People struggling with credit card debt are likely looking for any available solution or strategy to help them get out. However, with so many different services, companies, and recommended techniques to get out of debt, it can be intimidating and difficult to find the right debt management solution. There are several different options to help consumers get out of debt. One such service is consolidating debts.
How Does Debt Consolidation Work?
Debt consolidation is essentially taking out one large loan in order to repay your other debts. This loan usually has a more attractive interest rate than your existing debts, and allows you to have only one outstanding loan rather than many.
You will have one payment each month, which will be lower than your original debt payments combined. While it will cost you less each month, it will cost more in the long run as you will be repaying the debt for a longer period of time.
The Difference Between Debt Consolidation and a Debt Management Program
Consolidating debts makes repaying your debts much simpler. However, a debt management program (DMP) takes a similar approach without the new loan.
A debt management program is typically offered by a credit counseling agency to clients who qualify. In this plan, the agency will secure lower minimum monthly payments or lower interest rates from your creditors, making repayment more feasible and affordable for you. Any accounts entered into a debt management program must be closed. Like debt consolidation, your debts will be lumped into one monthly payment.
This is not a new loan. The agency receives your payment and disburses it to each of the accounts. For providing this service, the agency typically charges a monthly fee. This option may be less expensive than a typical debt consolidation plan.
It’s important that you do some research and speak with organizations that offer these services. To help you find a reputable company, watch this video on what to look for in a credit counseling agency.
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.