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| Debt Consolidation: Is Like Buying Cheap Money? |
| Written by Miguel Pancardo |
| Friday, 16 July 2010 07:05 |
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The consolidation of debt, which is making money borrowed from a lender to pay off outstanding debts, has the advantage that it starts to have a single debtor to whom will manage the monthly payments and money back if conveniently choose the cancellation system.
The consolidation of debt, which is making money borrowed from a lender to pay off outstanding debts, has the advantage that it starts to have a single debtor to whom will manage the monthly payments and money back if conveniently choose the cancellation system. Important steps to consider if interested in the debt consolidation process: * From every account you want to consolidate, you should add them all up to know the total amount you owe. * Make a list of interest rates with each of your accounts, and set the average of this rate. * Start calling your creditors and ask them the cancellation of the cash balances as of the date it intends to consolidate debts. * The entire amount of their balances of cancellation should be the initial amount to start the consolidation. * When looking for a lender, the rate you need to look for should be lower than average in the previous calculation. * Always ask for the terms of the loan and plan accordingly. * Once you have consolidated your debts control your finance and avoid getting in the same problem. The previous considerations applies to individuals living in countries that accept what is called the "Toronto terms", this name comes from the agreement established in the World Economic Summit in Toronto in June1988. They were applied to the countries designated by the World Bank as "IDA-only" borrowers who had a very heavy debt, low per capital income and balance of payments problems. These countries should have strong structural adjustment programs supported by the INTERNATIONAL MONETARY FUND. The fundamental principles of the Toronto terms are basically two: 1.- To define the terms of the debts of the development assistance. 2.- For the debt that is not development assistance, create the introduction of the conditions for payment. The debt of the ODA have two main characteristics a maturity of 25 years and 14 years of extension, the initial rate will be higher than the default interest rate. Debts different than the Development Assistance ones, the creditors can choose from a menu of 3 payment terms. The first option is: 1/3 of the debt will be canceled and returned with a maturity of 14 years for the remaining amount (with 8 years of extension), the market will define the default interests. Second option: 25 years for repayment with 14 years extension and the market will define the interest rate in case of default. Last option: The same than the first option (option A) but here the default rates is 3.5 percentage points below the market rate (depending on further reductions) On December 1991 the Paris Club agree to add some concessions for the countries with lower incomes plus the terms defined at the Toronto agreement that there are essentially 2 options to reduce debt, plus the option non concessional new conditions of Toronto. The option represents a 50% concession of forgiveness in present value terms in debt service payments, lowering the debt during the consolidation period. Additionally, it was agreed to establish a timetable for consideration of a potential debt reduction. Creditors have indicated willingness to consider restructuring the remaining time when the debt is canceled on a date not later than 3 or 4 years. About the Author: Go to www.creditdebtconsolidationonline.com to get your Free videos about credit card debt consolidation online so you can start solving the problem now. |