Consolidated debt is a form of debt refinancing that requires taking one loan to pay for many others. This usually refers to the personal financial process of an individual who handles high consumer debt but sometimes refers to a country's fiscal approach to corporate debt or Government debt. This process can secure lower overall interest rates on the entire debt burden and make it easy to serve just one loan.
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Ikhtisar
Debt generally refers to money owed by one party, the debtor, to a second party, the creditor. This is generally subject to principal and interest payments. Interest is the fee charged by the creditor to the debtor, generally calculated as a percentage of the principal amount per annum known as the interest rate and is generally paid periodically at intervals, such as monthly. Debts can be secured by collateral or without collateral.
Although there are variations from country to country and even in domestic areas, consumer debt consists primarily of home loans, credit card debt, and car loans. Household debt is the debt of an adult consumer in a household plus a mortgage, if applicable. In many countries, especially the United States and Britain, student loans can be a significant portion of debt but are usually set differently from other debts. The overall debt can reach the point where the debtor is in danger of bankruptcy, bankruptcy, or other fiscal emergency. Options available for burdened debtors include credit counseling and personal bankruptcy.
Other consumer choices include:
- debt settlement, in which individual debts are negotiated to a lower or principal interest rate with creditors to reduce the overall burden;
- debt relief, in which part or all of the individual's debt is forgiven; and
- debt consolidation, in which individuals can exempt current debt by taking out a new loan.
Sometimes the solution includes some of each of these tactics.
Process
Most of the consumer debt, especially those with high interest, is repaid by a new loan. Most of the debt consolidation loans are offered from lending institutions and are secured as a second mortgage or home equity line of credit. This requires the individual to build the house as collateral and the loan becomes less than the available equity.
Lower overall interest rates are the advantages of consumer debt consolidation loans offering consumers. Lenders have a fixed fee for processing payments and payments can spread over a larger period. However, the consolidated loan has the following costs: cost, interest, and "points" in which one point equals one percent of the amount borrowed. In some countries, these loans may provide certain tax advantages. Because they are guaranteed, the lender may try to seize the property if the borrower goes into default.
Personal loans consist of other forms of debt consolidation loans. Individuals can issue debtors personal loans that meet outstanding debts and create new ones on their own terms. These loans, often insecure, are based on personal relationships rather than guarantees.
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Student loan consolidation
In the United States, federal student loans are somewhat different from those in the UK, because federal student loans are guaranteed by the US government.
United States
In consolidating federal student loans, existing loans are purchased by the Department of Education. After consolidation, the interest rate is fixed based on the current interest rate. Reconsolidation does not change that number. If students combine loans of different kinds and tariffs into a new consolidated loan, the weighted average calculation will establish the appropriate rate based on current interest rates of different loans consolidated together.
Federal student loan consolidation is often referred to as refinancing, which is wrong because the loan rate has not changed, just locked in. Unlike private sector debt consolidation, student loan consolidation is not charged to the borrower; private companies make money on the consolidation of student loans by reaping subsidies from the federal government.
United Kingdom
In the UK, student loan rights are guaranteed, and recovered using a proven system of future earnings of students. Student loans in the UK can not be entered into bankruptcy, but do not affect a person's credit rating because the payments are deducted from salary at the source by the employer, similar to Income Tax and National Insurance contributions. Many students, however, struggle with commercial debt once their courses are completed.
Australia
The Australian student loan system once had 35 years to repay the loan, but is currently 15. Those who are seriously delinquent student loan loans face arrests at the border.
Japanese
In Japan, the increase in the number of student loans becomes arrears. This has led the Asian nation to take more severe measures in terms of determining lending. In an effort to prevent default in the future, Japan has begun to link credit approval with academic performance.
See also
- List of financial topics
References
External links
- Federal Government Federal Consolidated Financial Information Center
- Federal D. Ford Direct Credit Program
- The UK Financial Services Authority is impartial about extending your loan
- Debt Settlement Advice from the Consumer Reports magazine
Source of the article : Wikipedia
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