Being in debt can be a very stressful and confusing time, especially because there are so many possible options for escaping your debt problems. Two of the most common choices are debt consolidation and debt counseling. One of the most frequent questions from those experiencing debt problems is which one of those two options should they explore first. This article will briefly outline the two to help you make that decision.
If you find yourself in debt you will have no problem in finding a debt counseling or debt consolidation service. The main issue is determining which of the two will suit your situation. The only way in determining this is a little bit of research and a stock take of your debt problems.
Both debt consolidation and debt counseling have the same goal involved – get you out of debt as quickly as possible, but they have different approaches and requirements of you.
Both solutions will help you make repayments more easily and remove a lot of the complexity from your debt situation. You won’t have to worry about numerous creditors and will instead be paying off a small number of lenders after you have been through either process. Both processes will also stretch those repayments over a longer term which better suits your income.
For both of these types of debt reduction plans, you will need to have a steady stream of income. If you have zero income, you won’t be able to use debt consolidation or debt counseling very well because you simply can’t pay off the debt.
Debt consolidation involves rolling your existing debts into a single debt. So for example taking all of the debts you owe to many parties and taking a single loan out to pay them all out. Debt counseling involves that professional third negotiating with creditors on your behalf, trying to get you a better deal and negotiating long term payment plans that you must adhere to.
Now to more differences between the two. You can work on debt consolidation by yourself, while debt counseling involves a third party who will help you through the process. That third party will require fees for their help (although the fees are usually dwarfed by the savings). Pursuing debt consolidation yourself can be slightly riskier than using a debt counselor because chances are you aren’t an experienced professional. Doing your own debt consolidation also requires you to have a lot of self discipline and being able to stick to a repayment plan you have devised yourself. With Debt counseling on the other hand, you will have that helping hand all of the way through the process.
Both programs will lower the amount of interest that you have to pay on your debt. However if you are pursuing debt consolidation the kind of loan you can obtain will often depend on your existing assets. If you don’t have assets for collateral, you might not get a good deal on the loan. In that situation debt counseling might be a better option. Debt consolidation will also fail badly if you end up not paying back the loan fully. You could lose your collateral and end up with a terrible credit score.
A risk with debt counseling is that the counselor might not be able to get you a better deal and you just end up with more fees. If you creditors are very aggressive they might demand the money immediately and not be interested in any kind of payment plan.
If you have some collateral and have the willpower to repay a loan for a number of years, debt consolidation may be your best bet. If you don’t have collateral or prefer to get a professional to negotiate your debt down for you, try a debt counselor.
Both options are useful and your particular situation will determine which is best for you!