Do you know the difference between debt consolidation and debt management? If you’re seriously in debt, it pays to know the differences so you can make a good choice and become debt free as fast as possible.
Debt management vs. debt consolidation
The major difference between these alternatives is that debt consolidation usually means getting a loan and using the money to pay your creditors In comparison, debt management is where you contract with a company or agency to create a debt management plan (DMP) that can help get you out of debt.
The downsides of debt management
The biggest downside of a debt management plan is that it does nothing to reduce your debt. If you owe $15,000 in credit card debt and get a debt management plan, you will still owe the entire $15,000 and will have to pay it all back. The debt management company or agency should be able to get you better interest rates and a lower payment but this will come at a price. If you go through debt management and then try to get a conventional, VA or FHA loan, you may be treated as if you had filed for chapter 13 bankruptcy.
Shred your credit cards
Debt management also means you will be required to give up all of your credit cards. You will also have to change your spending habits so that you don’t accrue any new debt until you complete your debt management plan, which will take about five years.
As I reported earlier, debt consolidation usually means getting a loan and using the money to pay off your creditors. You should have a better interest rate and you will have a lower payment than the combined monthly payments you’ve been making. This is due to the lower interest rate and the fact that you will have much more time to pay off the loan. But again, you are not reducing your debts. You’re simply moving then from one set of creditors to a new lender.
Look for a non-profit
If you feel debt management would be a good way to resolve your debt, there are some things you should look for in a debt management company before signing any contract. For example, the best option is usually to go to a non-profit credit-counseling agency. It will have counselors who have been trained and certified in money, debt management, budgeting and consumer credit. Because they are non-profits these agencies have a legal obligation to provide counseling and educational services. Unfortunately, not all credit-counseling organizations offer these services. Some of them charge very high fees, which may not be disclosed to you upfront or you may be urged to make big “voluntary” contributions. Some of the shadier companies will even tell you that a DMP is your only option before they actually review your finances. Others will claim they are non-profits when they are not or they may have fraudulently gotten their non-profit status by lying to the regulators about their business practices.
Before you accept a DMP
Be sure to do your homework and check out the agency or company before you sign off on a DMP. You can go to your Better Business Bureau and get the company’s rating. You might also check with your state’s attorney general’s office to see if it has had a lot of complaints.
After you accept a plan
Once you have accepted a debt management plan, it’s important to make sure the company or agency is making regular and timely payments. You should also review your monthly statements to ensure that your creditors are getting paid based on your plan. And if you ever were to discover that the company or agency is not paying its creditors or if there is some reason why you can’t make a scheduled payment, be sure to contact the organization immediately.
Consider debt settlement
There is a way to get your debt reduced, rather than just moved around. It is called debt settlement and it is what we do. We can negotiate with your creditors to get your debts reduced . We can provide you with an payment plan that will help you get out of debt in 24 to 48 months and it will be one you can afford. Start a chat or call us today to get more information on debt settlement and why it could well be your best option for debt relief.