What’s the Difference Between a Debt Consolidation Loan and Debt Counselling Services?

1. Call us today! 01603 552028 | mail@leading.uk.com     What’s the Di?erence Between a Debt Consolidation Loan and Debt Counselling Services? Debt consolidation and debt counselling – these two terms can often be misunderstood. In reality, they are di?erent. Debt consolidation is a physical solution to a debt problem, often in the form of a loan. Debt counselling, on the other hand, is a service for individuals, partnerships and businesses struggling with debt and not sure which way to turn. Debt counselling can often lead to a form of debt consolidation but whatever your debt position, getting a better understanding of these two terms is essential. Let’s look at them in more detail. Debt counselling services Nobody likes having to face their debt issues, be it individual or company debts. The ?rst thing to say is that the sooner you seek help, the better, and that is what debt counselling services do. Over the past year, the number of people and businesses in debt has risen signi?cantly, predominantly due to the coronavirus pandemic. Ernst Young predicted that UK businesses will have borrowed more than £60 billion by the time we reach the end of 2021. Indeed, the British Business Bank (BBB) recently released data

2. that revealed 45% of UK-based SMEs applied for financial support in 2020; 89% of those applications were due to COVID-19. Their data also showed that a ‘sizeable number’ were likely to struggle to recover and pay back their debts in 2021. Debt counsellors work with individuals and companies to help with not only managing their ?nances, but also working with them to ?nd the best solution to becoming debt free in the future. Depending on the ?nancial situation and the level of debt, it is possible to avoid bankruptcy or company liquidation. Quite often, a debt consolidation solution is possible and will avoid any court proceedings. But debt counsellors are not just there to help solve your ?nancial problems, they are also there to provide emotional support where needed. As well as giving practical advice and help for clients that have got into serious debt including ?nancial planning, how to manage money and budgeting, they are also able to help with: Assessing the client’s current debt situation Calculating monthly income and expenditure Determining priority payments and preparing monthly payment plans Managing ?nancial paperwork and advising on any potentially claimable bene?ts Following up on ?nancial paperwork and late payment problems with the client Working with clients throughout the debt programme and adapting as the situation changes Liaising with the client’s creditors to negotiate realistic, a?ordable payments on behalf of the client Advising on ?nancial planning, money management and budgeting Providing legal support and advice to clients, such as court hearings Support and advice through any bankruptcy or liquidation proceedings, if that is the best solution for the client. Debt counsellors will negotiate a debt management plan that is affordable to you and acceptable to your creditors. They will collate all your creditors’ information and work out how much you owe in total. Once they know your incomings and outgoings on a monthly basis, deducted your priority payments, such as rent, any disposable income is then divided between your creditors on a pro rata basis. Let’s look at an example: So, if you owe £1,000 to three creditors – £500 to one creditor, £300 to the second creditor and £200 to the final creditor – and you have a disposable monthly income of £100, the debt counsellor will calculate monthly payments of £50, £30 and £20. If the creditors agree, interest on the debts will cease and the debt counsellor will handle all the payments to creditors going forward until the debt is cleared. There are a number of organisations that provide debt counselling services that are very a?ordable, such as National Debt Advice or the Business Debt Line, who are government-backed.

3. However, whilst it is bene?cial to go down the route of debt consolidation, i.e. making just one monthly payment that is a?ordable in comparison to several una?ordable payments, there is a debt counselling fee involved, it may not cover all your debts. If one of your creditors has taken you to court, a debt counsellor will not be able to include that debt in your debt management plan. Debt consolidation loans A debt consolidation loan is simply that, a loan, but it speci?cally allows you to bring together all your debts into one loan, i.e. consolidating your debts, and thereby making just one payment a month instead of multiple payments. Whether it is an individual debt consolidation loan or a business consolidation loan, they are available in two forms – secured and unsecured. A lender will take into consideration your level of outstanding debt, and your credit risk, before they make a decision on which form of debt consolidation loan they are prepared to o?er. Generally, a debt consolidation loan is o?ered at a lowering interest rate than you may currently be paying, especially compared to combined interest rates, and a much more a?ordable single monthly payment, rather than several payments to di?erent creditors. But there are advantages and disadvantages to a debt consolidation loan that you should be aware of before you sign the dotted line. Advantages A lower, single monthly payment to one creditor, the loan provider, and repaying your creditors in full Spreading your debt over a longer period of time A lower interest rate, particularly if your current interest rate, or combined interest rates are signi?cantly higher Improving your credit rating by demonstrating you are able to make regular payments to creditors. Disadvantages Your savings may be cancelled out with high charges or additional fees in setting up the loan or settle debts with existing creditors If a secured debt consolidation loan you run the risk of losing the collateral you put up as security to the lender, i.e. your home or car, if you do not maintain regular payments Any missed payments will have a negative impact on your overall credit rating, which could impact your ability to borrow in the future. Whatever form of debt consolidation loan you consider, it is always wise to seek professional advice before you go ahead.

4. If your business is struggling with debts or you are thinking of winding up a solvent company voluntarily, the ?rst step is to seek professional advice. Our highly experienced professionals at Leading UK are on hand to help and advise on the process. By Jamie Playford | May 26th, 2021 | Business Rescue | 0 Comments Share This Story, Choose Your Platform!          Related Posts   When a privately-held company has no funds legally available to pay a mandatory redemption, do the preferred holders become creditors of the company? April 28th, 2021 Is it possible not to pay back your debts by hiding your money from creditors? April 14th, 2021 Can creditors come after my business for personal debts? April 5th, 2021 HELPING CLIENTS ACROSS THE UK For Business Rescue and Insolvency ... Call Today!

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