The principle behind a debt consolidation loan is that if a person owes money to multiple creditors, they borrow a large, lump sum to repay their creditors and are then left with one creditor and one monthly repayment. The idea is that the repayments on this single, larger loan will be lower than the sum they are currently paying.
This works very well if the person can easily afford the repayments and they are just looking for a way to simplify things and bring down the interest rates. However, there are many people that struggle to meet the repayments each month. Some of these even find that their outgoings each month exceed their income. These people are classified as being in debt and a debt consolidation loan will not actually get them out of debt and will not alleviate the problem. A debt management plan is a method for reducing their debt and allowing them to become debt free. It will consolidate all their repayments into a simple monthly payment and it does not involve them taking out another loan.
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