Debt Consolidation Loan – An Overview

Debts are greater threats to any individual and if not repaid promptly, it may take away the light from ones life. Wise men rightly said, “A sick man sleeps, but not a debtor”. Creditors need to get their payment back and they may take any stringent actions against the defaulters and those who are not prompt in the repayment. The ongoing credit crisis and the downturn economy have left millions of souls with no jobs and this added fuel to the fire. Many have taken car loan, housing loan, business loan and other personal loans. There could be many difficulties leading to such loans but most of the borrowers are helpless with the mounting financial crisis. Certainly everybody wants to be debt free. When having more than one loan and not able to repay, debt consolidation loan seems to be a favorite one to restore normalcy in life.

This term refers to the act of getting one loan to repay all the other loans and stay with the single loan. This should be planned accordingly so that the new monthly payment will be accommodated within the monthly budget. This will surely take away the stress from the individual and will enable them to pocket cash safely. Else, the regular defaults will lead to late fees in the form of interest. Debt consolidation loan will make the individuals hassle free and get them out of the troubled waters. Here are advantages and disadvantages of these kinds of loans.

Advantages:

. Frequent numbers of defaults might lead to bankruptcy. This will drastically affect the credit report of the individuals. He will not be eligible for major funding in the near future. Consolidation loans can help in to stay away from bankruptcy and obtain fresh loans to repay all the existing loans.

. Usually debt consolidation loans come as secured loans. Hence, they can be obtained at lower interest rates. It is highly recommended to get such loans and repay all unsecured loans.

. It is convenient to have a single loan with a single lender rather than multiple loans.

. The amount of monthly installments will fit in the budget and the monthly bills can be paid promptly.

. The individuals can obtain tax benefits for the interest amount paid for the debt consolidation loans.

Disadvantages:

. The tenure for a consolidated loan is usually higher than the unsecured loans. Hence, the borrowers end up paying higher amount of interest.

. These are generally secured loan. If the borrowers fail to repay the amount, the property might be seized for the loan amount.

. This will have a short term impact in the credit history.

Different Types of Loan:

There are basically 2 types of loans available. They are secured and unsecured loan. Secured loans will carry lesser interest rates as they require collateral security. By this way, any property has to be mortgaged to secure the loan. In case if the house is mortgaged, borrowers can use the home equity loan to consolidate the debt. The term home equity refers to the value of the home subtracted from the unpaid mortgage balance. However, a personal debt consolidation loan can also be obtained. The borrowers must be aware of the high rate of interests in the unsecured loans which may defeat the purpose of consolidating the loan.

An unsecured loan is obtained at a higher interest rate. However, the borrowers do not take any risk by pledging their property. Any individuals who do not have any property can obtain this kind of loan. The reduced monthly payments could improve the cash flow for the borrowers helping them to meet the monthly expenditure. The borrowers do not have to feel the pinch because of mounting payments. This loan amount will extend for a longer tenure than the normal loans.

Debt consolidation loans help them to improve the credit score gradually. To save money in these kinds of loan, borrowers are expected to repay the loan amount as soon as possible. By this way, they can improve the credit score and also save some cash without paying larger interest amount. An important key to be successful is to follow the discipline. This is a solution to come out of all the debt problems and not a cure in itself. The borrowers must avoid over spending and should carefully maintain the credit score. Debt consolidation can greatly change the life of individuals with proper cash flow and solutions for financial hiccups.

How to Fix Defaulted Student Loans and Wage Garnishments

In this tough economy, an increasing number of college graduates (and college drop-outs) are falling behind on their student loans. According to the Department of Education, federal student loan defaults were up to 6.9% in 2009, well above their 2008 of 5.2%. For those carrying private loans, defaults hit 3.37% in 2008 versus 1.47% in 2006, according to Sallie Mae, one of America’s largest providers of private loans.

As you probably already know, defaulting on a student loan is a very serious matter. A federal college loan falls into default status if you are supposed to make monthly payments, but have not done so for 270 days. For those whose student loan payments are less frequent, a default occurs once you haven’t made payments for 330 days. In either case, the government has the right to take your federal tax refund check or garnish up to 15% of your disposable pay in order to collect on a defaulted federal student loan. Defaulted student loans also negatively impact your credit.

Appealing a Wage Garnishment

The good news is that you can appeal a wage garnishment and request a hearing on the matter in order to demonstrate why it is that you can’t afford that the payments and wage garnishment your lender or guaranty agency is seeking. The U.S. Department of Education Debt Collection Services Office (DCS) holds the hearing after you fill out a “Request for Hearing” form regarding your wage garnishment, and send it to the Department of Education.

Your hearing can be done in-person, over the telephone, or in writing; the choice is up to you.

IMPORTANT NOTE: When you submit your Request for Hearing, make sure you also send another EXTREMELY IMPORTANT document. It is the “Financial Disclosure Statement,” a 3-page document in which you must document your income and itemize all your expenses.

The “Financial Disclosure Statement” form will be critical in the hearing/appeal process, and will be closely evaluated, so take the time to carefully list all your bills, and provide copies of those bills as requested.

On page 3 of the Financial Disclosure Statement, you will notice a line that says: “Based on this Statement, I think I can afford to pay $____ per month.” This is where you have an opportunity to essentially offer a counter-proposal to the Department of Education about your student loans. Regardless of what you’ve been asked to pay in the past, here is where you should realistically evaluate your budget and come up with a number that you can undoubtedly pay (without a huge financial strain) month after month.

The Department of Education will make a decision about your case within 60 days after your hearing. But in the meantime, any wage garnishment that has already started will continue to be in force.

Four Options to Cure a Defaulted Student Loan

Now, in order to get your student loan(s) out of default, you have four options:

• Consolidate the loan(s)
• Enter a loan rehabilitation program;
• Pay the loan(s) off completely
• Get the loan(s) totally discharged or cancelled

The last two are probably not realistic options. I know you don’t have the money to pay off the loan(s). That’s why you’re in this predicament; and loan cancellations are rare (though they can be obtained). You’ll likely have to “rehabilitate” your loan(s) or consolidate.

Should You “Rehabilitate” Your Loans or Consolidate?

Before you can consolidate, you have to bring your loan(s) out of default status. You do this by making just three monthly payments – on time, and in any amount that you and your lender agree upon. To find out if you qualify for loan consolidation, contact the Federal Direct Consolidation Loan Info Center at 800-557-7392 or go online to http://loanconsolidation.ed.gov. If you call, the staff there should be able to tell you what your monthly payment will need to be for those three months while your loan is in repayment. The one drawback to consolidation is that your credit remains tarnished. Even though your loan will be paid off and listed as “paid in full” on your credit report, you’ll get a new loan through consolidation and that previous default still shows on your credit report for seven years.

An alternative, to fix your credit, and have all past negative information about your student loans completely deleted from your credit file is to go through loan rehabilitation.

In a nutshell with rehabilitation you make 9 or 12 on-time payments on your student loans in an amount you can afford. You make nine monthly payments on Direct Loans and Federal Family Education Loans, or 12 monthly payments on Perkins Loans. This, in my opinion, is the preferred route as it will help you restore your credit in a big way, so your past default won’t haunt you for years to come.

For more details about various alternatives to cure your student loan delinquency, check out the Department of Education’s guidebook called “Options for Financially-Challenged Borrowers in Default.”

Get Help From an Ombudsman

Additionally, you should know that if you ever have a dispute with your lender or loan servicer about anything related to your federal student loans, there is a government agency that may be of assistance in resolving that dispute. It’s called the Federal Student Aid Office of the Ombudsman. Always try to work things out first with your lender by using the online “Self Resolution Checklist” from the Ombudsman’s office. But let’s say you think your loan was mistakenly placed in default by your lender – maybe you were in school at least half-time, you had a loan deferment or forbearance, or you actually made payments on your loan – and you can’t get a satisfactory resolution of the issue, then it’s time to reach out to the Ombudsman’s office.

No matter what economic challenges you’re facing, you don’t have to live with wage garnishments and blemishes on your credit report because of defaulted student loans. Reach out for help today, and start the process of turning that college debt problem around.

Basic Differences Between Secured and Unsecured Loans

Consumers can enjoy various types of loans that are available these days. You will also find various providers showing you ways to get the money that you need. Also, when it comes to repayment of the money that you borrow, there are also a couple of options that are open before you. However, the loan provider is always ready to tell you how you have to repay it. One can mainly categorize a loan into two major sections known as, secured and unsecured. With so many different types of offers available in the market, it becomes difficult to compare and select the best deal. However, the consumer must make his or her own research work and then should pick up a loan offer that is suitable enough.

One can opt for a secured or an unsecured loan based on their features offered by the banks. The secured loan can be considered as a loan which is secured against consumer’s available asset. In this case, mostly the asset is the home. So, mostly it is the homeowners who can avail the benefits of a secured loan. While a personal loan can be considered as an unsecured loan which is normally taken for a small amount of money and would be paid in a shorter period of time. One must consider various factors while comparing the rates involved in a secured or an unsecured loan facility.

In a secured loan, one can enjoy the benefits of lower monthly repayment compared to an unsecured loan. In a secured loan, the lender can easily offer lower rate of interest because the loan is provided against the asset. Your borrowing power is higher with a secured loan than with an unsecured loan. Also, a secured loan is suitable for people who have a bad credit rating. While comparing, one must note that the repayment periods along with the interest rates on loans can vary depending on whether you take out a secured or unsecured loan. It also depends as to which lender you have approach for the loan. Secured loans are available for a longer duration as a result of which the monthly repayments are lowered since the debt period is stretched for a larger number of years. Hence, in a secured loan, one can enjoy a lower repayments of the loan compared to an unsecured loan. The loans take longer to process compared to unsecured loans because there is a lot of additional information that has to be furnished such as a property valuations and proof of home ownership. If you are a home owner, you can still get a secured loan even if you have a bad credit rating. The lender is in a position to provide you with a competitive bad credit loan since you have a house/property to secure against your loan. But it is impossible to get an unsecured loan if you have a bad credit history.

These days, you can just go online and compare different rates that are available for loans. You have secured loans meant for homeowners and personal unsecured loans that are made available to those who live in rented homes and need to raise money for many purposes. Loans designed for various purposes are easily available and thus you could wipe off your existing credits. While considering a loan, you must be aware of other charges that would be added along with you interest. Important factors such as easily redemption penalties and arrangement fees should not be ignored before you truly consider and sign your loan agreement copy. In other words, if you have taken a loan and after few months, you decide to pay the entire money back before the loan completion date, in such a case, you may be forced to pay an early redemption penalty. So you must read all the terms and conditions carefully before you go for any type of a loan.