Is Debt Consolidation the Best Debt Solution in a Recession?
Is a consolidation loan the perfect debt solution for me? Now that we’re in a recession (according to the Ernst & Young ITEM Club Autumn forecast), it’s essential that persons with problems with debt understand what is different between debt consolidation loans and the various other financial solutions available - and realise which one could be best for them at a time like this.
Firstly, it rely’s upon what happens in the future. In a recession, it’s more likely than usual to be not so good news - when consumer spending drops and companies start to lose money, many companies are forced to make people redundant as a means to stay afloat. For any individual who has got an idea their company might be making redundancies, debt consolidation might not be a good idea.
What is the reason? One of debt consolidation’s top advantages is the opportunity to reduce the monthly amount an individual pays in debt repayments. A debt consolidation loan has a bigger impact when the persons financial situation is reasonably stable: when they know how much they are earning and how much they’re spending each month, they are able to work out the perfect way of making debt repayments.
So a person facing the chance of unemployment could be better off looking into a debt management plan, rather than a debt consolidation loan. Debt management makes it possible to have a flexible approach to debt: borrowers are allowed to ask debt management professionals to negotiate with their creditors on their behalf, asking them to think about allowing lower monthly payments, remove charges and/or freeze interest.
IVAs take a lot of commitment and need householders to free up some of the equity in their property. Borrowers must be able to commit to making fixed monthly payments for (normally) six years, based on the most they can afford once they’ve taken their essential expenses into account. Even so, an IVA (Individual Voluntary Arrangement) might make an important difference - for people whose debts have gradually got out of control, as well as individuals facing a sudden drop in income. Of course, Individual Voluntary Arrangements do require a level of financial stability: if the person does not feel they could commit to five years of regular payments, an Individual Voluntary Arrangement might not be the perfect debt solution for them.
Find out more about debt consolidation, IVAs & debt management.
