Should you choose debt management or debt consolidation loans? This is a question that people have every right to ask. After all, if you want to be smart with debt relief, you need to understand what your options are. You can start by getting to know more about these two debt consolidation options before you proceed.
According to reports, debt causes significant amounts of stress in our lives. If you want to lower your stress level, you may want to get rid of your debts first. Fortunately for you, there are various options that will help you accomplish this. However, finding the right debt solution may be a bit more challenging.
While all the debt relief programs are effective, not all of them are suited to your specific debt and financial situation. You can find the perfect solution by looking for certain signs. When you have these signs, it means the debt relief program can help you get rid of your balance and at the same time, improve your financial position.
Of all the consolidation strategies let us discuss the signs that will determine if you should go for debt management or debt consolidation loans.
Signs you should choose debt management
Let us start with debt management. You need to ask yourself if this debt relief program is worth it.
When you opt for this strategy to consolidate debt, it means you will be working with a credit counselor. This debt expert will discuss your unique debt and financial situation. Together, you will come up with a debt management plan or DMP. This plan will hold all your credit accounts. You will analyze your debt payment capabilities and distribute it to all these debts. It is important for you to be honest with how much you can afford. If it is too high, you might fail to meet the monthly payments. That will make the DMP null and void. If the payments are too low, it will take you forever to get out of debt.
The credit counselor will guide you in creating this DMP. When it is completed and you agree to the monthly payments, this plan will be presented to your creditors and lenders. If they approve, you will start to send your monthly payment to the credit counselor. They will take charge in distributing this amount to your creditors and lenders.
Now that we know what debt management is all about, let us look at the signs that will tell you if it is the right way for you to consolidate.
If you need professional help
Just be honest with yourself if you need professional help. It is not embarrassing to ask for help because it is oftentimes the fastest and most convenient way to get out of debt. Sometimes, consumers get professional help because they are too busy with their work to focus on getting out of debt. If they are not focused, there is a higher chance that they will make a mistake. A credit counselor will not just help you get out of debt, they can also teach you how to manage your money so you will not land in the same financial situation again.
If you want to keep your credit score untouched
Debt management is also a good idea if you do not want your credit score to be affected. Unlike the other consolidation options, this will not involve the opening of another credit account. The creditor will just restructure your payment plan so it will not be a heavy burden to your monthly budget. Since you will end up paying for all your debts, the DMP will not be reflected in your credit report.
If you cannot control your spending habits
In debt management, you are forced to freeze your credit accounts until after you have paid it off. This is why you will not be tempted to use it. This is a good way for you to control your spending habits so you do not add more debt to what you already owe. It also helps if you try a frugal lifestyle. When you live a frugal life, you prioritize your spending. You only pay for what is important and you are more cautious of where you put your money.
If any of these signs are true for you, then it makes sense to opt for debt management.
Signs you should choose debt consolidation loans
In case none of the signs show that you are perfect for debt management, then you might be more suited for debt consolidation loans.
This type of consolidation strategy involves borrowing money that is big enough to pay for all your credit accounts. When this loan is approved, it will pay for all your other debts. The end result is you having one big loan to pay off each month.
Now how will you know if this is the right debt solution for you?
If you can qualify for a lower interest rate
The first sign that you need to look into is the interest rate. If you can get a lower interest rate, then this will be an improvement from your original debt situation. According to reports, a lot of people are paying an average of 20% APR or more. If you can get an interest rate that is much lower than this, it will be a huge discount on your overall debt payments. In case you cannot find a lower interest rate, you might not want to pursue debt consolidation loans.
If you know how to manage your finances
Another sign that you need to look into is your own financial management skills. Unlike debt management, you will not have access to a debt professional who can advise you on what to do. You have to be responsible for your own monthly payments – making sure that every due date is met. It is also a must that you know how to control your spending. Because if you end up using the credit cards that you paid off with the loan, you will just make your credit situation worse. So make sure you know how to manage your finances well.
Now that you know these signs, check which of the two you should be using: debt management or debt consolidation loans. Make sure that whatever you choose, you will stick to it. Soon, you will find yourself making the last few payments on your debt.