Is a consolidation loan the most fitting debt solution for me? Being in a recession (according to the Ernst & Young ITEM Club Autumn forecast), it’s essential that individuals with debt problems understand what is different between consolidation loans and the other debt solutions that are available – and understand which one could be best for them at a time like this.

First of all, it hangs on what the future holds. In a recession, it’s more than likely to be not so good news – when consumer spending falls and companies make a loss, many businesses will make people redundant just so they can save the company. For any person who has got an idea their company is thinking about making redundancies, debt consolidation might not be the best idea.

Why? One of debt consolidation’s best benefits is the ability to bring down the monthly amount a person pays in debt repayments. A consolidation loan is most effective when the individuals financial situation is reasonably stable: when they are aware how much they are making and how much they’re spending each month, they can figure out the number one way of making debt repayments.

So an individual facing the chance of unemployment would perhaps be better off looking into managing their debts, rather than a debt consolidation loan. Debt management makes it possible to have a flexible approach to debt: borrowers could ask debt management professionals to talk to their creditors on their behalf, asking them to consider accepting reduced monthly payments, waive charges and/or freeze interest.

IVAs require a high level of commitment and need homeowners to release some of the cash tied up in their property. Borrowers are required to commit to making fixed monthly payments for (often) six years, based on the most they are able to afford when they have taken their needed monthly costs into account. Even so, an IVA (Individual Voluntary Arrangement) is able to make all the difference – for people whose debts have gradually become out of control, as well as people faced with a severe drop in their earnings. Granted, IVAs do require a level of financial stability: if the individual doesn’t feel they can commit to five years of regular payments, an Individual Voluntary Arrangement may not be the best debt solution for them.

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

This entry was posted on Thursday, October 30th, 2008 at 7:21 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.