Debt Management v Debt Consolidation: a comparison
Many people in debt consider consolidating their debts or approaching a debt management company. Either debt solution (they’ve probably heard) could help them reduce their monthly outgoings and bring their debts back under control.
Obviously, this brings up the ‘Debt management v Debt consolidation’ question. How do the two compare? Is one better than the other? Is it even fair to compare debt management and debt consolidation?
Debt management & Debt consolidation – a comparison
First of all, debt management and debt consolidation can deliver similar benefits and similar drawbacks:
| Debt management and debt consolidation can both: | But they can both: |
| Reduce the amount you pay out every month. | Increase the total amount you end up paying back. |
| Turn multiple payments into a single payment – to a single company. | Postpone the day when you’ll be debt free. |
Even so, it’s important to realise that debt management and debt consolidation work in very different ways:
| Debt management | Debt consolidation |
| Involves asking debt management professionals to deal with your unsecured creditors on your behalf…* | Involves taking out a new loan to pay off your unsecured debts… |
| …so your unsecured debts (and creditors) will still be there – but you won’t have to deal with them directly. | …so your ‘old’ unsecured loans will no longer exist – you’ll just have one new loan to pay off. |
Depending on your circumstances, however, debt management and debt consolidation might not both be suitable for you.
Who is debt management right for?
A debt management plan is designed to help people who genuinely can’t keep up with their monthly payments to their unsecured debts. It works like this: you ask debt management professionals to talk to your creditors on your behalf, and they’ll ask them to consider ways of helping you make your payments. They might, for example, agree to accept lower monthly payments, waive charges and/or freeze interest. In other words, if you can keep up with your debt payments, debt management won’t be an option.
Who is debt consolidation right for?
Debt consolidation, on the other hand, is available to anyone. This doesn’t mean it’s always a good idea, but anyone has the right to take out a new loan (as long as they can find one) that’s large enough to pay off their other debts!
Debt management v Debt consolidation – it’s your choice
So it all depends on your circumstances: where you stand today and where you’re likely to stand tomorrow. It also depends on your attitude to debts, paperwork and official phone calls – some debt management companies (such as Gregory Pennington) will handle all the ongoing dealings with your creditors.
As with any debt solution, it’s never a good idea to commit yourself until you’ve spoken to a professional debt expert.
If you’d like to know more about debt management – and how it compares with debt consolidation – call Gregory Pennington on freephone 0800 161 3516.
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* It’s entirely possible to negotiate with your creditors yourself, and some people prefer to do this.
Gregory Pennington are founder members of DEMSA (Debt Managers Standards Association).
DEMSA are the first trade body within the finance industry to successfully secure approval for its code of practice under the OFT Consumer Codes Approval Scheme (CCAS).
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