When it comes to debt help, the internet offers only three different options. Whether you are choosing between a debt consolidation loan, debt management, or debt settlement, it is important to have a basic understanding of each one. You want to make sure thta you choose the option that is best for your individual needs. Many people can confuse the three services, and each one brings unique aspects to the job of helping consumers get out of debt. Below is a quick recap of the basics you need to know.
Debt Consolidation Loan
A consolidation loan takes all of your high interest debts (think credit cards here) and turns them into one lower interest, lower payment loan. Often, you have to be a home owner to qualify for this type of loan. The big picture behind a consolidation loan is that with a lower interest rate and repayment amount each month, you will be able to afford to pay more on the principle and eventually get yourself out of debt. This also assumes that you don’t use credit cards to get back into debt while paying off the consolidation loan.
Debt management companies work with consumers to help them learn to get control of their finances. Most of these consumer don’t own a home, so loan consolidation is not an option. The companies teach individuals how to make a budget and often help them schedule a plan for paying off their debts. Many debt management companies are non profit and exist solely to help consumers get back on track. These companies seldom work with creditors or negotiate your debt for you. Instead, they work with you to secure your financial future.
Debt settlement companies actually go to your creditors on your behalf. They work to negotiate with your credit card companies and reduce the total amount that you owe. They can often get lower interest rates on your account, have penalties and late payment fees removed, and/or even get credit card companies to lower the overall card balance. Many of them will set up a system where you pay them one amount each month and then they in turn make payments to your credit card companies on your behalf.