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Is a consolidation loan the ideal solution for me? Being in a recession (according to the Ernst & Young ITEM Club Autumn forecast), there’s a real need for persons with problems with debt to see the differences between consolidation loans and the other available financial solutions - and see which one might be the best solution for their circumstances.

To start, it hangs on what happens in the future. In a recession, it’s more than likely to be not very good news - when consumer spending lowers and companies start to lose money, many companies will resort to redundancies as a means to stop the business going under. For any person who has got an idea their company might be making some staff redundant, a consolidation loan might not be a good idea.

Why is that? One of debt consolidation’s top benefits is the opportunity to lower a persons monthly debt repayments. A consolidation loan is most effective when the individuals financial situation is reasonably stable: when they know how much they’re earning and how much they’re spending each month, they are able to figure out the perfect way of repaying their debt.

With a steady income, they can calculate how much they are able afford every month, and make arrangements to repay the consolidation loan at the ideal speed - not too slowly (needlessly postponing the day they will be free of debt, and upping the amount of interest they’ll pay) and slowly (making their monthly budget dangerously thin).

So an individual facing the possibility of unemployment might be better off looking into debt management, instead of a debt consolidation loan. Debt management makes it possible to have a flexible approach to debt: borrowers are able to ask debt management experts to get in contact with their creditors on their behalf, asking them to consider accepting lower monthly payments, remove charges and/or freeze interest.

IVAs require a high level of commitment and need householders to release some of the money tied up in their house. 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 once they’ve taken their needed expenses into account. Even so, an Individual Voluntary Arrangement can make an important difference - for individuals whose debts have slowly got out of control, as well as individuals faced with a quick fall in their earnings. Granted, IVAs do require a level of financial stability: if the person doesn’t feel they can commit to five years of regular payments, an IVA (Individual Voluntary Arrangement) might not be the right debt solution for them.

Discover more about debt consolidation, debt management & IVAs here.