Most people fail to understand that there is a lot of relevance between debt and finance management. This is because they cannot balance between these two and fall into the debt trap taking on more debt consolidation loans.
According to studies, American consumers have created a new record in the credit card debt of the nation reaching as high as $1.02 trillion at the beginning of 2018, and the amount is still counting. With such a significant burden on the nation as well as on the individual, it is vital that a proper and effective debt management plan is followed to keep things within manageable limits.
Balancing Debt And Personal Finance Management To Find Its Relevance
Few statistical figures
There seems to be an ever going debate on whether debt management or a debt consolidation loan is a better solution for dealing with debt issues. There are several reasons for it.
- Several studies reveal that households that carry a balance from one month to the other usually pay as high as 20 to 36% as interest on credit cards and
- They also owe about $16,048 on an average to several credit card companies.
This does not leave any doubt or difficulty in guessing as to why millions of consumers in the US have a couple of missed payments or are too close to a financial crisis.
Simple math says that when there is an interest rate of 25% on your credit card balance of $16,048, the interest you have to pay every month is as high as $330! With such an amount going out from your earing every month you will certainly need a source to turn on to get help to manage your credit card debt or any other type of unsecured debt such as a personal loan so that matters do not get very far out of your hands and beyond your control.
The common and favored choice
However, it is a common practice amongst people to take out a debt consolidation loan, thinking that it will help them to manage their existing debts in a better way because their debts will be reduced. Well, ideally, a debt consolidation loan does not reduce the loan amount even by a single penny. It simply reduces the number of debts that you have by rolling all smaller debts into a single large loan.
A debt consolidation loan is mostly preferred over other available options by the people because:
- These loans often come at a lower rate of interest and
- The borrower often gets a longer time to repay it.
However, as favorable and affordable terms as it may seem, if you go through the different reviews and debt consolidation ratings (Top Ten Reviews), you will see that quite a large percentage of the population has been unable to come out of debt even after taking out a debt consolidation loan.
An in-depth study will help you understand the reasons and relevance of debt and personal finance management.
Selecting a debt relief option
Given such a vulnerable situation, it seems that the best option is to take out a debt consolidation loan. However, being prudent, you should consider other debt-relief options as well because there may be a far better solution waiting out there that will suit your ability and financial condition.
The best way to approach managing your debt is to have the proper knowledge and a plan for managing your finances in the first place. You will get much help and guidance from a nonprofit credit counseling agency if you feel at a loss looking for ways to manage your debt.
You will then know that a debt consolidation loan is hardly the only available choice as there are several others, such as:
- You can go for a debt settlement wherein you negotiate with the creditors to reduce your outstanding loan balance by waiving the interest and penalties or
- Even file for a Chapter 7 or a Chapter 13 bankruptcy.
All will depend on your credit score, financial condition, and how you can manage your finances. Add to these standard debt-relief options; if the economic issue has gotten out of your control completely, you can also go for a debt management plan as a favorable and feasible option. This is a far more practical and proven way to get yourself out of the burden of too much debt.
Debt management plan
Going by the definition of a Debt Management Program, such as Clear Point, or DMP, it is a plan that is made by a credit counseling agency.
It will help you to eliminate debt in a far better way as follows:
- All that you have to do is make a payment of a specific amount every month to the credit counseling agency.
- The agency will then use the money to pay each of your creditors once again as per the agreed-upon schedule.
Well, simple as it may seem, it is not so because the success of it depends on different methods followed and how far you are diligent in following the plan.
If you make a comparison between debt consolidation and debt management, you will find that in both the forms of financial management, you will need to make monthly payments to your creditor for the former and the credit counseling agency for the latter, but that is where all the similarities end.
The upside of following a debt management program is that in most of cases, the credit counseling agency will work with your creditors to relax the fees and to lower the rate of interest.
In addition to that, its advantages include:
- You will get handsome tips and advice from the credit counseling agency about the probable financial problems you may face in the future and how you can prevent them
- You can cancel your commitment at any time as this is not a loan, and
- You can use your own money to pay the debt.
With a little bit of diligence, a DMP is better than a debt consolidation loan as you can manage your finances by consolidating debts without requiring opening another line of credit.