Debt consolidation blog
If you’re in debt, there’s a good chance that debt consolidation could be a suitable way of bringing (or keeping) your debts under control.
The first thing to note is that debt consolidation isn’t always appropriate: some people would be better off with an alternative debt solution, such as a debt management plan or an IVA (Individual Voluntary Arrangement).
The second is that the term ‘debt consolidation’ actually applies to two different debt solutions – you can consolidate your debts with a debt consolidation loan, or with a debt consolidation mortgage. So: Which is better? Which is right for you? What are the pros and cons?
As you may know, an IVA (Individual Voluntary Arrangement) can significantly damage your credit rating, potentially making mortgages and other forms of credit harder and more expensive to come by.
Thinking about an IVA?
If you’re thinking about entering an IVA and you’re also thinking about buying a home, it’s certainly something to consider – especially as mortgage providers have become very careful about giving out mortgages.
If you have been looking to obtain credit (such as a debt consolidation loan or overdraft facility) in recent months, you may have noticed that the credit crunch has made it much more difficult. It’s not just because lenders have tightened their lending criteria – in many cases, it’s because the lenders simply can’t provide the funds themselves.
The Special Liquidity Scheme was originally put in place to ease the liquidity crisis in the UK, in which banks and other financial institutions were unwilling or unable to do business with each other on the wholesale financial markets – which in turn severely limited funds for loans and other forms of credit.
These are difficult times for people thinking about consolidating their debts. The way the economy has changed in the last year has made debt consolidation loans both more valuable and more difficult to get hold of…
Consolidation loans – more important than ever!
On the one hand, consolidation loans are more essential than ever. Unemployment is rising and so’s the cost of living – so more and more people are having to stretch less money further and further. That’s the type of challenge a consolidation loan could help someone meet.
If you’re struggling with debts of £15,000 or over that you think you are unable to repay, you may be considering an IVA (Individual Voluntary Arrangement). An IVA is a legally-binding agreement between you and your creditors that enables to repay only what you can afford.
IVAs were introduced by the Government as part of the Insolvency Act 1986, as an alternative to bankruptcy. By comparison, an IVA will enable creditors to reclaim more of the money they are owed. However, that is not to say that an IVA is always the ‘preferable’ option.
When credit is hard to come by, how do you consolidate your debts? A recent press release from comparison site uSwitch reports that the last year has seen a £283 million quarterly decrease in unsecured loans – and a £179 million quarterly increase in gross credit card spending.
With loans (including debt consolidation loans) less available than they were before the credit crunch, many people in debt have clearly felt the need to resort to different ways of keeping their finances in order, whether they’re consolidating their debts or borrowing small sums to make it through to the next payday.
Is now the time to consolidate your debts? At a time like this, does it make sense to bring all your debts together into a single larger loan?
Debt consolidation – pros & cons
Pros: Consolidating your debts can reduce both the interest and the amount you’re paying every month, as well as making your debt much easier to manage.
Cons: It can also mean your debt takes longer to repay and potentially costs you more in the long run.
So, is now a good time to think about a consolidation loan?
Are debt consolidation loans still available? Every three months, the Bank of England publishes its Credit Conditions Survey, which reveals what changes lenders have seen in the credit market recently, and what they expect in the months ahead.
The most recent Survey confirms what you’d probably expect – that secured and unsecured credit did indeed become less available in April-June 2008. But the news isn’t all bad. Lenders may be more cautious about giving people loans, but they’re still lending significant amounts of money for all kinds of purposes, including debt consolidation.
If you have found yourself in serious amounts of debt, or know someone else who has, you may be familiar with the terms IVA (Individual Voluntary Arrangement) and Trust Deed. Both are ways of getting yourself out of unmanageable debt, but there are fundamental differences between the two – the most important being that one applies to England and Wales, and the other applies to Scotland.
Read More...Is your IVA (Individual Voluntary Arrangement) still right for you? If you’re in an IVA, you might hear about other debt solutions that sound easier, faster, cheaper, or all three.
Usually, if something sounds too good to be true, there’s a good chance it is. After all, nobody signs up to a five-year commitment like an IVA without thinking long and hard about it. Plus, debt advisers are legally obliged to explain the pros and cons of (and the alternatives to) an IVA to anyone who’s thinking about starting one. Debt management, consolidation loans, bankruptcy – if any of these debt solutions was more appropriate, your debt adviser should have suggested it before your IVA began.
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