Debt Management & Debt Consolidation - what’s the difference?

If you owe money to multiple lenders, it might be difficult keeping track of your debts: how much do you pay to which lender, and when? Making payments late - or not at all - can lead to additional charges and even (on some credit cards, for example) higher interest rates. It can also affect your credit rating, making it harder and / or more expensive to get credit in future.

A consolidation loan:

* is a new loan big enough to pay off all / some of them. Instead of owing various creditors a portion of your debt, you’ll owe the entire amount to one company, making your finances easier to manage.
* can reduce the rate of interest you’re paying - if you’ve built up debts on high-interest lines of credit like store cards, credit cards and overdrafts, you might find a consolidation loan with a much lower interest rate.
* can reduce your monthly payments by arranging to pay it back more slowly, although this can increase the overall amount you pay back, as you’ll be paying interest for longer.

Debt Management
To manage: ‘to take care of or organise’

If you’re struggling to make your monthly repayments, a debt management company may be able to help you bring them down to a level you can afford.

It varies from one organisation to the next, but basically, they might:

* negotiate with your creditors on your behalf, asking them to accept lower monthly payments (based on what you can afford), to freeze / lower interest rates and to waive charges.
* handle phone calls and paperwork on your behalf.
* distribute your payments for you - you send them the money once a month, and they pay the agreed amount to all of your creditors.

If creditors agree to lower payments but won’t freeze / reduce interest, you’ll end up paying more.

Some creditors might agree to compromise, and others might not. Some may agree but register a default, as you’re not sticking to the original repayment agreement. This could affect your credit rating - but if you’re already struggling to make your payments, this may happen whether you talk to a debt management company or not.