Debt Reduction & Debt Relief

Process
The bulk of the consumer debt, especially that with a high interest, is repaid by a new
loan. Most debt consolidation loans are offered from lending institutions and secured as
a second mortgage or home equity line of credit. These require the individual to put up a
home as collateral and the loan to be less than the equity available.
The overall lower interest rate is an advantage of the debt consolidation loan offers
consumers. Lenders have fixed costs to process payments and repayment can spread
out over a larger period. However, such consolidation loans have costs: fees, interest,
and "points" where one point equals to one percent of the amount borrowed. In some
countries, these loans may provide certain tax advantages. Because they are secured,
a lender can attempt to seize property if the borrower goes into default.
Personal loans comprise another form of debt consolidation loan. Individuals can issue
debtors a personal loan that satisfies the outstanding debt and creates a new one on
their own terms. These loans, often unsecured, are based on the personal relationship
rather than collateral.
Student Loan Consolidation
In the United States, federal student loans are consolidated somewhat differently from
in the UK, as federal student loans are guaranteed by the U.S. government.
United States
In a federal student loan consolidation, existing loans are purchased by the Department
of Education. Upon consolidation, a fixed interest rate is set based on the then-current
interest rate. Reconsolidating does not change that rate. If the student combines loans
of different types and rates into one new consolidation loan, a weighted average
calculation will establish the appropriate rate based on the then-current interest rates of
the different loans being consolidated together.
Federal student loan consolidation is often referred to as refinancing, which is incorrect
because the loan rates are not changed, merely locked in. Unlike private sector debt
consolidation, student loan consolidation does not incur any fees for the borrower;
private companies make money on student loan consolidation by reaping subsidies
from the federal government.
United Kingdom
In the UK student loan entitlements are guaranteed, and are recovered using a meanstested
system from the student's future income. Student loans in the UK can not be
included in bankruptcy, but do not affect a person's credit rating because the
repayments are deducted from salary at source by employers, similar to Income
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