Debt Consolidation - Best in a Recession?
Is a consolidation loan the best financial solution for me? Now that we’re in a recession (according to the Ernst & Young ITEM Club Autumn forecast), it’s essential that people with debt problems realise what is different between debt consolidation loans and the other available debt solutions - and see which one could be the best solution to suit their circumstances.
Firstly, it depends on what the future holds. In a recession, the chances are for it to be bad news - when consumer spending drops and companies lose money, many companies will resort to redundancies as a means to stay afloat. For any individual who thinks their company might be making redundancies, a debt consolidation loan may not be a good idea.
Why is that? One of debt consolidation’s best advantages is the chance to reduce the monthly amount an individual pays towards their debt repayments. Consolidating debt has a bigger impact when the person is in a fairly stable financial situation: when they are aware how much they are earning and how much they are spending every month, they are able to work out the ideal way of paying back their debt.
So someone facing the possibility of unemployment could be better off looking into debt management, as opposed to debt consolidation. Debt management makes it possible to have a flexible approach to debt: borrowers can ask debt management experts to talk to their creditors on their behalf, asking them to think about allowing lower monthly payments, waive charges and/or freeze interest.
Individual Voluntary Arrangements require a high level of commitment and can require householders to free up some of the equity in their home. Borrowers must be able to commit to making fixed monthly payments for (normally) six years, based on the most they are able to afford when they have taken their essential expenses into account. Even so, an IVA is able to make all the difference - for people whose debts have steadily become out of control, including persons faced with a severe drop in their earnings. Granted, IVAs do need a level of financial stability: if the person does not feel they are able to commit to five years of regular payments, an IVA might not be the perfect debt solution for them.
Find out more about debt consolidation, IVAs & debt management.
