English Corpus

Is debt consolidation the most fitting financial solution for me? Now that we’re in a recession (according to the Ernst & Young ITEM Club Autumn forecast), there’s a real need for persons with financial problems to understand what is different between debt consolidation loans and the various other debt solutions available - and understand which one could be perfect for them at a time like this.

Firstly, it depends on future events. In a recession, it’s more likely than usual to be bad news - when consumer spending lowers and companies lose money, many firms will make people redundant in order to stop the business going under. For anyone who’s pretty sure their company could well be making redundancies, consolidating their debts may not be the best idea.

Why is that? One of debt consolidation’s best benefits is the ability to reduce a persons monthly debt repayments. Consolidating debt has a bigger impact when the individuals financial situation is reasonably stable: when they know how much they’re making and how much they’re spending each month, they can then figure out the perfect way of repaying their debt.

So an individual facing the prospect of unemployment might be better off looking into debt management, rather than consolidating their debts. 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 think about accepting reduced monthly payments, remove charges and/or freeze interest.

Individual Voluntary Arrangements take a lot of commitment and can require homeowners to free up some of the equity tied up in their house. Borrowers are required to commit to making fixed monthly payments for (most of the time) six years, based on the maximum they are able to afford once they have taken their needed monthly costs into account. Even so, an IVA (Individual Voluntary Arrangement) might make a huge difference - for people whose debts have slowly become out of control, as well as people facing a quick drop in their earnings. Of course, Individual Voluntary Arrangements do require a level of financial stability: if the individual doesn’t feel they could 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.