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Is a debt consolidation loan the ideal solution for me? Now that we’re in a recession (according to the Ernst & Young ITEM Club Autumn forecast), it’s urgent that individuals with debt problems understand the differences between consolidation loans and the other debt solutions that are available – and realise which one could be ideal for them during a time like this.

First of all, it rely’s upon future events. In a recession, the chances are for it to be not so good news – when consumer spending falls and businesses lose money, many businesses will make people redundant just so they can stay afloat. For anyone who thinks their company might be laying off staff, a debt consolidation loan may not be a good idea.

Why? One of debt consolidation’s best benefits is the opportunity to reduce a persons monthly debt repayments. A consolidation loan has a bigger impact when the person is in a fairly stable financial situation: when they know how much they are earning and how much they’re spending each month, they can then figure out the best way of paying back their debt.

So an individual facing the chance of unemployment might be better off looking into managing their debts, instead of debt consolidation. Debt management makes it possible to have 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 lower monthly payments, remove charges and/or freeze interest.

IVAs take a lot of commitment and need homeowners to free up some of the equity in their house. Borrowers must be able to commit to making fixed monthly payments for (most of the time) six years, based on the most they are able to afford once they’ve taken their essential expenses into account. Even so, an IVA might make a big difference – for individuals whose debts have slowly got out of control, as well as people faced with a severe fall in income. Granted, Individual Voluntary Arrangements do require a level of financial stability: if the individual does not feel they could commit to five years of regular payments, an Individual Voluntary Arrangement may not be the right debt solution for them.

Find out more about debt consolidation, IVAs & debt management.