Government Debt Consolidation Services

Government Debt Consolidation Services

Debt consolidation is the process of tumbling several different loans into one convenient payment. The US Government has endorsed debt consolidation as a good alternative to bankruptcy because taking this step can help many people regain control of their finances.

A debt consolidation loan is most effective when it exchanges high interest debt, such as credit card payments for lower interest payment arrangements. Of course, this is not done by magic so there is an element of risk that is introduced to account for accessing the lower rate of interest. Most consolidated loan payments achieve the lower interest rates by turning previously unsecured loans into secured ones i.e. backed by your house or even car. This means that you place your property on the line for getting a lower rate of interest under consolidation terms.

Despite the added risk, consolidating is one of the few options left to those with unmanageable levels of debt. Although there are several private companies that offer debt consolidation services, government debt consolidation programs often offer rates and terms that are more attractive than those available on the open market. One of the most popular programs is the Federal Government Student Loan Consolidation Program.

Typically, there are five ways to repay your debts under this program;

Standard Repayment; Payments are fixed and can be spread over a maximum of 10 years, so this plan has the highest monthly installment.

Extended Repayment; Payments here are also fixed but the repayment period can be stretched from 12 years to as long as 30 years, however this means you end up paying more interest.

Graduated Repayment; This takes into consideration that your income will increase over time, so it offers lower monthly payments for the first 2 to 5 years and then increases the monthly installments after this period.

Contingent Repayment; Payments can be made over a maximum term of 25 years and the monthly installment is contingent on your income and the size of your loan. There is a fixed rate over the length of the loan and it cannot be more than 8.25%.

Income Based Repayment; From July 1, 2009 this option was made available. Under the terms of this plan, the monthly installments are calculated as 15% of your discretionary income. Discretionary income is calculated at anything that is 150% above the poverty line. This means that if you are not making any income you can stall your payments until you get back on your feet. This offers real peace of mind for many people.