Debt Management – in a Credit Crunch

Many people with multiple unsecured debts look into debt management or debt consolidation as a way of reducing their monthly outgoings and simplifying their finances.

The option that is right for one person, may not be right for another, since debt management and debt consolidation both have their benefits and draw backs. So it is a decision they should only take after talking to an expert debt advisor – and one of the factors that advisors will consider is the cost and availability of a debt consolidation loan. Clearly, that can vary from person to person and from month to month, as the credit market goes though good times and bad times.

Managing debts in a Credit Crunch

In a credit crunch, managing your debts is particularly tricky. With credit hard to come by, some people are being refused the debt consolidation loans they would probably have been granted as little as 6 months ago. At the same time, some homeowners no longer have the option of consolidating their debts through remortgage: Mortgages are more expensive, lenders are requiring larger deposits and the uncertainty in the housing market, means they can no longer depend on a steady increase in the value of their property.

This does not mean that debt consolidation loans and mortgages are no longer an option, but it may mean that a debt management programme is now the right choice for some people who would not necessarily have considered it 12 months ago.

Unlike loans and remortgages, a debt management programme does not involve taking out any more credit. You are not asking anyone to lend you money – you are just ask them to review the way you are paying back what you owe.

Creditors, of course, know all about credit crunches, and most will appreciate that some borrowers options are limited at a time like this. Rather than involving the courts, most creditors would rather talk to a borrowers debt management representative and agree on a reasonable payment programme that ensures the debt is repaid, at a rate the borrower can afford.

Individual Voluntary Arrangements (IVAs)