Ups and downs in life are humdrum like the two sides of the same coin. In a scenario where the cost of living has gone up and lifestyle requirements are taking a toll in everyday lives, the financial health of an individual may not be excellent all the time. Are you getting drowned in debt? Are you not able to eliminate your debt on time? Are the credit card bills and loan liabilities worrying you?
Even if you are backed by a steady source of income, unavoidable expenses may negatively affect the way you manage your personal finances. What should you do in such a situation when you are in debt? You should opt for either debt consolidation or debt management.
What is Debt Consolidation?
Debt consolidation is an effort to combine several unsecured debts from several creditors into one bill. These unsecured bills may pertain to Credit Cards, Personal Loan, and so on. It is taking a single loan to pay them all, instead of having to pay several creditors separately at different timelines every month. You gain an advantage of consolidating all the bills into one payment and pay at a single platform only. In short, it is taking out a new loan to pay off multiple debts. No need to remember the due date of different creditors! No late payments! Besides, you may enjoy a reduced rate of interest and lower EMI.
There is no point opting for debt consolidation by Applying for a Personal Loan Offers if the interest levied for single payment is higher than the combined interest paid for multiple payments.
Advantages of Debt Consolidation
- One payment to one lender instead of multiple payments to multiple lenders
- Save on money
- Pay debt faster
- The process of paying bills is simplified
- Stay worry-free from the burden of multiple payments
- Lowers your interest burden
- Lowers your payment burden
- No multiple payment deadlines; only one payment deadline
- Less likelihood to be late in making payments.
Disadvantages of Debt Consolidation
If you do not curb your enthusiasm for spending, the bills will only add up to your debt. With continuous spending more than your limit, you may actually end up paying more in interest over the life of the loan. This will lead to ending up more deeply in debt. Wise expenditure and avoiding unnecessary expenses is the answer.
Debt consolidation doesn’t mean that the debt is forgotten or reduced. You still owe the same amount of money but with reduced interest. Besides, the more early you clear your debt, the lesser interest you pay and vice versa.
What is Debt Management?
If you have too much debt, it may take a toll on your financial health and add to your worries. Not paying your credit card bills on time, continued expenditure and addition to the already existing Credit card bills every month and inability to pay the EMI of your personal loan timely may negatively impact your credit score and credit report. A bad credit report decreases your ability to avail a loan in the future. So, how do you manage your finances? You have a huge pending bill for multiple lenders, which is only adding to the already existing hug bills through late payment fee and high interests. Debt management is the answer.
Debt management is an effort to live on a set budget every day throughout a month, month after month, year after year. Irrespective of the cause of the debt, this plan helps a person decrease debt and thereby eliminate debt burden over time. The plan is suitable for unsecured debt, such as personal loan and credit card bills. For secured debt such as home loan, mortgages, etc., a debt management plan may not work.
Debt Management by Self
You can create your own debt management plan to manage your debts and avoid a similar situation in the future. How do you go about creating a plan? Create a list of necessary expenses. Also create a list of unnecessary expenses over the past few months. Prioritize on the necessary expenses. Cut down on the unnecessary expenses. If you are expecting a bonus or additional income, use the amount to pay your credit card bills. If you are using multiple credit cards, limit the same to one or two. Wise spending is the key to financial happiness!
This process may take a long time, but in the long run the benefits are advantageous.
Debt Management through Credit Counseling Agency
Credit counseling companies act as mediators helping debtors manage debt the smart way. They negotiate with the debtors’ lenders to reduce the total amount owed and lower the monthly payments. This is based on the debtor’s regular income and expenditures. In the process, one regular bill payment is allocated across the lenders. Credit counseling companies charge an upfront fee to manage debts.
A debt management plan can also be a formal agreement between a creditor and a debtor wherein the terms of the outstanding debt is addressed. The mutual agreement between the two parties may lead to securing a lower overall interest rate, longer repayment terms. This may also lead to an overall reduction in the debt itself.
Advantages of Debt Management
- Helps reduce outstanding, unsecured debts over time
- Debtor regains control of finances
- Helps avoid bankruptcy
- Helps avoid future debt burdens
- Manage personal finances the smart way
- Cuts on unnecessary expenses
- Prioritizes on necessary expenses.
Disadvantages of Debt Management
- Pay additional fees for consultation
- Self debt management may take too long to clear debts
- To effectively reduce your debt through debt management, it can take many years depending on how much debt you owe to lenders. Higher the debt, longer the tenure and vice versa
- Debt management isn’t a quick fix.
Consider the aforementioned factors before you opt for a solution to clear or reduce your debts. Still confused whether to opt for debt consolidation or debt management? Seek advice from a trusted financial professional. A one-stop leading trusted online financial services marketplace like MyMoneyMantra is not only backed by a team of financial experts but also hosts all leading banks and their products. You may contact experts for a customised solution to manage your debts.
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