Debt consolidation loans

A debt consolidation loan is just one of many solutions available to those looking to resolve their debts. It’s also quite a popular one. Taking out funds equal to – or exceeding – the total of the money owed, a consolidation loan gives people the opportunity to cease dealing with multiple creditors while only focusing on one, affordable, monthly payment.

However, this does have disadvantages. For example:

• If you have credit issues, there is no guarantee you will get a loan at a comparable rate of interest to the debt you already have. This means the total amount you repay could be much greater than the sum of your debts.
• If you have a large amount of debt, lenders may request the loan be secured against your property. As a result, if you wish to protect your assets, a consolidation loan may not be the best choice.

Are debt consolidation loans a good option for bad credit?

Although some consolidation loan providers will certainly consider those with bad credit, there is no guarantee that you can secure finance in this manner. Furthermore, in this situation, you could be charged high rates of interest.

At DFH, we specialise in debt management plans (DMP) and this might be a better option if you’re looking to repay your creditors.

How does debt consolidation compare with a DMP?

Debt management plans and debt consolidation both help you regain control of your finances. Although the end goal is the same, they employ different methods to accomplish it. Broadly, a debt consolidation loan involves you taking out additional funds to repay your creditors while a DMP involves a third party carefully managing and handling repayment.

A DMP can also be a better solution for those with poor or bad credit because – as there are no new loan applications – your score won’t factor into the application. As a result, these plans are sometimes used by people to rebuild their credit rating.

Otherwise, there are differences with these two solutions including such aspects as repayment period, types of debt covered, and affects on interest rates and charges. Regardless, if you think a DMP is a better option for you than consolidation, get in touch with us today and one of our financial advisors will be happy to discuss your circumstances.