debt management loan

Are you struggling with your debts and don’t know what to do about them?

Debt management loans or debt consolidation loans may ease your situation to a great degree. If you don’t know what these loans are, you’ve come to the right place.

I’ll be covering everything you need to know about debt management plans, with an FAQ section for further clarity. 

Let’s get right to it.

What is a Debt Management Loan?

A debt management loan is a loan you get that is equivalent to the amount you have to pay on your outstanding debts, including interest.

Basically, it allows you to combine your debt payments into a large loan, most probably at a lower interest rate.

Debt management plans can help you make payments towards a single loan instead of having to make multiple payments on several smaller loans.

As for the specifics, debt management loans can be secured or unsecured debt management loans.

A secured loan is one that is secured against some property or other asset of yours.

In contrast, an unsecured loan is a loan you get without any collateral associated with the amount.

debt management loan

Is it Beneficial to Consolidate Your Debts – Pros and Cons

This section addresses whether it is beneficial to consolidate your debts into a single loan by virtue of debt management loans.

Let’s get right into it.

ProsCons
Debt management plans allow you to keep an eye on your monthly payments and make it easier for you to make these payments.
It’s possible for you to improve your credit rating by virtue of making a one-time payment on your debt management loan.
A debt management loan can get you a much lower interest rate than what you’re currently paying on your debt.
It’s very possible that you won’t have to pay as much per month that you have to do without the loan. You’ll have to pay a lower amount in general as well, because of the lower interest rate.
Debt management loans, particularly secured ones, can be difficult to keep track of. If you miss payments, you could be at risk of losing your property.
These loans can be very costly to set up and get engaged with.
If you miss payments on a large debt management loan, your credit file may be severely impacted.
There are better alternatives available out there. Alternatives such as 0% balance transfer credit cards don’t cost you as much as these loans and can help you better with your loans.
debt loan

How Can You Find the Right Debt Management Loan?

There are a number of factors that go into determining whether a debt management loan is right for you.

Firstly, look at the interest rate being offered. If it is significantly lower than the interest rates on your debts, this is a good sign.

Secondly, calculate the exact amount you need to borrow, adjusted for interest. If you know exactly how much you need to borrow, you won’t end up borrowing more or less than you need, which will impact you in a negative way.

Finally, look at how long it will take you to pay your debt back. It may seem like paying it over a very long time can be good for you, particularly since you’ll be paying less in individual payments each month.

However, the longer you take to pay back your debt management loan, the most you’ll be paying in interest each month, which can add a lot to the total amount you have to pay.

debt management

How Do Debt Management Loans Affect Your Credit Report?

To put it simply, you can potentially improve your credit report by making regular monthly payments on your debt management loan. 

Making regular payments and acting in a financially responsible manner can help you tremendously.

However, it can have a negative impact on your credit file at first, particularly since you’re taking out a big personal loan, which is seen as a financially risky move.

FAQs

How do I know if a debt management loan is right for me?

If you’ve found a debt management loan with low interest and one you can afford to make repayments on easily, it may be right for you.

In general, if it makes it easier for you to manage your debts, it is right for you.

Is it easy to get an unsecured debt management loan?

Not necessarily.

Unsecured loans are harder to get than secured, particularly since you’re in debt, aren’t seen as financially stable, and aren’t putting up anything as collateral.

Even if you do get them, it’s likely you’ll get them at high interest rates, since you’re putting anything up as collateral.

Should I avoid debt management loans?

You should avoid debt management loans if your debt is small enough that you can pay it back in six months to a year. You’ll be wasting money on lots of processing charges and other expenditures.

Other than that, if you know a debt management loan won’t help you in managing your debt, it’s probably a useless effort.

How long do debt management loans stay on my credit report?

Like a lot of other personal loans, such as credit card loans or other loans, a debt consolidation loan will stay on your credit report for a period of six years, starting from the date when you pay off the loan or the date when you default on the loan.

Does my credit report affect my chances of getting a debt management loan?

A bad credit rating will come with stricter terms and conditions.

For example, your creditors may demand a much more valuable asset as collateral if your credit report is poor and you’re seen as an unreliable borrower. So yes, it does affect your chances of getting a loan.

Wrapping it Up

I hope this article helped you better your understanding of what debt management loans are and how you can benefit from them.

By now, you’ll have a better idea of what you can do with these loans, how you can get them, what you need to keep in mind when getting them, when they’re right for you, when they’re not, how they impact your credit score, and a number of other things.

If you need more debt advice, feel free to reach out.

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
×
×4 Question Debt Write Off Calculator SEE IF YOU QUALIFY