What is the difference between debt consolidation and debt management?

Debt Management

Debt management is the process of monitoring, analyzing and adjusting your personal cash flow which take into account of your current debt, monthly income, and cost of living expenditures in order to generate a realistic, long-term repayment plan. Debt management plans also involve working with creditors to find the best solution possible. This can include anything from settling the debt or freezing interest rates for individuals experiencing financial difficulties.

Agency Kaunseling & Pengurusan Kredit (AKPK) which set up by BNM can offer assistance to any individual Malaysian who faced financially distressed to regain control of their life and debts through the individual Debt Management Programme (DMP). The trained AKPK counsellors will work with you to develop a personalised debt repayment plan in consultation with your financial service providers.

Debt Consolidation

Debt consolidation may be part of a debt management program. Debt consolidation refers to consolidating the debt from multiple loans into one larger loan. Debtors do this to get a lower interest rate or for the convenience of making one monthly payment rather than a number of payments to different loan sources. The sooner you reduce your debt, the faster you will be in control of your financial life and see improvement in your credit score.

One problem with this loan is that many people will do this with a second mortgage or home equity loan, which ties the debt to your house, and if you cannot make payments in the future you may lose your home. Another problem is that it does not address the behaviours that caused you to get in debt. Often people who go this route end up with the same amount of credit debt as well as the consolidation loan in a few years’ times.

Making a Choice

As you look at your individual situation, you need to determine which solution is better for you. If you are in serious trouble with your creditors and really want to change how you manage your finances, a debt management solution may help you change your habits and get your debt under control. Debt consolidation might save you money as you work to get out of debt on your own.

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