Is a debt consolidation loan the perfect solution for me? Being in a recession (according to the Ernst & Young ITEM Club Autumn forecast), it’s important that people with problems with debt realise what is different between debt consolidation loans and the other debt solutions that are available – and realise which one could be the perfect solution to suit their circumstances.

To start, it depends 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 businesses lose money, many businesses will resort to redundancies just so they can stop the business going under. For any individual who’s pretty sure their company is thinking about making some staff redundant, a debt consolidation loan may not be the best idea.

What is the reason? One of debt consolidation’s most attractive benefits is the ability to lower the monthly amount an individual pays towards their debt repayments. A consolidation loan is most effective when the individuals financial situation is reasonably stable: when they know how much they are making and how much they are spending every month, they can then work out the best way of repaying their debt.

So someone facing the prospect of unemployment would perhaps be better off looking into managing their debts, rather than consolidating their debts. Debt management gives a flexible approach to debt: borrowers are allowed to 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 require a high level of commitment and can require people with their own homes to release some of the money tied up in their home. Borrowers must be able to commit to making fixed monthly payments for (normally) six years, based on the maximum they can afford once they’ve taken their needed expenses into account. Even so, an Individual Voluntary Arrangement is able to make all the difference – for people whose debts have steadily become out of control, as well as individuals facing a quick drop in income. Of course, IVAs do need a level of financial stability: if the person does not feel they can commit to five years of regular payments, an Individual Voluntary Arrangement might not be the right debt solution for them.

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