Scottish trust deeds and debt consolidation loans are both types of debt solutions, but that is where the similarities end. The former is a method of insolvency designed to put an end to the struggles of trying to manage unaffordable debt, whereas the latter is a loan which is used to pay off outstanding debts.
A trust deed is a genuine debt solution and doesn’t require you to take out any additional finance. Not everyone is eligible for Scottish trust deeds so you will have to contact a debt help expert for advice before making your application. If you are successful, your monthly payments will go to your existing creditors that you owe money to.
Debt consolidation requires you to obtain an additional loan to cover the value of your existing debts. Once the funds have come through, you will pay back all of your debts to various companies and be left with the one larger loan.
As you are required to obtain a rather large loan for debt consolidation, you will have to undergo a credit check. If your credit rating is low due to missed payments and debt struggles, you might find it difficult to go through with debt consolidation.
Trust deeds don’t require any credit checks as you don’t need to source any additional finance. A trust deed is a formal arrangement rather than a loan. Your credit rating may be rock bottom, but provided that you meet the eligibility criteria, you can still enter a trust deed.
When you and your insolvency practitioner arrange the trust deed you will establish an affordable monthly payment. Your income and expenditure will be scrutinised to find a payment that you will be able to meet every month for the next three years. Your payment will be calculated using your income after all household expenses have been accounted for, meaning that you won’t have to worry about paying the bills or buying food.
If you take out a debt consolidation loan you will have to meet the payments set out by the provider, just like any other loan. Your monthly payments may be lower and easier to manage, but there is no guarantee that you will be able to afford them. If you start to miss payments, you may find yourself slipping into a vicious debt cycle.
Write off debts
Once the three year trust deed has been completed, any outstanding debts will be written off even if you have not repaid them in full. When your creditors agree to the trust deed proposal, they are accepting that they are unlikely to receive the whole outstanding amount back.
If you opt for debt consolidation, you will be required to make the monthly payments for the full loan until everything has been repaid. This is usually more viable for people with lower debts and higher disposable income.
If you are struggling with debt but are unsure whether a trust-deed or debt consolidation is right for you, seek some expert debt help.