The intricacies and variables attached to personal debt necessitate a number of different debt solutions, suited to the circumstances of the affected party.
Two of the most commonly sought-after solutions are Debt Management and Debt Consolidation, and whilst their end goals are the same, their methods are completely different.
People with different sized debts and different financial circumstances will benefit from different techniques to work their way out of these debts. Choosing the correct solution for the debt can help the affected party ease their financial burden quicker and fewer negative repercussions. This makes it incredibly important to fully understand the total implications of all debt solutions and how they can benefit the debtor.
The differences between the two forms of debts solution.
A debt management plan is the realigning of repayments in-fitting with the financial capabilities of the debtor. A debt advisor will hold an initial consultation with the debtor, measuring the level of debts accrued, the financial capabilities of the debtor and the number of creditors. Once the advisor devises a rate of repayment better suited to the debtor, they will approach the case’s creditors.
The advisor will move to get the creditors to agree to a new rate of repayment. Many creditors will be inclined to do so as it will help guarantee they will receive the outstanding payments. Once all parties have agreed on a new rate of repayment, it will be introduced.
The plan will be revisited regularly by the advisor as they continue to hone it to a point wherein it best suits all parties.
To qualify for a Debt Management Plan, you must meet certain criteria; each provider will have different requirements.
Alongside the customisable repayment options, a Debt Management Plan also offers the debtor peace of mind as it inhibits creditors from making direct content. Additionally, an advisor may be able to negotiate with creditors to have interest rates and additional charges frozen as a part of the new plan.
There are a few disadvantages of the Debt Management Plan however as credit ratings will be negatively affected and the lower rate of repayment will mean that debts will take longer to repay. Creditors are not required to agree to the new terms and will only do so where they can see a benefit to themselves.
A debt consolidation loan can be used to pay off all existing loans in one lump sum, leaving just the consolidation loan debt to repay. This can result in significantly lower monthly repayments for the debtor, more in line with their income. As well as being lower, one monthly repayment will be easier for the debtor to manage, ensuring that payments are not accidentally missed and additional charges are accrued.
The debtor may be given the opportunity to decide upon their rate of repayment for the Debt Consolidation Loan, allowing them to find a rate that best suits their income and expectations.
There are a few disadvantages to taking out a Debt Consolidation Loan, most notably, the total repayment amount will be higher than before the loan was taken out. Additionally, in many cases, a property may be used as equity when applying for the loan and missed payments could lead to the debtor’s home being repossessed.
If you are struggling to repay your debts, it can be incredibly beneficial to speak to a financial advisor and explore your options.