It is generally subject to repayments of principal and interest. Debt can be secured with collateral or unsecured. Although there is variation from country to country and even in regions within country, consumer debt is primarily made up of home loans , credit card debt and car loans. Household debt is the consumer debt of the adults in the household plus the mortgage , if applicable.
In many countries, especially the United States and the United Kingdom, student loans can be a significant portion of debt but are usually regulated differently than other debt.
Other consumer options include: Sometimes the solution includes some of each of these tactics. Most debt consolidation loans are offered from lending institutions and secured as a second mortgage or home equity line of credit. 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: In some countries, these loans may provide certain tax advantages. 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[ edit ] In the United States, federal student loans are consolidated somewhat differently from in the UK, as federal student loans are guaranteed by the U.
United States[ edit ] 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.
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[ edit ] In the UK student loan entitlements are guaranteed, and are recovered using a means-tested 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 Tax and National Insurance contributions. Many students, however, struggle with commercial debt well after their courses have finished. Those seriously delinquent on student loans face arrest at the border.
This has caused the Asian nation to take harsher steps when it comes to lending determinations. In an effort to prevent future defaults, Japan has begun associating loan approvals to academic performance.