Debt Consolidation Loans vs. Debt Management Programs
If you’re behind in bills or unable to get ahead when it comes to your finances, the situation may seem insurmountable. When your financial concerns go beyond what can be fixed simply by budgeting, it’s time to look at other options to get back on track. Two options you may want to consider are applying for a debt consolidation loan or enrolling in a debt management program.
The key to solving your financial woes and relieving its stress is to figure out which solution works best for your personal circumstances. This, along with some helpful assistance from a trained credit counsellor, can get you back on track—often sooner than you would think.
To help understand the differences between a debt consolidation loan and enrolling in a debt management program, read on to get a basic idea of both. Then call us to speak with a trained credit counsellor for your free, confidential debt consultation at 1-800-656-3920 or fill out your information on consolidatedcredit.ca and we will call you.
Debt Consolidation Loans
A debt consolidation loan basically takes your multiple unsecured debts and combines them into one payment. The goal is to get a loan with a lower interest rate than what you have on your credit cards. This lets you pay less each month and may allow you to pay what you owe back sooner, because less interest is building up with the better rate.
Debt consolidation loans only work if you still have fair enough credit to get a good interest rate on the loan. It’s a good solution for people that are still managing to stay afloat—but just barely. By reducing your monthly payments, you may have some extra cash on hand in case unexpected expenses or emergencies arise. This way, you don’t end up in a bind if you have an unforeseen medical expense or a sudden change in income.
One final note, a debt consolidation loan may not be for everyone. It is important to know that before you take on any additional debt, you commit to managing your spending to live within your means. Remember, you can’t borrow your way out of debt.
Debt Management Program
A debt management program is typically good for anyone whose debt solution is past the point of being solved easily by combining payments for a lower interest rate on a loan. This is often the case if you’re behind in your credit cards payments or may have even defaulted on some of your accounts. In these cases, you’re not going to get a low enough interest rate on your debt consolidation loan to reduce your payments or you may not qualify at all.
A debt management program still combines multiple accounts into one monthly payment, but it is not a loan. It’s a debt repayment solution through a credit counselling agency acting as a go-between for you and your creditors. A trained credit counsellor assesses your situation and negotiates on your behalf a lower interest rate—but better than anything you could find with a bad credit rating. Being enrolled in a debt management program also stops over limit fees on credit card bills, collection agency calls and halts any further actions by the creditors while keeping current with the program.
A Note on Credit Counselling
When you enroll in a debt management program, make sure to research the credit counselling agency carefully. There are two kinds—those for profit and those that are not-for-profit. The former usually has higher application and monthly fees to pay to stay in the program—on top of the monthly payments you make to reduce your debt. A not-for-profit credit counselling agency has minimal application and monthly fees covering their administrative costs only.
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