If you are struggling to manage multiple debts then it may make sense for you to consolidate your debt. There are several distinct types of debt consolidation you can use. The simplest and most common of these is a debt consolidation loan, whereby you borrow from one single creditor enough money to pay off all your other smaller debts. Debt management can also consolidate your debt in a slighly more formal manner if you use the services of a debt management company. IVA Debt Consolidation can allow you to write off and consolidate debt though an insolvency practitioner.
Debt Consolidation Loans
Debt consolidation loans are probably what most people have in mind when they think about consolidating their debt. This is due the the fact that debt consolidation loans are widely advertised as they are, just another form of credit. Debt consolidation loans are easily accessible and can help you manage your monthly payments more effectively. When looking for a debt consolidation loans you need to pay careful attention to:
- Interest rates charged
- Monthly rates charged
- Length of time it will take to clear the loan
- Fees for missed payments
- Redemption penalties and other tie ins
The above points really relate to the total cost and flexiblility of the debt consolidation loan. Of course lower interest rates are desirable, but lower monthly costs can be a double edged sword, for whilst they may seem attractive in the short term, they can extend the repayment period unnecessarily and cost you more in the long term.
You should also pay attention to any additional fees which may be incurred for late payment, though the whole point of a debt consolidation loan is that you set something up that is both manageable and affordable. You should not be planning to fail!
The other consideration is redemption penalties and tie ins should you wish to take your debt elsewhere, or even find yourself in better circumstances and wish to pay the loan off earlier than originally agreed.
A Debt Management Process
Debt management does not necessarily involve debt consolidation, but under certain circumstances it can do, namely when you use a debt management company to administer the process on your behalf.
Debt management involves working out what you can afford to pay and then negotiating with creditors to try to reduce the payment terms and freeze interest.
It is possible to negotiate directly with creditors and try to put together your own debt management plan (agreement) but it can be a complicated and difficult process, and so it is usually better to seek advice on the matter.
Should you choose to use a debt management company, then they will consolidate the debt. You will make one single payment to that debt management company who will subsequently distribute payments between your creditors.
You can find more information on debt management here.
IVA Debt Consolidation
An IVA or Individual Voluntary Arrangement is a legally binding agreement made between yourself and your creditors with the help of an insolvency practitioner.
During this process your means to pay are assessed and the insolvency practitioner will negotiate to try and have your creditors write off a portion of your debt, leaving you to pay off what you can actually afford.
As part of the IVA process your debts will be consolidated into a single payment made to the insolvency practitioner who will then distribute payments amongst your creditors.
You can read more about IVA Debt Consolidation here, alternatively If you would like confidential professional advice on your specific debt problems please call us on the number above or complete this form to receive free debt advice.