Managing debt can be challenging, and while the government can assist, it might not be as expected.
Paying off debt requires lifestyle changes and common sense.
Government benefits are advantageous because recipients do not have to repay the money. Gradually retire debts as you receive extra income and reduce other household expenses.
Government loans are less appealing because borrowers must repay the money. Additionally, only a few options are suitable for debt consolidation, which lowers monthly payments but not the total owed.
Government Benefits Can Reduce Debt
Government benefits can help you get out of debt by increasing your income or reducing household expenses. Money you do not have to repay is better than a loan.
Many federal agencies provide grants to states to fund programs for people in need. Use the savings and extra income to pay down debts gradually.
Expense Reduction
Many low-income families can access government benefits that reduce expenses. They can use the money saved on everyday household bills to pay credit card debts and other obligations.
Grant recipient agencies offer benefits that lower household expenses such as housing, groceries, energy, internet, medical, home repair, and water bills.
Income Support
Government benefits providing income support are available to a smaller group. Some people can use the extra money to pay credit card debts and other obligations.
Single mothers often qualify for income benefits because federal poverty guidelines favor families with many children but only one wage earner. Each additional child pushes the limit by more than $5,300. Many single parents receive extra spending money from several programs:
– Temporary Assistance for Needy Families
– Earned Income Tax Credit (EITC)
– Additional Child Tax Credit (ACTC)
Government Loans Restructure Debts
Government loans offer temporary debt relief to a few people. Borrowing money restructures debt rather than retiring it. Most debtors cannot use the funding to consolidate existing liabilities, although a few exceptions apply.
Debt consolidation loans do not provide relief. You owe the same amount initially, but perhaps with lower monthly payments through extended repayment terms or reduced interest rates.
FHA Loans
Federal Housing Authority (FHA) loans can help seniors over 62 to consolidate debt, but not younger borrowers. Most FHA-insured loans, except for reverse mortgages, limit cash back to $500.
- FHA streamline mortgage refinancing limits cash out at $500, making debt retirement impractical for homeowners younger than 62.
- FHA reverse mortgages enable senior borrowers to access the unencumbered value of their property, which they can use to pay off credit card debts.
Many seniors are judgment-proof, meaning they can stop making credit card payments without consequences if they lack home equity. Seniors do not need to take out a loan when lenders cannot garnish wages or Social Security benefits or place a lien against property.
DOE Loans
Department of Education (DOE) student loans rarely relieve existing debts. The funding goes directly to the school and can be used only for education-related expenses.
However, forgiveness programs for graduate students present an opportunity to extinguish specific liabilities decades from now.
- The DOE offers student loan forgiveness to public sector employees, teachers, and individuals enrolled in income-driven repayment programs.
- Undergraduate students have an annual borrowing limit of $20,500, meaning the school is unlikely to refund excess amounts to individuals.
- Graduate students can borrow up to the total attendance cost, including money for off-campus housing, meals, transportation, and more.
Graduate students can borrow the total cost of attendance and receive a reimbursement from the school after subtracting tuition, lab fees, and other direct expenses. The students could use the money to repay housing, meals, and transportation debts and qualify for future forgiveness.
SBA Loans
Small Business Association (SBA) loans cannot help you escape debt. Still, you can restructure it to obtain lower monthly payments. The SBA provides guarantees, making qualifying for capital from private lenders easier for entrepreneurs.
Three SBA programs reduce lender risk:
- 7(a) loans can be used for refinancing current business debt.
- 504 loans cannot be used for consolidating, repaying, or refinancing debt.
- Microloans cannot be used to pay existing debts.
Refinancing business debt with a 7(a) loan is not a magic solution. Extending repayment terms lowers monthly payments but allows more time for interest to compound. Proceed accordingly.
