What is the difference between debt restructuring and debt consolidation?

Restructuring is commonly mistaken for consolidation. Both of these solutions are very different. The only thing that unites them is the function they perform, i.e. facilitating the repayment of outstanding loans.

One is to change the repayment terms, the other to combine many liabilities into one. Of course, this is a very brief description of these services. Who, when and what solution should they use? What are the differences between them and the benefits that they bring?

What is restructuring?


Its main purpose is suspension of installment repayment (for a specified period), extension of the repayment period or cancellation of part of the debt. It also allows you to stop enforcement, thanks to which the indebted person gains valuable time to improve his financial situation.

In this case, we recommend our mediation specialists who deal with negotiations on behalf of those in debt on a daily basis for better repayment terms, or even cancellation of part of the debt – in specific justified cases.

When applying for suspension of repayments


The bank may suspend principal and interest repayments for several months. Important information at this point is that only the repayment of the installment will be suspended, and the interest accrued during this time will have to be returned.

This is a good solution for people who have temporarily lost liquidity. The bank may agree to even write off part of the debt. This happens when he sees the chances of getting the money back. Conversations with creditors are recommended.

Unfortunately, often the lack of proper knowledge or insufficient knowledge of the law can cause that negotiations can be unfavorable.

Therefore, our debt relief offer includes restructuring that will be carried out on your behalf by mediators who are not unfamiliar with banking law. Restructuring is beneficial for both parties – for the debtor and creditor. The bank has a guarantee of getting your money back and the debtor avoids the recovery procedure.

What is consolidation?


It merges all previous liabilities, so you have the option of paying one installment instead of several for a bank loan, credit card and even non-bank products. At the same time, it unifies the interest rate, terms and other repayment terms. It is true that one should reckon with the fact that not every bank offers such consolidation on which we would care. Therefore, you should carefully review the offer of consolidation loans , and on what terms they are granted. Remember, however, that consolidation is also debt.

The money obtained from the bank is used to pay off other loans and borrowings. Therefore, when granting the loan, the bank will not transfer money to your account, but directly to the accounts of those institutions in which you are indebted. This means that previous debts are paid off, at the expense of a new creditor, to whom you must pay a new installment every month.

Why are loan installments on consolidation lower? They are because of the longer credit period. In addition, a commission is charged for the loan and further costs arise, e.g. related to the need to purchase a policy. Banks are willing to consolidate debts because it is profitable for them.

An example of the cost of consolidation loan of one of the leading banks: Example representative of a consumer loan – a consolidation cash loan based on the provisions of Article 8 of the Consumer Credit Act: The actual annual interest rate (APRC) is 10.66%, the total loan amount (excluding costs credited) PLN 57,000.00 , total amount to be paid PLN 79,600.96, nominal interest rate variable 7.77% per annum, total cost of the loan PLN 22,600.96 (including: commission for granting the loan PLN 4,428.90 – 7.77%, interest 18 172.06 PLN), 83 monthly installments of PLN 959.05 each, last installment: PLN 958.86. The calculation was made on 04/01/2018 on a representative example. Consolidation is not a bad solution, however, if you are looking for an effective way out of debt, restructuring will definitely be the better solution.

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