Tuesday, February 27, 2024
HomeBusinessDebt consolidation

Debt consolidation

Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. This commonly refers to a personal finance process of individuals addressing high consumer debt, but occasionally it can also refer to a country’s fiscal approach to consolidate corporate debt or government debt. The process can secure a lower overall interest rate to the entire debt load and provide the convenience of servicing only one loan or debt.

Debt generally refers to money owed by one party, the debtor, to a second party, the creditor. It is generally subject to repayments of principal and interest.[4] Interest is the fee charged by the creditor to the debtor, generally calculated as a percentage of the principal sum per year known as an interest rate and generally paid periodically at intervals, such as monthly. 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 loansHousehold debt is the consumer debt of the adults in the household plus the mortgage, 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. The overall debt can reach the point where a debtor is in danger of bankruptcyinsolvency, or other fiscal emergency. Options available to overburdened debtors include credit counseling and personal bankruptcy.

Other consumer options include:

  • debt settlement, where an individual’s debt is negotiated to a lesser interest rate or principal with the creditors to lessen the overall burden;
  • debt relief, where part or whole of an individual debt is forgiven; and
  • debt consolidation, where the individual is able to acquit the current debts by taking out a new loan.

Sometimes the solution includes some of each of these tactics.

Process

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.[8] These require the individual to put up a home as collateral and the loan to be less than the equity available.

The overall lower interest rate is an advantage that debt consolidation loan offers to consumers. Lenders have fixed costs to process payments and repayment can spread out over a larger period. However, such consolidation loans have costs: fees, interest, and “points” where one point equals to one percent of the amount borrowed. In some countries, these loans may provide certain tax advantages. Because they are secured, a lender can attempt to seize property if the borrower goes into default.

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 United States, there are certain companies and private law firms, addressed as debt relief companies and/or debt consolidation companies, that provide professional debt consolidation services.

A Consumer can approach them for debt help, and make only one monthly payment to them. This payment will then be disbursed, by these companies, among the various creditors, the consumer is indebted to. Many other countries, alongside United States, also have such professional services for the benefit of consumers, struggling with household debt.

Follow us on Twitter. Send us a secure tip

- A word from our sponsors -

Most Popular

Previous article
Next article

More from Author

KUPPET Questions Government Directive For Parents To Pay Schools Fees E-Citizen Platform

KUPPET opposes the Government directive for parents to use eCitizen platform to pay...

List of The best AC Repair Companies in Nairobi, Kenya

List of The best AC Repair Companies in Nairobi, Kenya. Air...

LIST OF PROGRAMMES OFFERED AT KAIMOSI FRIENDS UNIVERSITY

LIST OF PROGRAMMES OFFERED AT KAIMOSI FRIENDS UNIVERSITY. Kaimosi Friends University...

- A word from our sponsors -

Bridging Cultures, Building Futures: The Kiige and Emmanuel Initiative for Immigrant Empowerment in Canada

In the heart of Canada's multicultural landscape, Duncan Kiige and Emmanuel, both celebrated public speakers with immigrant backgrounds, have become symbols of hope and transformation for new immigrants. Their recent conference on career and personal development marked a significant milestone in their mission to empower newcomers with...

UGANDAN FIRST LADY AMAZED BY HAMZ NAKIVUBO STADIUM DEVELOPMENT WORKS BY HAMIS KIGGUNDU.

The NRM government is very proud to see the example of our young people begin to build Uganda by putting up projects such as this one. We congratulate Ham Kiggundu for this excellent jobKAMPALA UGANDA| As sports lovers countdown to 2027 when the Nakivubo-based Hamz Stadium will...

Raila’s search for a post with the AU Commission could be a suitable trapdoor or departure.

In Kenyan politics, Raila Odinga has long been a mystery. His international performance? Even when the African Union designated him, he remained debatable.But he said on Thursday that he would run for the position of Chairperson of the African Union Commission. One diplomat tampered with his first...

Court Finds Jowie Irungu Guilty of Monica Kimani’s Murder

In a landmark ruling, Justice Grace Nzioka declared Jowie Irungu guilty of the murder of Monica Kimani. According to Justice Nzioka, the evidence presented convincingly establishes Jowie's culpability in the crime beyond a reasonable doubt.Highlighting the sequence of events, Justice Nzioka outlined how Jowie, armed with a...

KUPPET Questions Government Directive For Parents To Pay Schools Fees E-Citizen Platform

KUPPET opposes the Government directive for parents to use eCitizen platform to pay school fees calls for clear public participation, legislation and policy framework.KUPPET national officials have opposed the move by Government to force parents to use eCitizen platform to pay school fees saying it will be difficult for...

List of best Audiology Services in Nairobi, Kenya

List of best Audiology Services in Nairobi, Kenya. The word audiology is made up of two roots: Audio and Logy. ‘Audio’ refers to ‘hear’ and ‘logy’ to ‘the study of’. In essence, audiology is the study of hearing - as the inner ear is also required...