return on other securities available in the market than the yield offered by a Bond. If interest rates had risen, all else being equal, bond yields would have become more attractive. And conversely, if interest rates fall, all else being equal, bond prices will rise. Currently, the FED is preparing for the biggest interest rate hike in this period to stabilize the economic situation that is suffering from severe inflation. Also means bond prices are falling, treasury yields are expected to trend higher in the current environment. However, investing in bonds will be risky, as well as affected by many different factors such as when the rate of price growth in the economy reduces the returns associated with bonds. So for myself, I don’t want to invest in bonds.
