What Should I Do – Debt Consolidation or Consumer Credit Counseling?

The new-gen businessmen tend to make mistakes, and poor financial choices make them end up in a debt trap. The header of this article is such a typical question a businessman had to face from his aspiring offspring with his first big hit back from a business. Even though personal, I think it requires a much insightful answer to be useful to anyone facing such a situation.

As the first point, it is important that you clearly define your problem and take a decision to get rid of debt problems effectively. If you have already done that, congratulations! There are some fool-proof ways that can help you in such a messy situation. However, getting an honest glimpse of your debt obligations and working out a clearance plan is not that easy. One of the most-heard primary questions is:

“Which is ideal debt consolidation or consumer credit counseling?”

Both these debt resolution methods have evolved over the past several years, aiming at helping individuals and businesses to reduce the debt burden. However, many people still assume that both “debt consolidation” and “credit counseling” are the same. In fact, these offer different services and may not be ideal for all. Let’s explore each.

  • Debt Consolidation

The name itself tells us what it is all about. Through this method, all the existing debts are consolidated into a single loan and a single monthly repayment to be made. Ideally, you take a new loan to pay off all your existing loans and get rid of the debt burden temporarily with an extension.

  • Credit Counseling

Credit counseling may sound similar to debt consolidation in many aspects, but it usually begins with an in-depth assessment of the current debt. Along with it, credit counselor will also provide an insight about one’s entire financial status, not just about the debts, but everything about the income, assets, potential etc.

More on debt consolidation

Debt consolidation is something, which you can do on your own with the assistance of a reputed debt consolidation provider. Some major points for understanding consolidation are:

  • The major advantage of debt consolidation is that it lets you get rid of all your existing debts with the help of a single big loan. This may make your budget more simplified and repayment process more manageable.
  • Interest rate of consolidated loan may be lower than the existing debts including credit card rates of mortgage loan repayments.
  • The scope for negotiation settlement (make the creditors accept a lower pay off) is much higher when you have the power to pay it off in one lump sum settlement during consolidation.

More on credit counseling

Rather than getting rid of existing loans with a larger one, credit counselor will help the debtors to develop a more systematic and logical repayment plan to clear all outstanding loans.

  • There may also be negotiations for lower interest, elimination of the late fees etc.
  • Some credit counselors may also take up the burden of planning the disbursement to multiple creditors by taking a lump sum amount from you.
  • For those who are under a high degree of stress with a debt trap, it can be relieving experience to be with an expert credit counselor who can assist you to have a realistic understanding of your exact financial status and way out plans.

As we can see, these are two different approaches to effectively get rid of debts, and you need to choose one wisely in light of your needs. In both the cases, one thing to be kept in mind is that it is not a single-shot overnight solution for your financial problems, but it demands a steady and dedicated long-term commitment to gain back financial stability.

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