An easy way to define debt consolidation is, availing another new loan to pay off existing liabilities and debts. Under normal circumstances, the unsecured debts are paid off through such loans. An individual can have multiple numbers of debts to pay.
Debt consolidation tends to combine all small debts into one larger piece of debt. This favors the debtor with an easy payoff facility. A favorable payoff can include both the conditions of:
- Having a lower interest rate and
- A lower monthly payment
- Or can be both
Bringing everything under one roof or debt consolidation can be in several ways. For instance,
- Consolidating all the existing payments of credit cards under one new card. This is helpful especially if the new card charges very little interest or none at all. An existing credit card’s transfer of balance can also be put into good use especially if there is a special promotional offer.
- The second way is that of home equity loans. The interest for this loan is deductible by taxpayers.
So, to put it in perspective, debt consolidation loans are specific instruments that are offered by the creditors as very much a solution and plan. The plan that helps the debtor to pay off his or her outstanding credits.
Now, why would a creditor seek money for a borrower by offering debt consolidation loan? That’s because this very much enhances the chances of collection. Consolidation loans are generally on offer from various financial institutes like banks and specialized debt consolidation companies and even credit unions.
Now to focus on the types of debt consolidation loans in the market. There are 2 types:
- The first is a secured loan. These loans have the backing of an asset belonging to the borrower. The asset can be that of a car to a house. This very asset acts as collateral for the loan.
- Second type of debt consolidation loan is an unsecured loan. This loan does not have the backing of an asset and is difficult to obtain. The loans usually have higher interest rates along with low qualifying amounts.
The marked similarity between the two above stated loan types are; both have interest rates lower than what is charged on credit cards. And to add, the interest rates do not fluctuate over the repayment time. The rates stay uniform.
So how long does it take to pay off a debt consolidation loan? Experts of credit counseling service companies put it anywhere between three to five years.
It must be kept in mind as a reader of this peace, debt consolidation loans do not erase the original debt. They happen to transfer all the existing loans of a borrower to a different lender or type of loan. If an individual is seeking total relief from debt, it is advisable to go with debt settlement. A debt consolidation loan does not reduce the number of obligations for a borrower to pay back.
Loans of this type are most beneficial to people with multiple debts and are regularly getting calls or letters from creditors.
Debt management plans are designed to support people in regaining control of their finances. It is a package of debt consolidation plans. The unsecured debts—that are debts which cannot be backed by collateral are reduced through it. And, this includes credit cards and medical bills. In simple words, it is among those several ways which can take control of your debt to decrease the number of payments you make each month. It can save your money in interest fees.
Introduction to Debt Plans
Firstly, let us clarify that a debt management plan is not a loan. It is a program designed just to help you pay your debt without stressing much. The debt management companies aim to provide the ways such that it helps in the reduction of the monthly payment, interest rates and any penalty associated with an entity. They do so working with creditors on your behalf. The creditors agree on a convenient payment schedule. This schedule could have a range from 3-5 years to pay off the debt.
How is debt managed in this plan?
Together with a credit counselling organization, monthly deposits are made by those who enrol. This deposit is used to pay debts in accordance to a predetermined payment schedule that is developed by the counselor and creditors.
A monthly amount is fixed to be paid by individual each month. This payment is tailored to what the customers can afford. In a Debt Management Plan, the monthly payment is determined by the analysis of household income versus expenditure. It could also include medical expenses and similar bills.
What are the advantages of a Debt Management Plan?
- Get credit card consolidation with a minimal effort
- Stay more organized and disciplined with your bills and payments
- Design a genuine monthly budget with a financial goal
- Make regular payments to improve your credit card report and credit score over time
What are the things to know about a Debt Management Plan?
- It is a 3-5 year program
- Creditors reduce interest rate and eliminate penalties and support in repaying it no matter what the reason is. The program is all about discipline and commitment.
- While you are in the program, you may be asked to stop your credit accounts. However, there are some agencies which may allow to use one.
Not to mention, there are several interesting debt-relief options you can choose from while being in the program. So, consult with the expert and get solutions to your circumstances such as debt consolidation loan, a debt settlement program or even a bankruptcy in specific cases. In case you have a query, you can solve it easily by dropping a message below.
Debt help on the behalf of the government is provided by the legal experts or counsels. People take loans for various reasons but over the period, they may not be able to repay them to the creditors. To get the loans or the money back, the creditors take various paths. However, not all of them may appear easy for the debtors. In this condition, the debtors can talk to the legal counsels. They can help the debtors solve the issues and save them from the grasp of the creditors.
The legal counsels certainly do not intend to solve the creditors’ problem all on themselves. They can only help the debtors solve them. There are usually four-fold ways to solve the problems. They are as follows –
- Help the debtors keep their work, money and properties but to stay debt free for four years
- The properties will not be sold or should not be sold in between the period
- The debtors will start repaying the loans as much as they can
- The rest of the loans should be written off once the maximum amount is paid
In between the period, the debtors will keep on paying the debts once at a time or according to their choice. The creditors should keep on receiving the amounts over the period before they write off the unpaid loan. It will be continued for four years under the UK government debt help program.
The complete process should be noticed by the legal counsel, because it is his or her duty to solve the problem or the burden of loan between the debtors and the creditors. The legal counsels can take steps in between the period according to the law and prevent the creditors from pressurizing the debtors or claiming and trying to selling off their (debtors’) properties to get back the money. The creditors are bound to receive as much payment as the debtors are able to repay in between four years of span and they cannot ask for more or put pressure on the debtors for more.
The question of writing off the debt under the UK government debt help program may appear somehow questionable but it is needed to be done after talking to both the parties. The debtors need to keep account of how much they have paid so far and the legal counsel will work as an arbitrator in this case, as the person will have to deal with both the parties in regard to settle the debts. The legal experts will make the creditors understand the basic factors of the programs before the creditor writes off the claims completely.
This is a matter that should be carefully considered by the experts or the legal counsels and both the parties – the creditors and the debtors. Both the parties need to understand the single point of dealing with the debt related problem dealt by the government and settle the deal between them properly. Staying in constant touch with the legal counsels in between the period (four years) will be beneficial for both the parties in this regard.