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.
These are the steps to consider in the debt consolidation process:
* Add the total amount you owe from every account you are interested in consolidate, you do this in order to know the total amount you owe. * Make a list of interest rates with each of your accounts, and calculate the average from all. * Start contacting your creditors (telephone, mail) 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 be extremely careful about the terms of the loan; 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” these criteria apply to people who have a very heavy debt, low per capital income and problems paying back their balances. The countries that can apply these measurements should have the next characteristic: A strong structural adjustment program that has been approved and supported by the IMF (International Monetary Fund).
The Toronto principles are basically two: a) Terms for the debts of the Development Assistance b) The introduction of a menu of conditions for payment of the debt that is not development assistance.
The ODA type of debt have two distinctive characteristics one is 25 years for the maturity and 14 years of extension, other characteristic is that 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.
Option A: one third of consolidated debt will be canceled and returned with a remaining maturity of 14 years, including 8-year extension, default interest will be marked by the market.
Second option: 25 years for repayment with 14 years extension and the market will define the interest rate in case of default.
Option C: the repayment terms are as in option A, but will have a default interest of 3.5 percentage points below the market rate set in either half as established in the market, depending on what the further reduction.
The Paris club agreed to add (In December 1991) the concessions for the countries with lower incomes plus the terms defined in the Toronto meeting (basically 2 options to reduce the debt and to re negotiate the concessions). 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.
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