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Debt consolidation loans

Debt consolidation loans or debt management?

Debt consolidation loans mean you take out a loan to join all your debts together and pay back the people you owe. Debt management solutions mean you make payment arrangements with your creditors or have debts written off. Our guide explains what the most common debt management solutions are, how they work, and how to find out which is best for you.

To see if debt consolidation or debt management is right for you, it is best to get free and impartial debt advice

Quickly find what you are looking for


  1. Is debt management the same as debt consolidation?
  2. What is a debt management plan (DMP)?
  3. What is a debt relief order (DRO)?
  4. What is an individual voluntary arrangement (IVA)?
  5. How does bankruptcy work?
  6. Is debt management or debt consolidation better?

Is debt management the same as debt consolidation?

They have some similarities but how they actually work is very different. Sometimes the outcomes are different too.

These are the main similarities and differences between a debt management plan (DMP) and debt consolidation. We always recommend getting advice to fully see which option is best for your situation.

Debt management


  • You make one monthly payment that is divided between the people you owe
  • Your creditors might agree to freeze interest and charges
  • The stress is taken out of dealing with your creditors all the time
  • You don’t need ‘good’ credit to get a DMP
  • Repayments can be flexible if your circumstances change
  • Not all debts can be included in management solutions
  • Your credit score could go down by making smaller payments

Most debt management companies charge fees for DMPs. StepChange offer DMPs for free.

Debt consolidation


  • You make one monthly repayment to your consolidation loan lender
  • Interest and charges are added to your repayments
  • You only have one creditor to deal with – the loan lender. This is if you have been able to pay off all your debts with the loan
  • It may help you repair your credit file over time, if you keep up with payments
  • It means taking out more credit. This could lead to more debt
  • Repayment terms are not flexible if you cannot afford them anymore
  • Interest could be higher than what you are paying now
  • You might not get the best deals if you already have poor credit

What is a debt management plan (DMP)?

This is a way to pay off your debts at a rate you can afford by making a single monthly payment. It is usually for people who have some money left over at the end of the month after paying their priority bills, but not enough to pay all their debts.

You only pay what you can afford in a DMP. As things get better, you can pay more through your plan to pay the debt off sooner. And if your situation changes, your budget can change too.

The DMP provider will contact the people you owe money to and:


  • Ask them to accept lower payments
  • Ask for interest and charges to be stopped
  • Make a single monthly payment to the people you owe

Find out more about debt management plans.

There are other ways to feel more in control of your debt than taking out a loan to consolidate debt. Use our debt consolidation calculator to find out if debt consolidation or debt advice is right for you.

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What is a debt relief order (DRO)?

DROs are for people who have a small amount of debts and a low income. When your DRO is finished, the left over debt is written off.

You cannot get a DRO if you live in Scotland but Minimal Assets Process (MAP) bankruptcy is similar.

To apply for a DRO, you must:


  • Live in England, Wales or Northern Ireland
  • Owe less than £50,000
  • Have less than £2,000 in assets and a car worth no more than £4,000
  • Have less than £75 in surplus income per month after paying your household bills and living costs

Surplus income is the amount of money you have left over after paying your bills and living costs. This is how much you have left to pay back what you owe.

Find more simple explanations of debt terms in our glossary.

What is an individual voluntary arrangement (IVA)?

With an IVA you pay what you can afford for a fixed amount of time. When your IVA finishes, any debt you have left will be written off.

You cannot get an IVA if you live in Scotland, but a protected trust deed (PTD) works in a similar way.

IVAs are arranged by an insolvency practitioner. They will:


  • Help you throughout the process
  • Look at your finances
  • Write a proposal for the people you owe

It works by making monthly payments over an agreed amount of time. In most cases, this is five or six years. The payments are based on what you can afford. And the payments you make also include a fee.

At the end of the agreed time, your lenders write off the debt that is left.

Find out more about individual voluntary arrangements.

How does bankruptcy work?

Bankruptcy is a way of writing off your debts if you have no other way to pay them. It is a form of insolvency, which means it is a legal process.

It should not be taken lightly as it is a big step, and you might have to sell things you own. Bankruptcy can impact certain jobs and seriously affect your credit rating.

To apply for bankruptcy, the amount of unsecured debt you have must be more than how much your assets are worth. Assets are things like property and vehicles.

If you go bankrupt, the people you owe write off your unsecured debts. This gives you a fresh start after 12 months. But you will have to follow strict rules during the bankruptcy.

There are different forms of bankruptcy across the UK. Find out more about:



Is debt management or debt consolidation better?

Both options come with pros and cons. It depends on your specific financial situation for which one will be a better option for you.

Not sure what to choose? We can help.

Use our free online debt advice and support service to look at all your options.

We will help you make a budget and recommend a way to deal with your debt that suits your situation.

You can start, pause, and come back to it later.

Debt happens. We deal with it.

We have helped millions of people since 1993.

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