Expert loan views & facts

If you are struggling with debt problems, you may have a number of options available to you, depending on your situation. Here, we look at just two: debt management plans and debt consolidation loans, both of which can reduce your monthly payments and simplify your finances.

However, there are some differences between the two that mean each is suited to a different kind of situation.

Debt Management Plan
A debt management plan involves negotiating with your creditors for repayment terms which you can realistically afford, and which are still fair to the lenders. This may include asking them to:

• Accept lower monthly payments,
• freeze or reduce interest, and/or
• write off charges (e.g. for late payments).

Many people believe that arranging a debt management plan through a specialist debt management company is more effective than trying to negotiate with the lenders yourself – especially if the company has a good, long-standing relationship with your creditors.

You would then pay a weekly or monthly set amount to the debt management company, who will send the agreed amounts to each of your creditors.

Best for: people who find they cannot keep up with their monthly repayments.

Debt Consolidation Loan
A debt consolidation loan is a new loan that pays off some or all of your existing debts. You then repay the debt consolidation loan in single monthly payments, instead of making several payments to various creditors.

Debt consolidation loans can be arranged so that your monthly payments are lower. However, this will often mean a longer repayment period in order to ‘spread out’ the costs.

If the debt you pay off includes credit cards or other types of high-APR (Annual Percentage Rate) credit, the interest rate on the debt consolidation loan could well be a lot lower too.

Best for: people who can keep up with monthly payments, but wish to make their debt more manageable.

Before you make any final decisions, it’s essential that you discuss your options with an expert debt adviser. They will be able to help you find the debt solution most suited to your situation. Debt management plans and debt consolidation aren’t the only options available: for more serious debts, an IVA (Individual Voluntary Arrangement) or a Trust Deed (for Scottish residents) may be more suitable.