Debt Consolidation Loans Pros And Cons – Bankruptcy is almost always the worst-case scenario when dealing with financial difficulties, so debt consolidation is usually better.
Before starting bankruptcy or debt consolidation, it’s important to understand the differences and learn the pros and cons of both options.
Debt Consolidation Loans Pros And Cons
Although debt consolidation and bankruptcy are both forms of debt relief, they are not the same thing. We’ll leave it to you to figure out the differences between the others.
The Benefits Of Debt Consolidation
Debt consolidation involves combining multiple debts into one smooth monthly payment, ideally with a lower interest rate, using either a personal debt consolidation loan, a credit card balance transfer, or an alternative method.
Credit cards, medical bills, and other unsecured loans have higher interest rates than secured loans because no collateral is required. A form of debt consolidation can help you pay off your debts faster and save money on interest in the long run.
The pros and cons of debt consolidation can vary slightly depending on the form of debt consolidation you choose. However, there are general advantages and disadvantages of debt consolidation.
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Look, you don’t want to take your financial advice from Creed Bratton. You can’t just change your name to Lord Rupert Everton and become a shipping merchant who breeds wonderful dogs. And filing for bankruptcy is a little more complicated than yelling, “I’m declaring bankruptcy!” in front of your employees.
Bankruptcy is a legal process that helps people and businesses that cannot pay their debts by liquidating their assets or setting up a repayment plan, essentially clearing the air. (Like the Witness Protection Program, not really).
There are several types of bankruptcy, all of which are covered by the US. Litigation is conducted in federal courts under the Bankruptcy Act. The bankruptcy code is maintained. If you file for bankruptcy, you will be limited to Chapter 7 and Chapter 13 bankruptcy, depending on your individual circumstances.
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There is no repayment plan in Chapter 7 bankruptcy. Instead, it’s a liquidation, which means your non-exempt property is sold and the money you owe is distributed to creditors.
On the other hand, in Chapter 13 bankruptcy, debt settlement is possible if your income is stable and unsecured and secured debts are less than $394,725 and $1,184,200, respectively. This code allows you to keep your property and pay off your debts over time, usually three to five years.
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Together, they borrowed $1.5 trillion to get diplomas, and it wasn’t easy to pay it back. About one in 10 people default on their student loans, and while the average repayment time depends on the amount owed, it’s safe to say it’s at least 10 years and possibly 30 years. It will take up to
Members of the Class of 2019 who took out student loans owe an average of $31,172 and their payments are less than $400 per month. This is a large and unwanted graduation gift, so it’s important to know how to minimize the damage.
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If all the money you borrow is federal loans, you can find easier repayment options by applying for a direct consolidation loan.
If some or all of your student loans come from private lenders, you will need to use a refinancing program to achieve similar results.
Consolidation is one way to make student loan repayment easier and potentially more cost-effective. You combine all of your student loans, take out one large consolidation loan, and use it to pay off all the others. You owe one payment to a lender each month.
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The typical student borrower receives money from federal loan programs each semester of school. It often comes from different lenders, so it’s not uncommon for you to owe money to 8-10 different lenders by the time you graduate. If you continue to borrow for graduate school, add another 4-6 lenders to the mix.
Each of these student loans has its own due date, interest rate, and payment amount. Keeping track of such a schedule is complicated and is one of the reasons for many delays. This is why student loan consolidation is such an attractive solution.
Federal loans can be consolidated into the Direct Consolidation Loan Program. They combine all federal student loans into one loan with a fixed interest rate. This interest rate is determined by taking the average of all federal loan interest rates and rounding the interest rate to the nearest eighth of a percent.
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While this method does not reduce the interest you pay on federal loans, it still leaves you with all repayment and forgiveness options. Some lenders offer the opportunity to lower the interest rate by making straight payments or by qualifying for a reduction through on-time payments over a longer period of time.
Student loan refinancing is similar to the Direct Consolidation Loan Program in that you bundle all of your student loans into one loan and make one monthly payment. However, there are important differences that you should consider before making a decision.
Refinancing, sometimes called private student loan consolidation, primarily affects personal loans and can only be done through private banks, credit unions or online lenders. If you have borrowed from both federal and private programs and want to collect the full amount, this is only possible through a private lender.
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The main difference between refinancing and direct loan consolidation is that when you refinance, you negotiate a fixed or variable interest rate that must be lower than what you would pay on each loan separately. Lenders consider your credit score and whether you have a co-signer when determining your interest rate.
However, if federal loans are part of your refinance, you will lose the repayment options and forgiveness programs it offers, including deferment and forbearance. The last two points can be important if financial complications arise while paying off your debts.
The average college graduate has about $8,000 worth of credit cards. We’ll help you with your credit card so you can budget more for your student loan payments.
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There are many good reasons to consolidate through the Direct Loan Consolidation Program. Last but not the least, it offers you income-based schemes like REPAYE (Pay Back When You Earn), PAYE (Pay Back When You Earn), IBR (Income-Based Repayment) and ICR (Income -based repayment) keeps you alive. ).
There are two sides to every story and here is the other side you should consider before starting the Direct Loan Consolidation Program:
If you’ve missed payments because you’re struggling to keep up with multiple loan servicers and different repayment dates, consolidating or refinancing is a great option. One payment each month instead of multiple payments makes life easier.
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You can take advantage of the Direct Loan Consolidation Program because it leaves the door open to income-driven repayment options that result in lower monthly payments.
However, it’s important to know that if your payments are part of qualifying for the forgiveness program, the clock starts when you collect your payments. For example, if you made three years of eligible payments for Public Service Loan Forgiveness and then consolidated your debts, you’d lose three years of eligible payments and the clock would start.
The big question for most borrowers is whether they can afford the monthly payments. Consolidation and refinancing is one solution: you receive a payment that doesn’t exceed your budget each month.
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However, if you make enough money to begin with and are very committed to paying off your loan, the fastest and most effective way is to choose the standard repayment program and complete it over 10 years… or Less!
Max Fay has been writing about personal finance for over five years. His expertise is in the areas of student loans, credit cards and mortgages. Max has inherited a genetic predisposition to be fickle with his money and share financial advice. While attending Florida State University, he was published in all major Florida newspapers. He can be reached at [email protected].
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