First of all, both of them will provide consumers with a single payment scheme. They combine multiple debts so that the debtor will not have to put in too much effort in monitoring and tracking every payment. Instead, they can concentrate on growing their income so they can increase their financial capabilities.
Another similarity is the low monthly contribution. Debtors will benefit from low payments that will result from any of the two. This will free up funds of the debtor so they have a less restricting budget. They can use it to finance a product that they want to buy or to add in their entertainment fund. Although, it is highly advised that the extra money be used to grow your savings. It is best to have an emergency fund that can keep the consumer from landing in more debt when an immediate need arises.
Both of these also require the consumer to have a steady income. Unlike debt settlement or bankruptcy, there is no debt reduction here. The low monthly contribution is possible because the payment plan of the consumer is now longer. Since the balance is distributed over the new plan, it ends up requiring a low contribution from the debtor.
As far as similarities go, that is all there is to it. Now to help you decide which is the best for you, here are the differences.
Debt consolidation loan requires no professional help. If you prefer working on your own and you want to save on service fees, then this should be the right option for you. As long as you can get approval for a loan, override the temptation to use the approved funds for something else and pay off your debts as you intended, then this is your option. You need to be self reliant to accomplish this and you have to be organized and disciplined to make sure that you will not miss out on your payments.
On the other hand, if you think that you need professional help, debt management is the right option for you. This program provides the service of a debt counselor who will aid you in creating a debt management plan. This plan will show the lower monthly contribution that will be presented to the creditor for approval. Once this is approved, the debtor will send their payments toward the counselor who will disburse it to the different creditors specified on the plan. This service and privilege is not something that debt consolidation loan can offer.
Another difference is the requirements. Debt consolidation loan requires either a high credit score or the possession of a valuable collateral to ensure a low interest on their loan. This will help lower their monthly payments further. If you do not have this, then you can turn your eyes on debt management. Although, you may have to pay $50 for the service that you will be getting. If you want to save that $50 a month, debt consolidation loan should be the better choice.
One other benefit that debt management has over debt consolidation loan is the fact that the debt counselor can provide personal finance and debt education to consumers. Although this can be easily researched online, it pays to have an expert teach it to you directly.
These are the main points that you need to know when you are choosing between the debt consolidation options. Know which of them can suit your debt problems and personality best so you are guaranteed debt freedom in 5 years or less.