Debt Agreements vs Debt Consolidation Loans
Debt agreements are meant for people who are insolvent and are unable to meet their debt repayment obligations. These agreements are put into place between you and your creditors usually for a period of anywhere between 1 and 5 years at the end of which you can find yourself debt-free.
During the debt agreement period you have a single interest free repayment to make every month.
Whereas debt consolidation loans are designed for people who can afford their current repayments but would like to refinance in order to pay less. The main benefits of a debt consolidation loan are lower interest rate and lower repayments.
If you would like to consolidate credit cards the interest is likely to be significantly higher than a the rate applicable to a personal loan. Depending on the difference between the credit cards and the new loan, there may be an overall saving as well as easier management of debt through only having a single repayment.
If you are able to qualify for a debt consolidation loan you should not be making a debt agreement application. It is not always financially worthwhile to consolidate debts, therefore before making a decision to apply for a debt consolidation loan you should calculate potential benefits and savings.
Furthermore before deciding to apply for a debt consolidation loan you need to be aware that these are generally an unsecured personal loan offered by banks and other mainstream financial institutions. Therefore loan qualifying criteria is fairly stringent.
It will be next to impossible to find a debt consolidation loan for someone who
- has some history of bad credit (paid or unpaid defaults);
- is unable to support loan application with financials (no such thing as a low doc unsecured personal loan);
- has more than $50,000 of unsecured debts for consolidation;
- is currently regularly late with loan repayments or has over the limit credit cards.
- have been in current job for less than 12 months or has only recently become self-employed;
- has recently applied for financial hardship to their lender;
- has made more than 3 personal loan applications within the past 3 months
Remember that the first step to getting your debt under control is changing your attitude towards spending. If you continue to spend beyond your level of affordability, your debt problems may return shortly after you proceed with debt consolidation or any other form of debt solution.