Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. Debt generally refers to money owed by one party, the debtorto a second party, the creditor.
It is generally subject to repayments of principal and interest. Debt can be secured with collateral or unsecured. Although there is variation from country to country and even in regions within country, consumer debt is primarily made up of home loanscredit card debt and car loans. Household debt is the consumer debt of the adults in the household plus the if applicable.
In many countries, especially the United States and the United Kingdom, student loans can be a significant portion of debt but are usually regulated differently than other debt. Sometimes the solution includes some of each of these tactics.
The bulk of the consumer debt, especially that with a high interest, is repaid by a new loan. Most debt consolidation loans are offered from lending institutions and secured as a second mortgage or home equity line of credit. The overall lower interest rate is an advantage of the debt consolidation loan offers consumers.
Lenders have fixed costs to process payments and repayment can spread out over larger period. However, such consolidation loans have costs: In some countries, these loans may provide certain tax advantages. Personal loans comprise another form of debt consolidation loan. Individuals can issue debtors a personal loan that satisfies the outstanding debt and creates a new one on their own terms. These loans, often unsecured, are based on the personal relationship rather than collateral.
In the United States, federal student loans are consolidated somewhat differently from in the UK, as federal student loans are guaranteed by the U. In a federal student loan consolidationexisting loans are purchased by the Department of Education.
Upon consolidation, a fixed interest rate is set based on the then-current interest rate. Reconsolidating does not change that rate. If the student combines loans of different types and rates into one new consolidation loan, a weighted average calculation will establish the appropriate rate based on the then-current interest rates of the different loans being consolidated together.
Federal student loan consolidation is often referred to as refinancing, which is incorrect because the loan rates are not changed, merely locked in. Unlike private sector debt consolidation, student
Consolidating student loans wiki consolidation does not incur any fees for the borrower; private companies make money on student loan Consolidating student loans wiki by reaping subsidies from the federal government.
In the UK student loan entitlements "Consolidating student loans wiki" guaranteed, and are recovered using a means-tested system from the student's future income. Student loans in the UK can not be included in bankruptcybut do not affect a person's credit rating because the repayments are deducted from salary at source by employers, similar to Income Tax and National Insurance contributions. Many students, however, struggle with commercial debt well after their courses have finished.
Those seriously delinquent on student loans face arrest at the border.
In Japan, an increasing number of student loans are in arrears. This has caused the Asian nation to take harsher steps when it comes to lending determinations. In an effort to prevent future defaults, Japan has begun associating loan approvals to academic performance.
From Wikipedia, the free encyclopedia. Defined benefit Defined contribution Social security Business plan Corporate action. Retrieved 21 December Retrieved 13 December Retrieved 16 May Encyclopedia of Retirement and Finance. Retrieved 10 May Corporate Debenture Government Municipal.