level-1"> (Top) 1 Overview Toggle Overview subsection 1.1 Process 2 Student loan consolidation Toggle Student loan consolidation subsection 2.1 United States 2.2 United Kingdom 2.3 Australia 2.4 Japan 3 See also 4 References 5 External links Toggle the table of contents Debt consolidation 16 languages العربية Català Čeština Deutsch Français Magyar Հայերեն Italiano 日本語 Nederlands Polski Русский Simple English Slovenčina Oʻzbekcha / ўзбекча 粵語 Edit links Article Talk English Read Edit View history Tools Tools move to sidebar hide Actions Read Edit View history General What links here Related changes Upload file Permanent link Page information Cite this page Get shortened URL Print/export Download as PDF Printable version In other projects Wikidata item Appearance move to sidebar hide From Wikipedia, the free encyclopedia Form of debt refinancing Personal finance Credit · Debt Mortgage Car finance Charge card Credit card Unsecured personal loan Rent-to-own Student loan Pawn Title loan Payday loan Refund anticipation loan Refinancing Debt consolidation Debt rescheduling Bankruptcy Employment contract Salary Wage Salary packaging Employee stock ownership Employee benefits Retirement Filial responsibility laws Pension By country Defined benefit Defined contribution Pay-as-you-go Social pension Personal budget and investment Active management Alternative investment Asset allocation economics growth Bond (finance) Cash Diversification (finance) Equity (finance) ESG Estate planning Financial adviser asset independence literacy plan planner Fundamental analysis Government bond Growth investing Growth stock Impact investing Investment advisory Investment performance Investment style Investor profile Market risk Net worth Passive management Portfolio optimization Saving Savings account Stock certificate Target date fund Wealth List of countries by wealth per adult See also Asset pricing Bank Citizen's dividend Cooperative Credit union Economic bubble Financial deepening Financial inclusion Financial risk Financial technology Guaranteed minimum income Market impact Risk–return spectrum Social dividend Structured product Sustainability Systematic risk Universal basic income Volatility (finance) Watered stock v t e Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others.[1] 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.[2] 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.[3] Debt consolidation is sometimes offered by loan sharks,[4] charging clients exorbitant interest rates.[5] Further regulation has been discussed as a result.[6][7][8] Overview [edit] Further information: Consumer 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.[9] 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 loans, credit card debt and car loans. Household 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.[10] The overall debt can reach the point where a debtor is in danger of bankruptcy, insolvency, or other fiscal emergency.[11] 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.[12] Sometimes the solution includes some of each of these tactics.[13] Process [edit] 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.[13] 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.[14] 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 the United States, also have such professional services for the benefit of consumers struggling with household debt. [citation needed] Student loan consolidation [edit] In the United States, student loans which are part of the Federal Direct Student Loan Program are consolidated somewhat differently from in the UK, as federal student loans are guaranteed by the U.S. government. United States [edit] In a federal student loan consolidation, a weighted average interest rate is assigned to the consolidation loan, rounded up to the nearest eighth. Federal student loan consolidation is sometimes incorrectly referred to as refinancing. Unlike some private sector debt consolidation, student loan consolidation does not incur any fees for the borrower.[15] United Kingdom [edit] In the UK student loan entitlements are 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 bankruptcy, but 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.[16] Australia [edit] Australia's student loan system once allowed 35 years to pay back loans, but currently allows 15. Those seriously delinquent on student loans face arrest at the border.[10] Japan [edit] In Japan, an increasing number of student loans are in arrears. In response, the nation is taking harsher steps when it comes to lending determinations. In an effort to prevent future defaults, Japan has begun associating loan approvals to academic performance.[10] See also [edit] List of accounting topics Debt management plan References [edit] ^ Fontinelle, Amy (November 26, 2014). "Alternatives To Balance Transfers". Investopia. Retrieved 21 December 2014. ^ Global risk insights (December 20, 2014). "China's Interest Rate Cut Not as Reformist As It Seems". Seeking Alpha. Retrieved 21 December 2014. ^ Joan Ryan (14 January 2011). Personal Financial Literacy. Cengage Learning. pp. 292–. ISBN 978-0-8400-5829-4. Retrieved 13 December 2011. ^ "Debt consolidation". www.nationaldebtline.org. Retrieved 2024-08-27. ^ "Loan shark debt". www.stepchange.org. Retrieved 2024-08-27. ^ "Long-Term Debt Requirements for Large Bank Holding Companies, Certain Intermediate Holding Companies of Foreign Banking Organizations, and Large Insured Depository Institutions". www.federalregister.gov. 19 September 2023. Retrieved 2024-08-27. ^ "Code of Federal Regulations". www.fiscal.treasury.gov. Retrieved 2024-08-27. ^ "Agencies request comment on proposed rule to require large banks to maintain long-term debt to improve financial stability and resolution". www.federalreserve.gov. Retrieved 2024-08-27. ^ "Debt Definition". Investopedia. Retrieved 16 May 2012. ^ a b c Rowan, Rachel (June 7, 2013). "Student Loans Around the Globe". Tuition.io - Student Loan. Archived from the original on 21 December 2016. Retrieved 21 December 2014. ^ Lois A. Vitt; E. Craig MacBean; Jürg K. Siegenthaler; Institute for Socio-Financial Studies (30 November 2003). Encyclopedia of Retirement and Finance. Greenwood Publishing Group. pp. 37–. ISBN 978-0-313-32834-3. Retrieved 13 December 2011. ^ "How Does Debt Consolidation Work: Do's and Don'ts". SDL365 Financial Choice. Retrieved 18 June 2019. ^ a b Staff writer. "Coping with Debt". FEDERAL TRADE COMMISSION. US Government. Retrieved 21 December 2014. ^ Detweiller, Gerri (December 14, 2014). "Congress Extends Tax Break for Troubled Homeowners, But Headaches Aren't Over". Fox Business News. Retrieved 21 December 2014. ^ "Should I consolidate or refinance my student loans?". Consumer Financial Protection Bureau. Retrieved 25 November 2023. ^ "Debt Facts and Figures - Compiled August 2011" (PDF). creditaction.org.uk. August 2011. Archived from the original (PDF) on 2 August 2011. Retrieved 10 May 2012. External links [edit] Federal Direct Consolidation Loans Information Center of the U.S. Government William D. Ford Federal Direct Loan Program v t e Debt Instruments Bonds Corporate Debenture Government Municipal Loans Business loan Consumer lending Loan shark Interest-only Mortgage Negative amortization Payday loan Predatory lending Usury Vendor finance Management Bankruptcy Consolidation Management plan Relief (history) Restructuring Debt snowball method Debtor-in-possession (DIP) financing Negative equity Financial literacy Loan guarantee Collection · Evasion Bad debt Charge-off Compliance Debt bondage Debt crisis List Debt overhang Debtors' prison Default Sovereign default Distraint Garnishment Insolvency Interest Interest expense Interest rate Promissory note Phantom debt Strategic default Tax refund interception Markets Consumer Corporate List Corporate debt bubble Diplomacy Government debt List Government budget balance Unfunded mandate Medical Municipal Venture Buyer Deposit account Fixed income Money market Securitization Economics Consumer leverage ratio Debt deflation Debt-to-GDP ratio Debt-to-income ratio List of countries by household debt Debt monetization Global debt External List Internal Odious debt Leverage Authority control databases GND Retrieved from "https://en.wikipedia.org/w/index.php?title=Debt_consolidation&oldid=1342363409"