Health Upgraders

Is a consolidation loan the perfect debt solution for me? As we are in a recession (according to the Ernst & Young ITEM Club Autumn forecast), it’s essential that individuals with debt problems realise the differences between consolidation loans and the other debt solutions that are available – and understand which one might be the best solution for their circumstances.

Firstly, it rely’s upon what happens in the future. In a recession, the chances are for it to be not so good news – when consumer spending becomes low and businesses start to lose money, many businesses will resort to redundancies in order to stop the firm going under. For any individual who thinks their company is thinking about making some staff redundant, a debt consolidation loan may not be a good idea.

Why is that? One of debt consolidation’s most attractive benefits is the opportunity to reduce the monthly amount a person pays in debt repayments. Debt consolidation is most effective when the individual is in a reasonably stable financial situation: when they are aware how much they are earning and how much they’re spending every month, they can figure out the perfect way of repaying their debt.

So a person facing the prospect of unemployment might be better off looking into debt management, rather than debt consolidation. Debt management gives a flexible approach to debt: borrowers could ask debt management professionals to negotiate with their creditors on their behalf, asking them to think about accepting lower monthly payments, remove charges and/or freeze interest.

IVAs require a high level of commitment and can require people with their own homes to release some of the money tied up in their property. Borrowers must be able to commit to making fixed monthly payments for (often) six years, based on the maximum they can afford when they have taken their needed expenses into account. Even so, an Individual Voluntary Arrangement can make all the difference – for people whose debts have slowly become out of control, as well as people facing a sudden drop in income. Granted, Individual Voluntary Arrangements do need a level of financial stability: if the individual does not feel they can commit to five years of regular payments, an Individual Voluntary Arrangement might not be the best debt solution for them.

Read more about debt consolidation, debt management & IVAs here.