If you’re struggling to keep your head above water financially, then debt consolidation or debt management are two things which could make your life a whole lot easier. As has been well publicised, over the last decade it became far too easy for people to get credit. Whether it’s as simple as an increased overdraft limit or as expensive as finance for a new car, many people have found their world closing in on them financially because of debt.
What is debt consolidation?
Put simply, debt consolidation refers to the process of securing a single loan to give you the finance to pay off numerous other debts. These could be finance plans, credit cards, overdrafts or other debts.
The benefit of debt consolidation is two-fold. First of all, it allows you to pay off those long-standing debts which are constantly playing on your mind. This could boost your credit rating ironically, but it gives you a clear indication of what exactly you have left to pay. You are no longer having to service each of these debts, but instead you are paying a single lender a single monthly amount, and in the process all of your other debts are gone.
This can reduce your stress massively, giving you a clear and simple repayment plan which you know that, so long as you stick to it, you will have a date in the future on which you will become debt free.
It also helps from a budgeting point of view, allowing things such as household bills to be budgeted for alongside one, simple monthly repayment.
Finally, you could also benefit by paying back less than you originally owed if the interest rate on your debt consolidation loan is lower than that on your original debts.
What are debt management plans?
A debt management plan is an alternative solution to debt consolidation and is used for debts which are seen as non-priority. These are things such as credit cards and loans.
A debt management plan may be a good idea if there becomes a time when you cannot afford to make full debt repayments every month, or if there is a period of a couple of months when you cannot make repayments at all.
Setting up a debt management plan can help you navigate these difficult periods while not getting in to further financial strife.
You can approach creditors yourself to set-up debt management plans, although this can become a difficult process if you have debts with several, or many, different creditors.
To avoid the stress of setting up debt management plans yourself, often the most popular solution is to work with a licensed debt management company. Once your plan has been agreed, you will make regular payments to the debt management company (monthly, for example), who will then in turn split this out between your creditors.
You will have the advantage once again of paying just one monthly repayment, making life simpler and allowing you to budget for other things. However, it will likely mean you take longer to pay your debt off as you will be paying less each month. Debt management companies will often charge a fee for their service as well.