Debt management for the government debt consolidation loan

Some debt management companies use phrases like ‘government debt consolidation’ and ‘government debt advice’ in their advertisements to falsely imply that they are endorsed by the government. In fact, neither government debt consolidation loan nor government debt advice exists.

These advertisements mislead people into believing that debt consolidation services are free or official. In reality, these companies charge a fee to provide the same debt management services that charities like us provide for free.

Similar companies charge a fee to set up an IVA. Sometimes they do this without offering alternatives that may be more suitable for you.

What exactly are “government debt consolidation loans”?

The only ways to deal with debts that are government-related are the formal debt solutions implemented by the UK and Scottish governments they are government debt consolidation loans.

Among these debt solutions are:

• In Scotland, bankruptcy – or the Sequestration and Minimal Asset process –
• Orders for debt relief (DROs)
• Individual voluntary arrangements are made (IVAs)
• Debt Arrangement Scheme (DAS) – only in Scotland

Read our explanation of the distinctions between debt management and debt consolidation.

Also, read 5 Valuable Practices to Keep Yourself Out of Debt for better understanding. 

What is being done about the advertisements for “government debt consolidation”?

These advertisements are extremely deceptive, and the Financial Conduct Authority (FCA), which regulates the debt advice industry, has taken action against some companies to put a stop to this type of advertising. The FCA continues to hold these companies accountable.

Hopefully, this means that you won’t see any more fee-charging companies advertising debt consolidation in this manner in the future, but if you do, please keep in mind:

• Whatever solution you choose to deal with your debts, it’s critical to get free, impartial debt advice before proceeding with a solution – you should never have to pay to get debt advice.
• Debt consolidation may be an appropriate option for you, but there are risks, particularly if there is a possibility that you will struggle to make payments over time.

What is a debt consolidation loan?

The act of taking out a new loan to pay off other liabilities and consumer debts is referred to as debt consolidation. Multiple debts are combined into a single, larger debt, such as a loan, with more favorable payoff terms, such as a lower interest rate, a lower monthly payment, or both. Debt consolidation can help you manage your student loan debt, credit card debt, and other liabilities.

IMPORTANT TAKEAWAYS

• The act of taking out a single loan to pay off multiple debts is known as debt consolidation.
  These loans are classified as either secured or unsecured.
• Consumers can apply for debt consolidation loans, low-interest credit cards, HELOCs, and student loan special programs.
• Debt consolidation benefits include a single monthly payment rather than multiple payments and a lower interest rate.
• Longer payment schedules can result in a higher total payment when debts are consolidated.

Debt Consolidation: How Does It Work?

Debt consolidation is the process of repaying other debts and liabilities by using various forms of financing. If you have multiple types of debt, you can apply for a loan to consolidate them into a single liability and pay them off. Payments are then made on the new debt until it is completely paid off.

As a first step, most people apply for a consolidation loan through their bank, credit union, or credit card company. It’s a good place to start, especially if you have a good relationship with your institution and good payment history. If you are turned down, look into private mortgage companies or lenders.

Creditors are willing to do so for a variety of reasons.  Consolidation increases the chances of collecting from a debtor. These loans are typically made available by financial institutions such as banks and credit unions.  But there are other specialized debt consolidation service providers that offer these services to the general public.

Debt Consolidation vs. Debt Settlement

It is important to note that it does not eliminate the original debt. Instead, they simply transfer a consumer’s loans to a different lender or loan type. For true debt relief, or for those who do not qualify for loans, debt settlement may be preferable to, or in addition to, a debt consolidation loan.

Rather than the number of creditors, debt settlement seeks to reduce a consumer’s obligations. Debt-relief organizations and credit counseling services are available to consumers. These organizations do not make loans, but rather attempt to renegotiate the borrower’s existing debts with creditors.

Debt Consolidation Methods

The respective debt is classified into two types: secured and unsecured loans. Secured loans are those that are secured by one of the borrower’s assets, such as a home or a car. In turn, the asset serves as collateral for the loan.

Unsecured loans, on the other hand, are not collateralized and can be more difficult to obtain. In addition, they typically have higher interest rates and lower qualifying amounts. Interest rates on either type of loan are typically lower than those on credit cards. In most cases, the rates is fix, so they do not change over the course of the repayment period.

You can combine your debts in a variety of ways by consolidating them into a single payment. Some of the most common is mentioned below.

Loans for debt consolidation

It is offered by many lenders, including traditional banks and peer-to-peer lenders, as part of a payment plan to borrowers who are having difficulty managing the number or size of their outstanding debts. These are specifically designed for consumers who want to pay off multiple high-interest debts.

Credit cards

Another option is to transfer all of your credit card payments to a new credit card. If it charges little or no interest for a set period of time, this new card may be a good idea. You can also use a balance transfer feature on an existing credit card, especially if the card offers a special promotion on the transaction.

HELOCs

Debt consolidation can also be optain with home equity loans or home equity lines of credit (HELOCs).

Loan programs for students

For people with student loans, the federal government provides several consolidation options, including direct consolidation loans through the Federal Direct Loan Program. The new interest rate is calculated by taking the weighted average of the previous loans. Private loans, on the other hand, are not eligible for this program.