Debt Management, Consolidation: Tale of The Tape

Debt Management Consolidation - Is There Such A Thing?

The plethora of words and alphabet soup in financial jargon can sometimes baffle and overwhelm consumers attempting to resolve their debt troubles. A case in point are the terms “debt management” and “consolidation”, debt solutions that can help borrowers up against spiraling debts in getting them under control. Some people confuse one with the other, some even think they are one and the same, and a few even refer to them collectively as debt management consolidation. If you are looking for ways to keep your debts in check, you must realize that the two debt solutions are not the same. They may be the same species but different organisms. You have to learn their differences before you can say that you are ready to rumble with debt.

Debt Management Versus Consolidation

On the blue corner is debt management, a game plan of paying off unsecured debts over a certain length of time by committing to make reasonable monthly installments in exchange for better credit terms such as lower interest rates and reduced principal. The debt management company will coach you with money management skills, and in determining an amount you can afford to set aside each month, and on your behalf, will negotiate lower rates and better terms with your creditors and propose the payment schedule.

On the red corner is debt consolidation, a strategy of knocking down debts by taking a new bigger loan, preferably with a lower interest rate, and using the financing to pay off all other debts. Simply put, you transfer the total of all your debts which you owe to a number of creditors to one new lender offering better rate and terms.

Debt Management Versus Consolidation : Which One Suits You

While both methods can be effective in knocking out debts, we cannot really declare which one is the pound-for-pound debt fighter since they cannot be used for all cases. The following discusses the circumstances that suit each fight plan.

Round 1: Extent of Debt

Debt management works well for people who want to get rid of moderate levels of debt over a certain length of time, while debt consolidation is suitable for borrowers with a significant number of debts since it simplifies the borrower’s circumstance by combining all debts into one single loan.

Round 2: Credit Score

If you have been falling behind payments and putting your scorecard down on the count, a debt consolidation may not be appropriate for you. Creditors are willing to provide lower interest rates and better terms to borrowers with good credit scores. However, if your rating has been marred, you may have a hard time securing a loan that offers lower interest rates than the average of the rates of your current debts, or worse, you may not find a creditor willing to give you a loan unless you take it against your house, car or other assets as collateral. If you take out a loan against your property, make sure that you can go the distance in making your monthly payments or you may also lose your home.

Round 3: Types of Debts Included

Debt management covers unsecured debts such as credit cards, debit cards, loan cards. It does not include secured debts like car and housing loan. Consolidation also includes credit cards, various bills (e.g. medical bills) and payday loans.

Debt management and consolidation are two different ways of dealing with debts that have gotten out of hand; you have to determine which one suits your circumstance best.