The Main Differences Between Consolidation Loans And Debt Counselling
In Credit Repair of CreditGuru (November 14, 2024 11:47 pm)
If you find that your personal debt is starting to get to a point where it is spiralling out of control, then you do have two main options to choose from. These two options are consolidation advance and debt counselling, but what are the actual differences between them?
First it is important to quickly describe what happens with both options as this makes it easier to then see how they do indeed differ from one another. Basically a consolidation loan is going to result in you getting a loan against all of your outstanding debts which then means they are combined by yourself and you make a single payment each month.
The debt counselling approach involves an agency looking at the money you owe and who you owe it to with you then paying them an agreed amount every month and they distribute it to your creditors.
Whilst that is indeed a simplified version of what happens, there are several key differences in how both options work and this may make a difference as to which one you then go and use yourself.
To begin with you do have two options when it comes to getting a consolidation loan as you can get both a secured and an unsecured one from different companies. The secured version will mean you may need some style of collateral to borrow against while the unsecured loan suggests that you would like to indicate you have got enough regular financial gain to pay the monthly installments.
These 2 choices ar completely different to the debt counseling approach as they’re going to not provide you with a loan of any kind to pay off your debt, however instead they’re going to contend with your creditors directly and tackle the matter this manner. They will look to either freeze or reduce the interest and also lower the payments that you need to make each month with you then paying the debt counsellor, or agent, an agreed sum of money on an agreed date with them then paying the creditors from this.
It does mean you still only deal with one company rather than all of your creditors, but you should still be paying less money each month than you were previously.
Another main difference between the two options is that with consolidation loans you can still at least try to apply for other types of credit whereas when you are dealing with a debt counsellor this is something that is simply not possible.
You will also find that it is marked on your credit rating that you are getting help with your debts whereas this is not the case with the consolidation loan. It is worth pointing out that when your debt is cleared the agency informs the relevant credit bureaus and you will be free to apply for credit once more.
Finally, it is worth mentioning that you do have some level of legal protection when your debts are controlled by an agency and this does stop you from getting those threatening letters and phone calls as it is all controlled by a third party. However, consolidation loans also means previous debts are cleared so you will not get those calls or letters unless you start to default on the new loan, but it will still only be from the one company.
You can see how consolidation loans and debt counselling are indeed two different ways to try to get your debt problem under some kind of control so it stops simply taking over your life. There is little doubt that individuals can see advantages with each approach and at the end of the day it’ll come back all the way down to your own personal circumstances to handle your debt problem.
Consolidationloans.org.za explains everything in full detail. For additional information click here.
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