With all the talk of bailouts, I know a number of people are looking for government debt consolidation loans. These don’t really exist. The government is bailing out the number of people but not very many individuals. There isn’t really any type of government debt consolidation loans. Actually there is an exception to that. There is one type of government debt consolidation loan. It only applies to debt incurred going to school. The government debt consolidation loan program allows you to consolidate educational loans. This can be extremely advantageous if you have a lot of debt from going to school. The program will allow you to take a number of different educational loans and roll them into one single loan area and chances are you won’t be making payments to the government. The government will actually back your loan and help you get a very low interest rate through a lender. The lender likes this because your loan is now backed by the full goodwill and faith of the US government. So while the government sticks around they are going to get their money. On the other hand they may be less sure about whether or not you will continue to make payments.
This surety allows them to give you the lowest rate possible. This can be extremely advantageous. If you have a number of smaller loans all with different interest rates combining them to a single loan at a much lower interest rate will save you a lot of money each month. Also if that term on some of the other loans is short but consolidated loan may be for a longer time span which means you’ll pay less each month. Of course a longer time frame means you’ll probably end up paying more over time, but for some people that type of flexibility is helpful.
The ideal way to handle government debt consolidation loans for educational debt is to get the lowest rate you possibly can and then pay back the maximum you can possibly afford each month. A made-up maximum you can possibly afford. You still need to set aside money for emergencies and other unexpected expenses. Still if you can pay off loans quickly you’ll get out of debt more quickly. If you have other loans that are at a higher interest rate though, those may be a higher priority. Paying off the highest interest rate first allows you to pay the least in interest–and for some loans the interest may be far greater than in principle by the time you finish paying it off.
If you have a home mortgage at 6% and educational loans of 4% you’d be much better off paying down the mortgage quickly and just paying the minimum on the educational loans. On the other hand if your educational loans are at the highest interest rate you may want to pay them down first. The government debt consolidation loan can help lower the interest rate so you can have that option.
Another thing to consider is whether your loans are secured or not. In a secured loan the bank can come after whatever assets you have used to secure the credit. So for example with a mortgage they can repossess her house. With an automobile they can usually repossession car. What you don’t want to do is get into a situation where you pay down unsecured debt quickly and get into a situation where you don’t have money to pay down your secured debt. For example if you have a credit card that is unsecured debt, you don’t want to pay it off and jeopardize making your mortgage payment. If the credit card company can’t take anything from you, you need to factor that in your to your decision of who to pay first. They still may be the best loan to pay off quickly, but you may want to make sure you have adequate emergency funds to handle making your mortgage payment if times get tight.
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