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Tackling your debts

Is debt management or debt consolidation better for me?

Posted 03 April 2013

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There are a number of ways you can deal with your debts. This guide compares debt management plans and debt consolidation loans.

If you've been thinking of ways to make your debts easier to deal with, you might have been considering a debt management plan, or a debt consolidation loan.

 

If you're not sure which one of these solutions is right for you, this guide could help. Filling out our debt solution finder below should also give you an idea of what might be right for you.

 

It should be fairly easy to choose between a debt management plan or debt consolidation when it comes to dealing with your debts. It depends on your situation.

If you can still afford your debts

A debt consolidation loan could be the right option if you still have enough money to pay your debts each month. People consolidate their debts for a number of reasons - often because they have several different debt payments to make each month and they want to make it all more straightforward.

 

Consolidation is designed to make repaying your debts simpler, by combining all your monthly payments into one payment. You might also want to make your monthly payments smaller by making your repayment period longer (but bear in mind you'd pay more in interest if you did this).

 

So consolidation isn't the right solution if you're really struggling with your debts, but it could make the debt repayment process a bit less confusing. It would also give you a real timetable for repaying your debts, so you can see how long it'll take - something that can be very hard to see with debts like credit cards.

 

Just remember: if you secure any debt against your home (by taking out a secured debt consolidation loan), you'll be putting your property at risk of repossession if you don't keep up with the payments.

 

Have a look at our debt consolidation frequently asked questions page for more information.

If you can't afford your debts

If you can't afford your monthly debt repayments, a debt consolidation loan isn't right for you - but a solution such as debt management might be.

 

Debt management has some of the same effects as debt consolidation - for example, all of your debts will be combined into one monthly payment. This payment will also be smaller and more manageable.

 

This is because when you start a debt management plan, you'll look over your budget and calculate how much money you have left over each month after you've paid your priority costs. If you choose a professional debt management plan, a debt expert will do this with you.

 

You'll then propose this new amount to your unsecured lenders - and promise to make these payments for a longer period of time. So you'll repay everything you owe, but your monthly payments will be more manageable. If they accept, your lenders may even agree to freeze interest and charges.

 

However, repaying your debts more slowly like this can cost you more in the long run - and it'll have an impact on your credit rating too.

 

Why not have a look at our debt management frequently asked questions page here.

by Sarah Symons

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.