How do consolidation loans compare to debt management?

If you are struggling to make payments on loans, overdrafts and credit cards at the end of the month, you may have looked at ways to solve your debt problems. Amongst the solutions you could consider, a consolidation loan or a debt management programme are two popular options. We have taken a look at both to identify a few factors that you need to think about when considering the best way to escape from your debt.

What is a consolidation loan?

A consolidation loan is designed for somebody that is struggling to pay back multiple debts. The idea behind this type of lending is to put multiple debts into one payment. This makes managing money easier as there are fewer payments to juggle with. It is also possible that the consolidation loan is taken out over a longer period of time than the original credit in an effort to make the monthly payments cheaper. The consolidation loan is used to pay off the other debts, so you then owe money to the firm who gave you the loan, rather than your original creditors.

What is debt management?

Debt management works in a totally different way. It is all about negotiation with your creditors to extend the repayment period and reduce the interest that you have to pay. Each case will be assigned a knowledgeable and well-connected advisor who will communicate with the creditors so you don’t have to. That means an end to hassling letters and phone-calls; the only person that you have to deal with is your one and only point of contact at your debt management company. This will be an immense relief to those who have experienced the stress of dreading every letter that comes through the door or shivers whenever the phone rings.

In many cases the negotiator will already have a relationship with the biggest lenders, so they will be more likely to strike a deal with them. This deal would likely include an extension of the period over which you could pay the money back. So, that means lower payments and more time, which is the exact thing that is needed when debt is getting the better of you. In some cases, the debt management company may be able to freeze interest on a loan or even reduce the amount that needs to be paid back. Seeking legal help, provided at for example, can be beneficial when dealing with money issues. It may be an investment but will help you in the long run.

How do consolidation loans compare to debt management?

A consolidation loan can also reduce the amount paid out every month and extend the time that you can pay, but there are key differences to consider. The first, is that you will pay back interest on the loan. You must make sure that you check the interest rates and look for any hidden charges before committing to any loan. It is vital that the interest charged on the loan is lower than it is on the debts that you are currently paying. It is not only interest that you should compare; any charges that are levied on the credit you have. Try and work out the total cost of each option before making any decisions.

If you have found yourself struggling to pay your debts, then make sure you speak to experts immediately. The sooner you start sorting the problem out, the sooner it will be over. A debt problem can only get worse, unless you take action.

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