Debt getting out of hand is a real problem for American consumers. What can you do if any unsecured debt reaches a worrying amount? One of the best options is debt management through a nonprofit credit counseling agency. But there are also debt consolidation loans, debt settlement, bankruptcy, and more. Let’s compare debt consolidation and debt management here.

Debt Management Plan

This is a plan that helps eliminate debt with the help of a credit counseling agency. You make monthly payments to the agency, and they make payments to your creditors on an agreed schedule. 

Advantages: These agencies get lower interest rates and relax fees to help consumers make affordable monthly payments. Agencies work with consumers to put together an affordable monthly payment based on current income and without considering your credit score. You get to work off your debt without opening a new line of credit. You are also provided tools and financial education to prevent future issues. 

Disadvantages: If you miss a payment, the agreement for reduced interest rates and fees may be voided. You are also required to close all but one of your credit card accounts and use credit only in case of an emergency. 

Debt Consolidation Loan

This is where you take out one large loan and use the money to pay off several unsecured loans. The lender is usually a bank, credit union, or online loan company, and you’re expected to pay off this loan within two to five years. 

Advantages: You will get all the funds required to pay off all your unsecured loans. The interest rate on this loan will be lower than the rates on your unsecured loans. All your debt is consolidated into one payment, so you don’t have to manage multiple creditors. And you still have access to your credit cards while repaying the loan. 

Disadvantages: The borrowing fees will increase your debt. The loan rates depend on your credit score, and you may not qualify if you have poor credit. You’ll have to manage to pay the debts on your own. If you miss payments, you’ll be charged late fees and may default. And, you are not provided education to improve your financial management.