When you have decided to get rid of your debts, the next decision that you will make is how you will accomplish that. To make that choice, it helps to know the different qualifications that will allow you to successfully solve your credit problems. Some of the options have significant differences in terms of requirements while the others have minimal distinctions.
Two debt relief options that are more similar than the rest is debt consolidation loans and debt management. To help you choose between the two, let us discuss their similarities and differences. There are two factors to consider: process and requirements.
Beginning with the process, they both will lead to a single payment scheme. In debt consolidation loans, you will apply for a loan that is big enough to pay off your other credits. Once they are all paid off, you can only concentrate on the big loan. The effort exerted to monitoring different accounts can now be put into your efforts to grow your debt payment fund.
In debt management, you hire a third party company who will assign a counselor to help you come up with a payment plan. The debt counselor will negotiate with the creditor to allow you to lower your monthly dues by increasing the length of your payment period. For a minimal service fee, you will send the total amount of your monthly debt payments to the counselor who in turn, will distribute it to the creditors that you enrolled in the program. Since they are taking care of the details, you can also concentrate on growing your income so you have more to use on your debts.
Both of them will aim to give you a lower interest rate. However, this is more controlled with debt consolidation loans. Naturally, you will choose the loan that will give you a low interest rate. In debt management, you leave it in the hands of the creditor. The counselor will help you negotiate but there are no guarantees.
In terms of the requirements, you need to have a steady income for both of them. They will not reduce your debt balance like debt settlement. You will just be shifting your debts around so you can benefit from the single payment plan. The difference between the two is the additional cost required in debt management. You need to pay for the service fee of the counselor – who is helping you distribute payments and communicate with your creditors.
In debt consolidation loans, you need either a good credit score or a collateral so you can enjoy a low interest rate on the loan that you are applying for. These two requirements are not necessary to get a loan approval but they both will make you a low risk borrower. By being such, you can be given a low interest rate on your loan. If you are a high risk borrower, the lender has to protect their investment because the chances of you defaulting on your payments is more likely. A high interest rate will give them this security.
These are the main similarities and differences of debt management and debt consolidation loans. Choose based on what program you think you can finish. It is important to select the one that will help you learn your lesson. More than anything, you need to learn how to stay out of debt – even as you are paying off the current one. Regardless of your choice of debt relief, this is vital for you to truly achieve financial freedom.