Debt management plan or debt consolidation loan?

debt-consolidation example

Are you in debt? If so, then you need to try and gain control of the situation before it spirals out of control and leads to bankruptcy. Anyone can end up in debt due to many different things, whether it’s a student loan that’s weighing you down, a credit card, or even an expensive mortgage; debt happens.

When it comes to dealing with your debt, there are multiple solutions, but two deserve more attention than others; debt management plans and debt consolidation loans. While both these approaches serve the same purpose, they differ from each other as well. If you want to know which option may be best for you, then carry on reading.

Debt Consolidation Loans

This term refers to a type of loan that’s used to bring all of your debts under one umbrella. There are many loans out there that can be used as debt consolidation loans, but many people use a simple personal loan. It’s a very straightforward concept; you apply for a loan which you then use to pay off your debts, meaning you now only have one loan to repay.

For example, let’s say you owe £5,000 to your credit card company, £5,000 in student loans, and then another £5,000 to someone else. All of these debts could have different interest rates and fees added on top of them, making it so hard to manage each one and pay them off individually. So, you can apply for a £15,000 loan and then use that money to get rid of all three of your debts. Now, you owe £15,000 to one lender, which is far easier for you to manage.

One of the main advantages of debt consolidation loans is that you can often pay your debt at a much better interest rate with far fewer extra charges. What’s more, some personal loans have structured repayment schemes that allow you to pay the loan in comfortable monthly installments. To learn more you may find this beginners debt consolidation guide helpful.

Debt Management Plan

A debt management plan will try and make it easier for you to pay off multiple debts to different people. The simple explanation is that you agree on repayment plans with all the organisations you owe money to. You negotiate more manageable rates with them, which ensures you can pay them on time, but it just might take longer to clear your debt. This can either be done on your own or through a licenced debt management company.

When you get a debt management plan through a company, you may have to pay fees. But, all you have to do is pay the company money every month, and they spread it out to all the people you owe. Plus, they handle the negotiations to ensure you’re on manageable rates each month.

The main advantage of this is that you can make debt payments that fit your budget and don’t need to take out any additional loans. So, when your creditors are paid, you have nothing left to worry about. The downside is it can take longer to pay off your debts, and not everyone will want to negotiate a plan with you.

Which option is right for me?

So, a debt consolidation loan or a debt management plan; which option is right for you? They both have their pros and cons, it all depends on the individual. If you feel like you’re capable of paying off your debts, but you just need to repay a little less every month, then a debt management plan could suit you.

Debt consolidation loans are better if you really struggle to keep tabs on multiple payments every month. Or, you’ve tried to negotiate a debt management plan, but no one is interested and won’t offer reduced rates. In these scenarios, it’s often easier to take out a loan, use it to wipe out your debts, and then work on paying back the loan in more manageable chunks at a better rate.

The bottom line is that both of these options are worth considering if you’re in debt to lots of different people. The worst thing you can do is ignore your struggles and not attempt to make any changes. Think about either a debt management plan or debt consolidation loan to get rid of debt faster and with less stress. The best idea is to look at both options and then try and work out which one saves you the most money and is more suited to your financial situation. One isn’t always better than the other, it all depends on you!