It’s never easy coping with debt, whether student loan, credit card or others. You may worry about the constant reminders and debt collectors. While many face a financial crisis at some point, there are options available to ease the loan burden, like debt consolidation.
Debt consolidation is when all your loans are combined into one. Usually, it offers you favorable repayment terms, such as lower interest terms. If you are struggling with a student loan or a credit card debt, some Federal and private lender programs can help you consolidate your debt.
Government and Debt Consolidation
The Federal Government may be the last thing you think of as a debt solution. But, getting a grant, for instance, will significantly help you with your debts. While it’s not easy getting one, still it’s worth trying.
Federal Solutions Available
When you consider taking the government debt consolidation solutions, first, you should understand the process and available options. These include:
Federal Government Loans
In this case, there are two kinds, the Federal Family Education Loan (FFEL) and the Federal Student Loan Program. Most students and families end up with significant credit card debts associated with college. Therefore, the government offers these loans to relieve you of the repayment burden.
- Federal Family Education Loan (FFEL)
This loan is ideal for consolidating credit card debts linked directly to educational expenses for students and families. FFEL funds are usually derived from private lenders like banks and credit unions subsidized and supported by the US Department of Education.
The main advantage of FFEL is that the interest rate cannot go beyond 8.25%. It’s much lower than most credit card rates, making it suitable for debt consolidation. The interest rate is on a weighted average, rounding it to the nearest 1/8 of 1%, depending on the debts you are consolidating.
- Federal Direct Student Loan Program
The Federal Direct Student Loan Program consolidates all eligible student loans into one. This debt consolidation loan reduces your debt burden while still managing your monthly budget to pay other bills. It also lets you keep any subsidies on your previous student loans with lower monthly payments.
Federal Government Grants
Grants may not be easy to get, but it’s worth applying for one for debt consolidation. Every year, billions of dollars in grants are issued by the Federal Government, and the main advantage is that you don’t pay it back. This makes it one of the best ways of paying off your student loans and credit card debts. However, it’s worth learning how to apply for grants successfully.
Debt Consolidation Solutions from Private Lenders
Since Federal loan programs may be challenging to get, you may opt for debt consolidation loans from private lenders such as credit unions and banks. There are two major types in this category, unsecured and secured loans.
As the name suggests, you don’t need to pledge any asset as security for this loan. Unsecured loans are usually personal. However, getting one, especially with low-interest rates, may be difficult if you have excessive debts to consolidate. Still, it carries a low risk to your assets if you default.
This loan type will require you to pledge an asset as security should you default. Since a home equity loan is the most common in this category, your home is usually the collateral. However, it gives you an extended repayment period and a low-interest rate suitable for consolidating your debts. Also, if you have a Federal income tax return, you can deduct the associated loan’s interest.
While debt consolidation may help you, it’s worth researching the advantages and disadvantages of the available options. Ensure you get expert guidance before making your choice.