Debt Counselling or Debt Consolidation?

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Tuesday, July 21st, 2009 Subscribe To Our Feed

Debt Counselling is when a over indebt individual goes to a debt counsellor to apply for debt counselling for protection from creditors. Debt counselling will allow the over indebt individual to negotiate with his creditors to lower monthly installments with the help of a debt counsellor. The customer will qualify for debt counselling when his monthly expenses is more than his monthly income.

Debt consolidation is when an individual will take out a new loan with lower interest rates and sometimes longer repayments terms to reduce the monthly installments and so better the individual’s cash flow. Most of the time an consolidation will take place where your credit cards and loans are consolidated into your mortgage. So you will get lower interest rates and the term will be extended to up to 20 years.

Living cost and bills are increasing month after month and people are finding it difficult to manage their finances. Customers have a choice to consolidate debt or apply for debt counselling to improve personal cash flow.

To be able to consolidate debt you need to have a mortgage to consolidate debt. Only a mortgage with long term and low interest will decrease your monthly payments. So you will consolidate your short term high interest credit card and personal loans to your long term low interest mortgage. Currently many people find it difficult to convince a bank to further lending. Banks have increased lending criteria and it is not easy to get consolidation loans via you mortgage.

The other way to lower monthly installments, is to apply for debt counselling. Your income must be lower than your expenses to qualify for debt counselling. The debt counsellor will contact all your creditors and inform them that you have applied for debt counselling.

The debt counsellor will negotiate with creditors to lower monthly payments to what the customer can afford to pay each month. The customer will stay in debt counselling until all debts are paid or customer situation changes and opts out of debt counselling. It is much easier to qualify for debt counselling than a consolidation loan at the present time. It is a sign of the current difficult financial times we are facing? Maybe.

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