It's that time of year again when we all spend a little bit too much in the knowledge that we can chip into our equity again after Christmas and get another little debt consolidation loan. Except this year it's different. This year sees a change to things as we've known them for the last decade or so. In the U.S. the sub-prime lending fiasco has caused quakes around the world in various financial markets as greedy brokers try to cut their losses by selling on other people's debts in massive bundles. And in the U.K. the build-up of personal debt has only made this worse, as we deal with the sub-prime virus and also the prospect - real, this time - of property values falling.
Our own household budgets are microcosms of national budgets, and we must not be as greedy as those men in red braces or as misguided as the politicians who have allowed this to happen thus far. Clear sight is necessary now, as we can no longer look on the Christmas debt consolidation loan as the saviour of our woes. We have never known personal debt like this, and the statistics tell us that it just can't go on like this.
There are alternatives to another Christmas debt consolidation loan that people will be turning to now, and they are healthy alternatives. These are properly constituted debt consolidation programs, and they take two broad forms. One is a simple debt management program and the other is called an Individual Voluntary Arrangement (IVA) or Protected Trust Deed in Scotland.
The best thing about an IVA is that the main action occurs right at the very start of the arrangement. An insolvency practitioner (or IP) will have a look at your income and expenditure and work out just how much you can afford to pay your creditors each month after your essential bills have been paid. Then your IP will negotiate with all your creditors collectively; this is the clever bit.
Your debt will be cut massively, typically by 60 percent but by as much as 70 percent, according to the terms of IVA legislation. As long as your creditors collectively agree to this - and there are certain stipulations to be met, such as being in employment and having at least three different creditors - you will have the bulk of your debt simply wiped out.
You will then have five years (three in Scotland) to pay off your remaining debt every month at a rate that you can afford. During this time your creditors are not allowed to contact you by any means; if they do you can sue them. Stopping those phone calls and letters, and the threat of a knock at the door by the bailiff, will suddenly be gone forever. This is surely a more sensible alternative to a debt consolidation loan, pushed by the target-driven salesmen who don't actually care what happens to you after they've received their commission. By comparison, a loan is as short-term as a sticking plaster compared to an IVA.
There are occasions when a debt consolidation loan is genuinely useful. This is if the loan repayments are smaller than the total of the repayments of the loans and credit card debts, etc., that it is replacing (which is usually the case) and if you can genuinely afford the repayments over the long term. Remember that this will usually be a secured loan and that you may lose your home if you do not keep up the repayments.
But for most people on a fixed income the IVA is the proper solution. Now, what about a Christmas IVA instead!
The options for students who consider to consolidate debt loans abound. Consolidate debt loans thru the U.S. Department of Education program would be the best option. Direct Consolidation Loans allow borrowers to combine one or more of their Federal education loans into a new loan that offers several advantages.
One Lender and One Monthly Payment: With only one lender and one monthly bill, it is easier than ever for borrowers to manage their debt. Borrowers have only one lender, the U.S. Department of Education, for all loans included in a Direct Consolidation Loan.
Flexible Repayment Options: Borrowers can choose from four different plans to repay your direct consolidation loans, including an Income Contingent Repayment Plan. These plans are designed to be flexible to meet the different and changing needs of borrowers. With a Direct Consolidation Loan, borrowers can switch repayment plans at anytime.
Standard Repayment Plan: You will pay a fixed amount each month until your loan(s) are paid in full. Your monthly payments will be at least $50 for up to ten to thirty years, based on your total education indebtedness.
Graduated Repayment Plan: Your minimum payment amount will be at least equal to the amount of interest accrued monthly. Your payments start out low, and then increase every two years for up to ten to thirty years, based on your total indebtedness.
Extended Repayment Plan: To be eligible, your Direct Loan balance must be greater than $30,000 and you will have up to twenty five year to repay your loan(s). You have two payment options:
Fixed Monthly Payment Option -You will pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50.
Graduated Monthly Payment Option - Your minimum payment amount will be at least $50 or the amount of interest accrued monthly, whichever is greater. Your payments start out low, and then increase every two years.
Income Contingent Repayment Plan (ICR): Monthly payments that are based on a borrowers annual income, Direct Loan balance and family size, and are spread over a term of up to 25 years.
No Minimum or Maximum Loan Amounts or Fees: There is no minimum amount required to qualify for a Direct Consolidation Loan! In addition, consolidation is free.
Varied Deferment Options: Borrowers with Direct Consolidation Loans may qualify for renewed deferment benefits. If borrowers have exhausted the deferment options on their current Federal education loans, a Direct Consolidation Loan may renew many of those deferment options.
In addition, borrowers may be eligible for additional deferment options if they have an outstanding balance on a FFEL Program loan made before July 1, 1993, when they obtain their first Direct Loan.
Reduced Monthly Payments: A Direct Consolidation Loan may ease the strain on a borrower's budget by lowering the borrower's overall monthly payment. The minimum monthly payment on a Direct Consolidation Loan may be lower than the combined payments charged on a borrower's Federal education loans.
Retention of Subsidy Benefits: There are two (2) possible portions to a Direct Consolidation Loan: Subsidized and the unsubsidized. Borrowers retain their subsidy benefits on loans that are consolidated into the subsidized portion of a Direct Consolidation Loan.
Having the best information before you consolidate debt loans for students could do more good to you than not having known what your benefits are. Now you can say you are well informed and thus make an informed decision when you do consolidate debt loans.
Both Gordon Goodfellow & Shellaine Enfesta are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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