What is the best? Debt Counselling or Debt Consolidation

Debt Counselling is when a over indebt individual goes to a debt counsellor to apply for debt counselling. With the help of a debt counsellor the over indebt individual can apply for lower monthly payments at creditor. The customer’s monthly expenses must exceed his income to qualify for debt counselling.

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 lower the individual’s monthly expenses. A consolidation loan is where you consolidate all your short term loans and credit cards with high interest rate into your mortgage loan which is a low interest long term lone. So you will get lower interest rates and the term will be extended to up to 20 years.

Many people with debt are finding it difficult to manage with increase in living cost and bills increasing month after month. A customer can apply for a consolidation loan or debt counselling to improve monthly budget or 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 reduce your monthly payments, but you will pay more interest because of the longer period of the loan. You will consolidate your short term high interest credit card and personal loans to your long term low interest mortgage loan. 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 monthly income must be lower than your monthly expenses, which includes living cost and debt, to qualify for debt counselling. The debt counsellor that helps you with the application will go to all your creditors and inform them that you have applied.

The debt counsellors will negotiate with all the customer’s creditors to lower monthly payments. The customer will stay in debt counselling until all debts are paid or customer situation changes for the better and applies to leave debt counselling. At the moment it is much easier to qualify for debt counselling than a consolidation loan at the bank. It is a sign of the current difficult financial times we are facing? Maybe.