PT Cell

Is debt consolidation the best financial solution for me? As we are in a recession (according to the Ernst & Young ITEM Club Autumn forecast), it’s important that people with problems with debt see what is different between debt consolidation loans and the other debt solutions that are available - and see which one could be ideal for them during a time like this.

First of all, it hangs on future events. 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 companies are forced to make people redundant just so they can stop the business going under. For any individual who’s pretty sure their company might be making redundancies, a consolidation loan may not be the best idea.

What is the reason? One of debt consolidation’s best advantages is the chance to lower the monthly amount a person pays towards their debt repayments. A debt consolidation loan has a bigger impact when the persons financial situation is fairly stable: when they are aware how much they’re making and how much they are spending each month, they can figure out the best way of repaying their debt.

So an individual facing the prospect of unemployment could be better off looking into debt management, rather than debt consolidation. Debt management gives a flexible approach to debt: borrowers are allowed to ask debt management experts to talk to their creditors on their behalf, asking them to consider allowing reduced monthly payments, remove charges and/or freeze interest.

IVAs take a high level of commitment and can require people with their own homes to release some of the equity tied up in their home. Borrowers are required to commit to making fixed monthly payments for (normally) six years, based on the most they can afford when they’ve taken their essential expenses into account. Even so, an IVA (Individual Voluntary Arrangement) might make all the difference - for people whose debts have gradually become out of control, including individuals faced with a quick fall in income. Of course, Individual Voluntary Arrangements do need a level of financial stability: if the person doesn’t feel they are able to commit to five years of regular payments, an Individual Voluntary Arrangement might not be the best debt solution for them.

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