If you’re looking for easy answers to your questions, especially if you’re in debt or struggling to keep up repayments on loans, you’ve probably gone online looked around and not been able to make head nor tail of any of it. It can seem like an endless round of jargon and complicated explanations with nothing set out simply or effectively and made easy to understand. Well, you really don’t need to worry anymore, here is a helpful and handy guide to understanding two terms relating to debt – debt consolidation vs. debt management, how to get to grips with what they mean and which of the two would work best for you if you found yourself in dire financial straits.
Debt Consolidation vs. Debt Management
Debt consolidation is defined as follows: it’s the method of combining all your debts into one loan which you then have to repay over a certain amount of time. There will be interest added to these payments. You will agree with your lender how much you want to pay back and agree a set amount of time to do it in. For some it is a very workable way of clearing debts which seem insurmountable. For others it might not work quite as well.
There are some companies out there who will try and make false claims about the way to best go about this. The simple fact of the matter is that you actually don’t always need a company to help you consolidate you debt. If you so wished you could do it person to person! Here’s an example:
You are greatly in debt but a family member has offered to help you. They basically foot the bill and pay all your creditors off. They tell you then that you have to pay them back, over a period of time, with a small amount of interest added. That’s a simple way of consolidating a debt.
Debt management is slightly different: This is a program in which you entrust your finances to a specific company and they negotiate with all your creditors to try and find a way to pay off all your debts easily. Unlike debt consolidation, this isn’t something you can do person to person, you need a specific company to help you with it – and you need to be careful who you choose.
This Is How It Works:
- The company that you sign with will take control of your finances. They’ll deal with your creditors and negotiate payment terms
- You pay the debt management company and they in turn, pay your creditors
- You’re locked into a fixed term payment plan which might last up to five years, or until your debt is completely paid off
- You need to be aware you’ll be eligible for fees and admin charges for this type of plan, so it really does pay to be aware of what you’ll be being charged for and how much
- It might affect your future credit scores
- If you or the company you’re with don’t pay on time, this can also impact on your finances now and in the future, so it’s important you not only keep on top of your finances but make sure you check on the debt company too.
Debt Consolidation vs. Debt Management – Which One?
It very much depends on your situation, your circumstances and what suits you best at that particular time. Debt consolidation vs. Debt management can be a minefield so it is always worth talking to experts to see what the best way forward is – or making sure you do enough research online, to make sure you’re going to opt for the right company.
Of course, the best solution is not to get into debt in the first place, and if you do, to try and manage it as best you can without having to resort to choosing between either debt consolidations vs. debt management. But it really isn’t always that easy and it is a rare person that has never found themselves in debt of some kind.
If you’re struggling to complete monthly payments on anything, then looking into debt consolidation vs. debt management might be the only way forward if you’ve exhausted all other angles. Both have their benefits, but also are no guarantee that at some point in the future you won’t end up in debt again or in financial trouble. It is always best to plan for the future and save where you can, and learning to deal with your finances proactively can actually prevent a lot of problems from occurring in the future. If you’ve found yourself having to rely on one of these services, then it isn’t the end of the world, but it can also be a prompt to be more savvy and aware of where your money goes in the future.