Debt consolidation is a term used to describe debt repayment plans that are designed to get you out of debt as quickly as possible. There are generally two types of debt consolidation plans used to obtain this goal, a Debt Management Plan or a Settlement Plan. There are considerable differences between these plans that you should understand.
The determination of which plan is right for you is specific to your situation including the type of debt, your ability to pay back consistently and your income. Lets look at these two types of consolidation a bit closer to help you better understand he differences.
Debt Management Plans, are plans that allow debt relief providers to work straight with creditors to secure specific benefits in regards to your debt. These benefits, will differ by creditor but typically include reduced interest rates, lower monthly payments, waived fees such as late fees and over the limit fees. If a debt management plan works within your budget, you may find this to be your best option. Two of the main things to keep in mind with a management plan that must be followed:
- You must make consistent monthly payments to ensure benefits continue.
- You may not take on any additional debt while on the program, including cash advance payday loans.
Debt Settlement is good for those who want to pay back at least a portion of their debt, but cannot afford the Debt Management Plan payment, and have stopped paying their current debt. With Debt Settlement, you make monthly deposits to a Settlement deposit account in an amount you can afford. Your provider works to reach terms with your creditors for a less-than-full payment of the debt owed. If a settlement is reached, payments are paid from the Settlement deposit account.
As you can see the choice is really dependent on your situation.
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