Your finances will dictate what type of debt relief program you will use to get out of debt. While your type of debt and your financial goals will play a role, the deciding factor when choosing between two debt relief programs is how much you can afford to pay every month.
To make the choice, you have to analyze your finances carefully. If you are intent on using debt consolidation, here are the signs that will tell you if it is the right debt solution or not.
First is your debt to income ratio. You have to be able to afford your debt payments from the start. People who avail of this program are those who only require a more structured debt payment – not debt reduction. These are the people who have multiple debts and they only want to make things more simple through a single payment scheme. If your disposable income has slight deficit on your monthly payments, this can still work because debt consolidation provides a lower monthly requirement. But if you need more, then this is not the right solution for you.
The next sign is a steady and stable income. As mentioned, there is no debt reduction. You have to be able to afford the balance of your debts throughout the 5 years that it usually takes to finish a debt consolidation program. If your income is not stable, you may have a problem keeping up with your payments.
If you availed of debt management, you need to understand that your creditors only agreed to let you pay the lower monthly payment because of two things. One you will still end up paying off the whole balance even if it will take longer. The second reason is you will make an agreement to never be late or miss out on your payments. If you do, you go back to your usual payment requirements.
If you availed of debt consolidation loans, a steady and stable income is one of the requirements of any loan. No lender will let you borrow money if you have no means to pay it back.
The third sign is actually more applicable to debt consolidation loans. If you want to apply for a loan, you may want to have either a good credit score or a valuable personal asset that you can put up as collateral. The purpose of these two is to get a low interest rate on your loan. That will keep your monthly payments even lower. But if you will end up with a high interest compared to your current, then go for another debt relief option.
Debt management, on the other hand, will not mind if you do not have a good score or a collateral. However, they will require consumers to pay a minimal fee for the service that they will give. It is only $50 max but nevertheless, make sure you have this amount on top of your monthly debt payments.
If none of these signs are applicable to you, just opt for other debt relief options. You still have debt settlement and bankruptcy to choose from. Or, you can start earning more so you can use debt consolidation as your debt solution.