Debt management and debt consolidation are probably at the top of the debt relief options that most people consider. However, choosing between the two is quite a dilemma for many people because they tend to think the two are similar. Nothing could be further from the truth. The only common thing between them is that both are meant to help a struggling debtor get out of debt.
Debt consolidation helps a debtor to manage their debts by paying them off using another loan that has a lower interest rate and an extended repayment schedule. Essentially, consolidation loans are debts with every feature of repayable loans, just “friendlier” to the debtor.
On the other hand, debt management involves a credit counseling agency helping debtors to come up with debt management programs for better debt settlement. The credit counselors may manage to negotiate lower interest rates on their client’s behalf, and they may also make the repayments on the debtor’s behalf and get compensated by them.
Here are 5 reasons why debt management is better than a debt consolidation loan:
Professional debt management strategy –
Only professional credit counselors can draft acceptable debt management programs. Debtors can only get one if they commit to settle their debts according to the credit counselor’s recommendations, which are made after careful consideration of the client’s financial and debt status. Having professional assistance when dealing with debt is incredible for any debtor, especially when it involves negotiating for friendlier repayment terms. Consolidation doesn’t give debtors such an opportunity. They just gamble with the idea of putting their debts in one basket. It’s just moving their debt from one place to another.
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It knocks people out of debt –
The primary goal of debt management is to help a struggling debtor get out of debt. It aims at strategizing on how to walk the journey confidently and bearably. The possibility of negotiating for better interest rates and possibly smaller installments spread out over a conveniently lengthy time is proof of it. With consolidation, a debtor puts all their debts in one basket with no promises attached to it. Combining small debts into a huge loan is not a guarantee that it can be comfortably replayed.
It does not create more debt –
Anyone who goes out looking for a debt relief option is already struggling. Suggesting that a good option to deal with it is akin to proposing to put out a fire with more fire. It is very inappropriate, even with a promise of lower interest rates. There are no guarantees that the debtor has a hopeful credit score, and acquiring a loan has costs that come with it. Debt management never puts anyone in this precarious position.
You do not need a good credit score –
Debt management does not need further borrowing, which automatically means nobody will be interested in the debtor’s credit score. It focuses on the main goal – to repackage the already existing debt into more manageable debt. With debt consolidation, the new lender will most definitely care about the debtor’s sapped credit score or the existing loan that they have already defaulted on. So if you don’t have a good or excellent credit score, you might not be approved for the consolidation loan.
You get financial education in the same package –
Anyone looking for help with their debt would appreciate wisdom to help them know how to never walk into a similar situation in the future. Credit counselors will always be ready to guide their clients on better financial management. Over the time when they will be in contact with their clients, they get to learn their spending habits, hence they can advise appropriately and watch the change happening. Debtors who choose to go the consolidation loans way never get to learn any of this.
The best way to deal with debt will always be to get rid of it, and the best way to get rid of it is to start the journey as soon as possible. Debt management helps debtors deal with their debt while protecting their credit and not causing any further damage. The baby steps eventually pay off, and the financial education received during the debt management process is priceless. Contact Advantage CCS today to ask about our Debt Management Programs.