Lending Club Blog

Are You Paying Off Your Debt? or Just Merely Managing It?

The recent recession has prompted many to look at their debt situations and try to figure out what they can do to improve matters.  Unfortunately, instead of aggressively paying off debt, most people are simply managing it.

You might think that there is little to choose from between the two, but there really are differences when you compare managing your debt with paying it off.

Debt Management

Debt management represents an approach that has more to do with remaining comfortable and shifting your debt about so that it is more… well… manageable.  Debt management might include moving your debt to a low interest credit card without really paying the balance down very quickly.  It might even include a debt consolidation loan that allows you to keep up with your current spending habits while slowly making progress on your debt.

Debt management is an attitude. It’s one that reflects someone more interested keeping things under relative control, and making small changes so that debt is paid down slowly enough that it doesn’t interfere much with your spending agenda. In the short-term, it’s relative painless; in the long-term, debt management means that you pay more overall in interest.

Debt Reduction and Payoff

Paying off your debt, on the other hand, takes a more active approach.  Instead of merely managing your debt, attempting to keep things the same, you create a plan to pay down your debt.  This involves make some sacrifices with regard to your discretionary income.  Instead of maintaining your spending habits while making something a little higher than the minimum payment, you cut your spending so that you can apply more money to reducing your principal.

Debt reduction means that you make attempts to get out of debt in the shortest amount of time possible.  In the short-term, it may mean enduring some discomfort.  However, in the long-term, paying off your debt more quickly, aside from giving you some instance sense of financial independence, will result in you benefiting from more of your own money.

Image courtesy of Andres Rueda.

Friday, October 8th, 2010 at 3:35 am

Comments (2)

  1. Porugo:

    Great that you take the time to tell people to take more control of
    their debt. Managing is controling your debt, but paying it off if
    total control! Leveraging debt is good, living to pay debt is not.

    October 9th, 2010 at 4:36 am

  2. Rahmat:

    Well, managing is not such a bad thing, if you are managing it to
    pay it off. Now, if you’re letting it grow and just merely keeping
    it “at bay”, that’s when it is a problem.

    October 18th, 2010 at 3:00 am

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