Large amounts of debt can be overwhelming. Debt management programs and debt consolidation are two different solutions for getting out of debt. Both options have advantages and disadvantages. If you are determined to get out of debt or you need help just making your monthly payments, you should review both options.
Debt Management Program
Most debt management programs are run by credit counseling agencies. In a debt management program, you make one monthly payment to the agency. The agency works with your creditors to lower your interest rates and your monthly payments and, if possible, to settle your debt. The agency also works with you to set up a budget and give you counseling so you can prevent going into debt in the future.
However, using this type of program does leave a negative mark on your credit report. Additionally, many of these agencies disappear or do not help in the way they promise. When choosing this option, carefully research an agency and check with the Better Business Bureau in your area to make sure the agency you choose is legitimate.
Debt Consolidation
Debt consolidation can make your monthly payments more manageable and lock in a lower interest rate on your loan. With debt consolidation, you take out a new loan in the amount of your other debt. You use the money from the loan to pay off all your other debts.
Although the monthly payments are often lower, they are stretched out over a longer period of time. This means you may end up paying more interest than you did on the loan. However, with a consolidation loan, you may qualify for a lower interest rate than you had on your credit cards.
One problem with this loan is that many people will do this with a second mortgage or home equity loan, which ties the debt to your house, and if you cannot make payments in the future you may lose your home. Another problem is that it does not address the behaviors that caused you to get in debt. Often people who go this route end up with the same amount of credit debt as well as the consolidation loan in a few years' times.
Making a Choice
As you look at your individual situation, you need to determine which solution is better for you. If you are in serious trouble with your creditors and really want to change how you manage your finances, a debt management solution may help you change your habits and get your debt under control. Debt consolidation might save you money as you work to get out of debt on your own. Suze Orman, in her debt management special, says she likes debt management companies but says, "Say no to (debt consolidation companies)."
Other Options
An alternative is to set up a debt payment plan for yourself. List your debts in order from highest interest rate to lowest. Create a budget and find extra money to apply to your debts. Start with the first debt on your list, and pay extra on it until it is paid off, then move on to the next debt. Working an extra job or selling items can help you get out of debt.
0 comments:
Post a Comment