Debt Consolidation & Debt Management
Debt consolidation loan
A debt consolidation loan allows you to ‘consolidate’ several debts into one with a new loan, which can make managing your finances more simple.
You will repay your debt consolidation loan to your new lender in single monthly instalments. It’s often possible to reduce your monthly outgoings by spreading repayments out over a longer period than your original debts – but be aware that this could also mean paying interest for longer, and therefore paying more than if you had chosen a shorter repayment period.
However, you could still save money on interest overall if the APR on your original debt is higher than that on your debt consolidation loan. And even if you don’t save money, some people are happy to pay a little more overall if it means lower and more manageable monthly payments.
Before you take out a debt consolidation loan, you should be sure that you will be able to continue making the payments for the duration of the agreement. It is still a form of debt, and failing to make payments carries the same consequences as with any other debts. You should also be sure you will not be tempted to spend the money you have repaid towards your debts (e.g. on a credit card balance), since this will result in even more debt to pay back.
Debt management plan
A debt management plan is an agreement between you and your creditors for lower monthly payments, based on how much you can afford each month.
While you can arrange a debt management plan by yourself, this requires a lot of negotiation with your creditors. For this reason, some people prefer the convenience of a professional debt management company, who can negotiate with creditors on your behalf.
As well as negotiating for lower monthly payments, it may also be possible to get a freeze on interest and other charges, which can stop your debt from growing.
