Whether it’s the credit card debt you have had since you were a student, a collection of payday loans that you needed to cover, your most recent M.O.T. or just a combination of varying credit forms; they can all become hard to handle at some point during their lifetime. But what can you do when you start to lose control of your debts and meeting monthly re-payments feels more difficult than ever before?
Two common options for managing unsecured creditor debts are Debt Consolidation Loans and Debt Management Plans. A Debt Consolidation Loan is a loan that is taken out with the sole purpose of paying off all of the outstanding debt that you may have; including credit cards, payday loans, unsecured loans and store cards. Many people who utilise this option do so to amalgamate their current lender outgoings into one manageable re-payment with a single level of interest attached. A Debt Consolidation Loan can be most helpful if you are trying to combat debts that have a high level of interest, with the intention that in the long run you will save money.
However, there are some negatives attached to borrowing in this way and a Debt Consolidation Loan will not be suitable for everyone. Often, an individual who makes the decision to take action against their debt has had some difficulties before getting to that point. For instance, many people will have already made at least one default during this time and as a result they will have somewhat damaged their credit rating. This means that when they come to make an application for another loan they could find that they are only offered amounts that come with a high interest rate and therefore it will not be of much benefit to them. Furthermore, because the individual will be looking to make their payment as manageable as possible they will find that their loan term is much longer, therefore taking them months, if not years, more to re-pay.
Depending upon your current situation you may wish to look at all of your options and if a Debt Consolidation Loan doesn’t sound right for your circumstances, you could benefit from a Debt Management Plan instead.
A Debt Management Plan is an agreed re-payment strategy between yourself and your lenders with a debt management company acting as your advocate. The idea is that you will be able to consolidate your debt without the need to take out any further credit. A huge benefit of tackling your re-payments in this way, is that the company who is working with you can request that the creditors freeze any interest and charges that are currently being added to your arrears. The debt management company will also work to ensure that you will only pay what you can reasonably afford each month meaning that you should not have any problems meeting your priority outgoings and necessities (such as gas, electricity and food). On top of this, a Debt Management Plan is not legally binding and therefore you can start or stop a plan as and when you please, making it a very versatile form of debt re-payment.
However, although this may sound like a win-win situation, the informality of a Debt Management Plan can work both ways. This means that although the creditors may initially agree to the plan they can change their mind at any time– potentially leaving you in a worse situation than before you started. Often you will also find that your credit rating will be damaged as a result of attempting to deal with your arrears in this way, having a negative impact upon any future credit application that you may make.
If dealing with your debts is becoming an issue you must weigh up how beneficial each option is for you, including how you may cope if you decide to carry on without any support. Ultimately, despite the various positives and negatives, one option will usually stand out to you as being the most appropriate for your current circumstances.