Is a consolidation loan the perfect solution for me? As we are in a recession (according to the Ernst & Young ITEM Club Autumn forecast), there’s a real need for individuals with financial problems to realise the differences between debt consolidation loans and the other available financial solutions - and see which one could be perfect for them during a time like this.
For a start, it rely’s upon what happens in the future. In a recession, it’s more than likely to be bad news - when consumer spending drops and businesses make a loss, many firms will resort to redundancies as a means to stay afloat. For anyone who’s got an idea their company could well be making some staff redundant, debt consolidation may not be a good idea.
What is the reason? One of debt consolidation’s best benefits is the chance to reduce an individual’s monthly debt repayments. Debt consolidation has a bigger impact when the individual is in a reasonably stable financial situation: when they know how much they’re making and how much they’re spending every month, they can work out the best way of repaying their debt.
So an individual facing the prospect of unemployment might be better off looking into managing their debts, instead of consolidating their debts. 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 reduced monthly payments, waive charges and/or freeze interest.
Individual Voluntary Arrangements take a lot of commitment and can require people with their own homes to free up some of the equity tied up in their property. Borrowers must be able to commit to making fixed monthly payments for (most of the time) six years, based on the maximum they are able to afford when they’ve taken their essential expenses into account. Even so, an Individual Voluntary Arrangement can make a huge difference - for people whose debts have steadily got out of control, as well as persons facing a severe drop in income. Granted, IVAs do need a level of financial stability: if the individual doesn’t feel they can commit to five years of regular payments, an IVA (Individual Voluntary Arrangement) may not be the best debt solution for them.
Discover more about debt consolidation, debt management & IVAs here.
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