What"s the Difference between Debt Counselling vs. Consolidation?
Debt counselling and debt consolidation are not the same thing. Both can make a difference in your financial situation but the terms can not be used interchangeably. Whilst debt counsellors may take one payment per month from people for counselling and consolidation loans also mean one monthly payment, the two are actually quite different. Read on for more info about the difference.
What's a debt consolidation loan? A debt consolidation loan is a loan that you use in order to pay off your outstanding debts. A loan is issued and payments are made to all your creditors. Then, you have a new loan for the combined amount of all of those debts. A payment schedule and an interest rate are agreed upon. It can be a wise decision if you get a favourable interest rate.
What about credit counselling? Credit or debt counselling happens you get help because you're unable to cope with your current debt load. You meet with a debt counsellor who will go over your details and then they will contact your creditors and attempt to make a proposal on your behalf. If all of the creditors agree, you could have a scenario where you are able to make a single payment to the counsellor who then divides the money among your creditors.
Not everyone can be approved for a consolidation loan. In the case of a consolidation loan, you're approved based on your demonstrated ability to pay your payments on time. If your history is sketchy and you have a lot of late payments, you probably won't qualify. In the case of your consolidating your debts, your credit report doesn't typically suffer as a result because your old debts are paid off and a new loan is started.
Could credit counselling impact your credit rating / credit report? With credit counselling, your credit report could be negatively impacted because all your individual debts will be reported on as under counselling. This can be repaired, over time, but you will initially take a hit on your credit score.
Can credit counselling save you money? It may seem like credit counselling saves you money in the short term because your monthly payments are dramatically reduced. But in some cases you could pay more this way because your interest rates may or may not be any different. A longer payment schedule with small payments could take longer to pay off. Deciding whether this is the right option for you or not is a personal decision that you should base on your specific situation and on weighing the pros and cons.
What's a debt consolidation loan? A debt consolidation loan is a loan that you use in order to pay off your outstanding debts. A loan is issued and payments are made to all your creditors. Then, you have a new loan for the combined amount of all of those debts. A payment schedule and an interest rate are agreed upon. It can be a wise decision if you get a favourable interest rate.
What about credit counselling? Credit or debt counselling happens you get help because you're unable to cope with your current debt load. You meet with a debt counsellor who will go over your details and then they will contact your creditors and attempt to make a proposal on your behalf. If all of the creditors agree, you could have a scenario where you are able to make a single payment to the counsellor who then divides the money among your creditors.
Not everyone can be approved for a consolidation loan. In the case of a consolidation loan, you're approved based on your demonstrated ability to pay your payments on time. If your history is sketchy and you have a lot of late payments, you probably won't qualify. In the case of your consolidating your debts, your credit report doesn't typically suffer as a result because your old debts are paid off and a new loan is started.
Could credit counselling impact your credit rating / credit report? With credit counselling, your credit report could be negatively impacted because all your individual debts will be reported on as under counselling. This can be repaired, over time, but you will initially take a hit on your credit score.
Can credit counselling save you money? It may seem like credit counselling saves you money in the short term because your monthly payments are dramatically reduced. But in some cases you could pay more this way because your interest rates may or may not be any different. A longer payment schedule with small payments could take longer to pay off. Deciding whether this is the right option for you or not is a personal decision that you should base on your specific situation and on weighing the pros and cons.
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