Debt Consolidation and Debt Management are terms you see being advertised as if they were the same thing.

 

When you consolidate your debts, you take credit cards, store cards, hire purchase and other smaller loans, and convert them into one new larger loan.

 

Debt Management is for clients who have credit debt they can no longer afford to repay. Debt management companies negotiate on your behalf with the individual credit providers to reduce your monthly payments.

 

So which is better for you?  

 

This is actually not quite as obvious as you might think from our explanations.

 

By consolidating your debts into a single loan, you are not actually reducing them. You only moved them from one place to another! However if you are a homeowner with equity in your property, you can spread the cost of a consolidation loan over a longer period and reduce your monthly payments.

All loan providers offer consolidation loans. You can apply for both Secured and Unsecured consolidation loans. They are just personal loans and can be used for any purpose. 

 

Tenants or those living with parents can ONLY apply for unsecured loans, meaning you will be able to borrow lessser amounts and over a shorter period. If you already have current credit problems, it is unlikely you will be offered a further loan.  

 

Of course if you obtain a consolidation loan you then need a little financial discipline to ensure you don't go spending too much again on your freshly paid off credit cards! This will surely lead you into ONLY the second option.  

 

You've cleared all your more expensive credit and spread the cost of repaying it. Also you have preserved and probably strengthened your overall credit rating assuming you have no further difficulties repaying the loan.

 

Nothing really although you do still have the same amount of debt.

 

 

Debt Management as explained above is the second option assuming you are unable to obtain a consolidation loan and cannot manage your monthly credit commitments.

 

Our advice is to get debt management advice as quickly as possible once you recognise you are in this position.

Here's why:

 

Firstly credit card, hire purchase and loans companies DO usually persue clients who are unable to pay. After a few increasingly less pleasent letters and telephone calls,  they can employ debt collection companies who can start telephoning you at work, on your mobile or call in person at your home.  

These debt collectors are usually far more proactive in persuing you as they are paid on commission to collect as much money as they can. In some cases these companies will actually purchase your debts at a much reduced figure from the original lender. They then have a really BIG incentive in persuing you.   

 

If you continue to avoid speaking or responding to letters from either the original lenders or their debt collection company, they can persue you through the Small Claims Court and obtain a County Court Judgement or CCJ against you. Having successfully got a judgment against you for a debt, you then have to make payments via the court or face a visit from a court bayliff who can remove goods from your home.

 

Getting in touch with a debt management company can prevent all of this from occuring. Yes they charge you for doing so. The costs vary but generally they either take a monthly management fee based on how many companies they are having to pay on your behalf. Or you pay a set fee based on how much money you owe.

 

Of course you could try to negotiate lower repayments with each of your creditors yourself, although this is not as easy as you might think, as the various companies will try to squeeze larger payments from you than you can afford.

Plus they will all want you to complete Income and Expediture forms whilst continually chasing you for an improved repayment. Unless you really are an experienced negotiator our advice is forget the idea.  

 

Very importantly an experienced debt management company can often negotiate a reduction in the amount you owe by offering Full and Final Settlement.

This occurs when the amount owed is substantial and the creditor is made a "One Time" offer on your behalf to clear the debt finally. This has been known to reduce the amount owed by up to 90% !

 

A Debt Management company will remove the worry and hassle out of dealing with your creditors, allowing you to sleep easier at night and concentrate on improving your finances for the future. Better still with negotiation there's a reasonable chance your debts could be cleared for much less than you owed initially. Also once your debts are settled that information can be applied to your Credit File.

 

The Downside 

Debt Management will not help your credit rating. Unfortunately all your credit included in a Debt Management scheme will show as arrears or in default.

It is almost impossible to borrow further money whilst your finances are being handled by a debt management company, unless you are a homeowner with equity in your property.  

 

 

To visit the websites of companies offering Debt Consolidation Loans and to apply direct online, please visit our Unsecured Loans and Secured Loans categories.