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Debt Management vs Debt Settlement
Which Alternative is Right For You?

—Article by Daniel A. Gelinas

Consumers heavily burdened with debt and unable to resolve their financial troubles through budgeting or more traditional means are basically left with only 3 alternatives; enrolling in a Debt Management Program, seeking relief through a Debt Reduction Settlement, or as a last resort, Filing for Bankruptcy.

This article was written to help consumers better understand the differences between a Debt Management Program and a Debt Reduction Settlement. It should help answer the question, "Which alternative is right for me?

While the article is not all comprehensive, it was written to provide greater insight on an industry and an ever-changing process which, by its nature, is somewhat confusing to consumers.

It should be noted that there are always variations and exceptions to most anything in life. The information is based on the author's knowledge and 20 years of experience in the debt industry.

While this article is somewhat lengthy, it should be pointed out that whatever action is taken by the intended reader in an attempt to resolve their financial hardship, it will greatly impact their life in one way or the other. Spending the time to get all the facts is not only prudent, but a duty owed to oneself and especially to one's family. We suggest you read the article in its entirety.

Note: If you are deep in debt, we strongly suggest that you speak to a certified debt counselor at 1800 DEBT.COM (that's 1800-332-8266) for a FREE debt consultation. Don'r wait. Resolve your debt today!

Debt Management and Debt Consolidation

Debt Management programs are provided through consumer credit counseling agencies, attorneys or financing institutions, each having their own agenda. The latter, attorneys and financing institutions, are for-profit companies, while most consumer credit counseling agencies are non-profit agencies.

Financing institutions typically manage consumer debt through a debt consolidation loan whereas all debts are paid off with the proceeds of the loan. In effect, the debts are transferred from many creditors, to one creditor, and hopefully, as a result, provides the debtor with a lower overall monthly payment and reduced interest rate.

For some debtors this may prove effective, but for others the end result only compounds their financial problems. This is because a consolidation loan does not always reduce the debtor's monthly debt service sufficiently, and most detrimental, requires "security" in order to process the loan, typically with the debtor's home equity. Should the debtor default, he or she risk losing their home!

Using funds from a debt consolidation loan, second mortgage, home equity loan or line of credit to pay off unsecured debt should ONLY be done when it results in significant savings, and the effect of it resolves your financial hardship. You MUST be reasonably certain that you will never default on the obligation. Otherwise, it is not practical and financially sound to convert unsecured debt to secured debt and risk losing your home!

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