I think personal finance is one of the most challenging and tough aspects of our lives that we navigate each day, even though it might not seem obvious. Consumers all around the world have provided a new figure for credit card debt to record levels, and in that procedure, they debated where all the chips in a bet should be: debt consolidation loan or debt management.
Well, to start off, I firmly believe there is no one-size-fits-all solution when it comes to choosing between this. However, I believe everyone should be accustomed to these two and their pros and cons before making a decision.
What is debt consolidation?
Before we take a look at its pros and cons, let us understand the basics of debt consolidation loan. It is basically the procedure of obtaining a single new loan to pay off all or most of your existing debts. It is the key that untangles the bundle of complications regarding your debts and finances and the bittersweet connection between them that might have developed.
Pros of debt consolidation
Now that we know what is a debt consolidation loan, let us check out some of its benefits:
[1] When you take the initiative to consolidate all your debts into a brand-new loan, you are only required to pay one payment in the new loan. Everything else will be paid off. It will untangle you from the shackles of a complicated financial situation, making it efficient and less stressful for you.
[2] One of its biggest benefits that I like is that if you are paying the minimum due on a credit card every month, it will take a lot of years to pay it off. A fixed loan with instalment payments in place can make sure to be done with your date way faster. The collaboration of lower rates and shorter terms may save you a hefty amount of money.
[3] In addition to these, when you consider a debt consolidation loan, it also benefits your credit score, which is helpful when you plan on making big purchases in future.
Cons of debt consolidation
Here are some of the reasons why it might not be your cup of tea:
[1] With this, you will be in pay-off mode, which might mean higher debt payments.
[2] When you apply for such a loan, it seems like the best terms are reserved for folks who do not even need one.
What is debt management?
It is basically a procedure of working with a company that can help you come up with a perfect repayment plan for all your debts.
Pros of debt management
Here are some of the reasons why you should consider debt management:
[1] The companies or experts offer support and advice to the borrowers until the loan is fully paid.
[2] There are some debt management schemes that can help negotiate with the creditors regarding the total amount that needs to be paid.
Cons of debt management
Finally, let us see some of the cons of debt management:
[1] If you miss out on a payment, the new agreements made with the creditors might be void.
[2] You would need to close all the credit card accounts and use them only in emergency situations.
Wrapping Up
Just like I said, there is no one true solution between these two. However, since you have read this far, I’m sure you know which one to go with.
