Many people have too much debt at some point in their lives, especially credit card debt and other forms of unsecured debt. People who have too much debt don't have to stay in that situation, though. Debt consolidation and debt management are two popular ways to deal with debt and credit problems today.
People use the term "debt consolidation" when they combine all or most of their debts into one loan with a low interest rate. Some people choose to move their credit card balances to a low-interest credit card. Others will try to get a loan to combine their debts or, in some cases, a loan against the value of their home.
A debt consolidation loan can be helpful in some situations. Debtors can look for loan terms that will give them a monthly payment that is less than the total of all their other loan payments. It's easier to deal with the debt now that there's only one bill to pay each month instead of several.
Too often, though, debt consolidation makes people's financial problems worse instead of better. Consumers sometimes use loans as a quick fix instead of working to improve their spending and credit habits.
Once a person finds a reputable company, Debt Management can be a better choice. A plan for dealing with debt usually has more than one part. A debt management company can help people pay off their unsecured debt, but these services are usually for people who owe $10,000 or more on their credit cards and have other unsecured debts as well.
A debt manager will work with the consumer to figure out how much unsecured debt he or she has, as well as how much other debt the person has and how much is owed each month. This information will be compared to the person's income to find out how much money is left over each month that can be used to pay off the huge amount of debt.
After looking at a person's finances, a debt management company will get in touch with that person's creditors. Most of the time, debt management companies can make deals with credit card companies and other creditors about how to pay off debts. In fact, they are trained to help people get their interest rates lowered, whether they are paying them now or used to. Sometimes, if a person pays off the settled balance in a certain amount of time, the company will even stop charging interest. Each month, the debtors will pay a set amount to the debt management company. With this money, the company will pay its client's creditors and take out any fees it has to pay.
These companies also help people get better at managing their money and spending. The goal is to make sure that clients will never again be in a lot of debt.
