Debt Consolidation - a Recession-Proof Debt Solution?
Is debt consolidation the perfect 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 individuals with debt problems to understand what is different between consolidation loans and the other available financial solutions - and understand which one might be the best solution for their circumstances.
First of all, it hangs on what the future holds. In a recession, it’s more than likely to be bad news - when consumer spending dips and businesses make a loss, many companies are forced to make people redundant just so they can stay afloat. For anyone who has got an idea their company is thinking about laying off staff, debt consolidation may not be the best idea.
Why? One of debt consolidation’s top benefits is the chance to reduce the monthly amount a person pays in debt repayments. Consolidating debt is most effective when the individuals financial situation is fairly stable: when they are aware how much they are making and how much they’re spending each month, they can work out the number one way of paying back their debt.
So an individual facing the possibility of unemployment could be better off looking into debt management, instead of debt consolidation. Debt management offers a flexible approach to debt: borrowers can ask debt management professionals to get in contact with their creditors on their behalf, asking them to think about allowing reduced monthly payments, waive charges and/or freeze interest.
Individual Voluntary Arrangements need a lot of commitment and can require homeowners to free up some of the equity 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 can afford when they’ve taken their needed expenses into account. Even so, an Individual Voluntary Arrangement can make all the difference - for people whose debts have slowly become out of control, including persons facing a quick fall in their earnings. Granted, IVAs do require a level of financial stability: if the individual doesn’t feel they are able to commit to five years of regular payments, an Individual Voluntary Arrangement might not be the perfect debt solution for them.
Read more about debt consolidation, debt management & IVAs here.
