What’s the difference between debt consolidation, debt management and debt settlement?

 

Are you currently unable to repay your loans even at their possible minimum values? Does filing for bankruptcy feel like your last and worst option? Well, do not fret because it isn’t your last option. There are other debt relief options available for you. Debt consolidation, debt settlement, and debt management are debt relief options whose use will vary depending on your situation.

Debt consolidation

You have probably heard about this before. Well, put simply, debt consolidation is the process of taking out a loan to pay off all your other debts then you will have one lender to repay at the end of the month at a lower interest rate and in smaller amounts.

You should sign up for this plan if:

  1. You are struggling to organize multiple bills for several debts. When you have more than two monthly repayments and you find yourself making late payments for some debts, or when you lose some bills in the shuffle, then it may be time for you to consolidate your debts.
  2. You are unable to make the current monthly payments for all the debts. Debt consolidation is made easy by the best debt consolidation companies around you. Most repayments will be lower than the current repayments after consolidation. Talk with your financial advisor or a credit counselor to get the lower and reasonable repayment rates.
  3. You have several high interest rate debts. This can be overwhelming and a consolidation plan offering lower interest rates for one debt is your life saver.

You should remember that your new debt consolidation agency will require payments when consolidating your loans. You should be willing and able to pay the agency fees and the transaction or arrangement charges.

Besides debt consolidation, the other consolidation plans include use of your life insurance policy as a loan, your 401(K) account, zero percent interest promotional credit cards, house equity, or student loans.

Debt management

As you go through the top debt consolidation reviews, you may also consider debt management. After consultation with your financial advisor, you may find that debt management is your appropriate solution. Under debt management, your counselors will negotiate lower interest rates or minimum debt repayments.

This is a good strategy when you can’t make the minimum requirement. So, you will deposit the agreed amount in an account under the debt management company, under a debt management program, and the debt management company will pay the lending company.

Besides minimum payments, you will also receive education on better financial management. Unfortunately, this may hurt your credit history.

Debt Settlement

This is a last option debt relief strategy. It also doesn’t work for secured loans or student loans. Debt settlement involves your credit counselor negotiating with your creditors for deals that could eliminate the outstanding debt.

Your advisor may recommend that you stop making payments then default as this is the best way of pushing creditors to make deals. Once the deal is made, you will make payments to an account set up by the credit advisors and the creditors get paid after the whole amount owed is collected in the account. The counselors usually work out lower payments with the creditors.

Sometimes, when you have a large amount of money, a settlement with your creditor may be pliable.

 

In conclusion, these debt relief options are available to lessen your financial burden over loans. The last resort is filing for bankruptcy which has higher chances of tainting your credit score.

To avoid having to seek any of the above relief options, you should cut down spending and basically chew what you can swallow.

 


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