Eliminating Debt Versus Managing Debt

By: Michael Millington

It’s common to hear that not all debt is bad debt. For many Americans carrying even the slightest bit of debt is cause for concern. People are more concerned with paying off debt than having debt linger. The thought of debt management isn’t new but it is daunting. Staying out of debt is ideal, but is it better to continue to carry a debt with you? Here we will consider the differences between managing debt and eliminating debt.

 

What Is Debt Management?

Debt management is the practice of deliberately keeping a debt that you constantly pay down or pay off. The idea behind debt management is to keep making regular payments and build a respectable credit report. The debt can be anything from a personal loan to a credit card.

The process of paying off debts can be a partial payment or a full payment. The misconception with debt management is that you must carry a constant balance. In truth, the balance doesn’t always have to be present, but there must be a monthly payment to pay down on a debt. Doing this will show creditors that you can handle constant debt and will see you as more worthy to receive unsecured credit.

The best way to practice debt management is to keep small payments to a single form of credit. Have a monthly charge paid with a credit card and have that balance paid off through your bank account. You can even set up automatic payments to have one less thing to worry about. Just make sure that your balances are always in the clear so you don’t fall behind. Good budgeting is key to successful debt management.

 

How Do Go About Eliminating Debt?

Debt elimination is the process of removing all debt. Debt elimination, is also known as debt relief, and is a better option for those who have more debt than they can handle on a monthly basis. When debt becomes a major problem there are multiple options you can take to eliminate it. You can choose from four methods of debt elimination: bankruptcy, credit counseling, debt consolidation or debt settlement.

 

4 Methods to Eliminating Debt

1. Bankruptcy

This is the most immediate course of action towards debt elimination, granting you the ability to achieve complete debt relief quickly. However, bankruptcy is also the most immediately damaging action you can take. Bankruptcy remains on your credit record for ten years and hinders your ability to apply for credit afterwards.

There are also two different forms of bankruptcy, chapter 7 and chapter 13. Each one has a different process but both affect your credit score significantly. They will cause creditors to think twice about lending you money in the future and your prospect of you ever paying them back.

This should always be a last resort and should be thought through with a professional before making a final decision. Bankruptcy could impact your personal finances for the rest of your life.

 

2. Credit counseling

This an option that allows you to enhance your knowledge about debt elimination. Speaking to a credit counselor is a great way to learn about debt without having an impact on your credit score. Although you can become more literate with your finances with the help of a professional, credit counseling itself isn’t always free or reputable. It’s up to you to do the research and find a suitable counselor if going this route.

Credit counseling can also help you reduce your debt amount by eliminating you’re the interest from your principle balance. The credit counselor will use their expertise to negotiate with your creditors, on your behalf, and attempt to reduce your debt.

This is a great option for those who aren’t buried in debt but are struggling to make monthly payments and need some debt help.

 

3. Debt consolidation

This is a great option for those who get overwhelmed by having multiple debts. When you have a lot of debt from many different sources, debt consolidation helps by paying off those debts and focusing your payments on one lump sum. While this form of debt elimination is helpful, it doesn’t offer the option of debt reduction and it’s very hard to qualify if you carry a low credit score.

Debt consolidation works by approaching a lender for a loan and having them pay off your existing lenders. You eliminate multiple debts in exchange for one debt to pay off. The upside is that this loan only has one interest rate attached to it, normally at a lower rate than previous debts.

Loans that provide debt consolidation can take a long time to pay off, so don’t expect a quick resolution with this method. However, consolidation makes it easier for you to manage your debt since you only have to make a single payment for all your debts once a month.

 

4. Debt settlement

Debt settlement is a quick way that can help you reduce your debt and get you on the right path towards eliminating debt. It won’t require you to keep a negative mark on your credit record for years and it works with your budget to keep payments manageable. You might have to pay taxes on the debts that were settled, but once you do you can focus solely on eliminating debt.

With debt settlement you consult with a debt professional who will inform you of your options. Once you’ve committed to debt settlement as your debt relief option you then deposit funds into a secure escrow account. From this account your money will be distributed to your creditors to help pay down your debt. Your chosen debt settlement company will work to negotiate down your principle debt so you end up paying less.

Typical debt settlement situations resolve themselves within 24 months and demonstrates to your creditors that you are actively working towards resolving your debt problems. Keeping up with your payments during your debt settlement program is important if you want to avoid falling into further debt troubles.

At first your credit score might take a hit in a debt settlement program but by the end of the process you will be out of debt and in the perfect position to increase your credit score.

 

Which Course Is Best For You?

The main thing to keep in mind when choosing between managing debt and eliminating debt is your unique needs.

If you’re barely keeping up with monthly payments and find your credit score in danger of dropping, then eliminating debt might be the best option. You will have the ability to pay off your debts at an affordable rate and once the process is over, your credit score will improve. Although options for eliminating debt are rarely without a down side, they are efficient methods of complete debt relief.

If you are able to maintain consistent payments on your debts each month then debt management is the best option for you. You will get financial tools and resources that will keep you from falling further into debt and improve your money managing skills.

Getting professional help is a powerful option and one that can solve many of your debt issues. Guardian Debt Relief is a trusted debt settlement company, who has helped hundreds of Americans suffering from debt reach debt freedom. Take the first step and contact a professional today.