The debt consolidation business is based in borrowing money from one lender to pay off outstanding debts with better interest rates, on the other hand this lender will manage the monthly payments to the previous lenders, and one of the most obvious advantages of this system is that the clients just have to deal with a single monthly payment.

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 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 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 cancelled and returned with a maturity of 14 years for the remaining amount (with 8 years of extension); the market will define the default interests.

Option B: repayment in 25 years with 14 years of extension and default interest will be marked by the market.

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.

In December 1991 the Paris Club agreed to add to the menu of concessions to countries with lower incomes, (the Terms of Toronto added) 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 cancelled on a date not later than 3 or 4 years.

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