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Debt Consolidation Facts

1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair Isaac).

2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% - 30%!

3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.

Does the federal government provide debt assistance for individuals?

As the American economy plummets and major corporations across the nation lay off workers by the hundreds, many are looking for a way out of debt. For those suffering due to education and housing debts, there is government relief in the form of consolidation loans.

Government programs for student loans

Government assistance for student loansUnder the Higher Education Act (HEA) the US Department of Education provides a loan consolidation program under both the Federal Family Education Loan (FFEL) Program and the Direct Loan Program. These loans encompass all new and old education-related debt. Under these programs, a borrower's loans are paid off in full and a new consolidated loan is issued. This gives the borrower a simplified loan repayment by combining repayment schedules from various lenders -- that the borrower may have had previously -- into one new loan. In general, the monthly payment amount for the entire loan is less because payments can be spread out over a longer period of time and often times the interest rate is lower on a secured loan from these programs as opposed to an unsecured loan from other lenders.

All education loans qualify for these programs despite the lender, including PLUS loans, Perkins loans, Health Professions Loans, Health Education Assistance Loans, Loans for Disadvantaged Students and Nursing Student Loans. This allows the borrower the opportunity to pay back their debt in a timely manner, usually with a lower monthly payment. To qualify for either program, applicants must have some sort of federal student loan and they must apply for approval. Generally federal consolidation programs are not hard to obtain.

Video: Managing Student Loans

Government Options for Mortgage Assistance

Another option that the government has provided to assist Americans facing major financial crisis is mortgage debt relief. Following a meltdown of the housing market, the US Department of Housing and Development (HUD) has an FHA Secure Loan program for homeowners who find themselves at risk of foreclosure.

This program allows homeowners to refinance a mortgage to lower interest rates and change the terms of the loan. This can lower monthly payments and give homeowners additional cash to pay off other debts, invest in their homes or pay off their loans faster.

To be eligible for the FHA Loan Program, applicants must have an adjustable rate mortgage, or ARM. Anyone with a fixed rate mortgage or who already has an FHA loan is not eligible. The program is intended to assist homeowners who have had difficulty paying off their mortgages after recent rate increases. Homeowners who defaulted or made late mortgage payments six months prior to the rate increase will not be eligible for the FHA Loan Program. Other loan requirements include being able to demonstrate the ability to pay back future mortgage payments after being issued a new loan. This includes providing evidence of income and employment. The home must also be the primary residence of the homeowner.

Video: FHA Secured Loans

For homeowners who are having difficulty paying off their mortgages but do not qualify for the standard FHA program, there is the Hope for Homeowners program which has been designed specifically for those at risk of losing their home to default and foreclosure. The program provides new, 30-year, fixed mortgage rates that are insured by the Federal Housing Administration. Program requirements mandate that the homeowner's original mortgage must have been issued prior to January 2008 and at least six mortgage payments made. An additional requirement is that the total mortgage payments due are more than 31 percent of gross monthly income.