Debt Management and Debt Consolidation Compared Differences

Overcoming debt problems is a big concern for many people. There are many solutions available to them. The two most popular options include debt management and debt consolidation. It can be confusing to understand differences between these two options because of very minor difference in wording. Both options seem very similar but there are some differences. Following information will help understand how debt management and debt consolidation compared.

Debt management also known as debt settlement is generally available from debt counseling agencies. They offer their counseling services in person as well as on phone. The company representative who is qualified on debt related matters first assesses a debtor’s current financial situation. The information is used to find solutions specific to the problems faced by the debtor. The counselor can contact the lenders and try to work out a solution like lower monthly repayments or lower interest rates. Depending on the requirements, the counselor may seek a short-term or permanent solution.

On the other hand, debt consolidation involves combining all loans and credits under a single new loan. Once all loans have been consolidated into one loan then the debtor has to worry about only this loan. The advantage of this option is that a borrower does not have to deal now with multiple lenders and
creditors. The new loan has lower interest rate compared to the total interest rates of multiple loans and credits. It results in lower monthly repayment. At the same time, while the monthly payment goes down, the loan term is stretched longer.

Fees must be paid whether the debtor avails debt management or debt consolidation services. Some counseling agencies work for charity purposes and do not charge any fee because their purpose is to help people in financial distress. However, they may not offer a professional level of commitment and their services may be limited to providing information only. A professional agency will provide ongoing financial and planning advices. Such a company charges fees for providing its services.

A debt consolidation agency provides complete service. The agency works with all creditors and helps consolidate all debts. A debt management solution helps in taking control of debts and managing all loans and credits in the most effective way possible. Both solutions can help avoid bankruptcy. Debt management and debt consolidation compared information should be evaluated carefully to choose the right option. Individuals facing severe debt problems and on verge of bankruptcy can benefit from debt management. Debtors who cannot keep up with their current rate of repayments should choose debt consolidation. In this case, it is important to arrange a consolidation loan that has affordable lower interest rate.