Debt consolidation advice is all over the place. The trouble is, it's usually the wrong type of advice. The advice you usually get is the type which seeks to persuade you that you just need to take out another loan to consolidate your debts, then your problems will be over. Well, they won't.
Taking out yet another loan is probably the worst thing you can do. What are you trying to get rid of? Debt. What is a loan? More debt. So why anyone would fall for this bad debt consolidation advice is anyone's guess. The only time a loan is useful for dealing with existing debt is if the one aggregated payment is considerably less than the sum of all the other monthly payments which are being consolidated, and you can meet the new repayment amount quite comfortably on top of your other financial commitments. If those two conditions aren't met you will be much worse off. You might feel okay for a year or so, but a few years down the line you will find that the misery of debt really starts to kick in.
The best advice relates to using some kind of consolidating program such as a debt management plan (or IVA, in its purest form). An IVA, or Individual Voluntary Arrangement, is a plan drawn up by a qualified insolvency practitioner (or IP) who will look at your income and expenditure and decide, with you, what you can afford to pay back to your creditors as a lump sum every month. Your creditors will be paid on a pro-rata basis, each creditor being paid proportionately in terms of their percentage of your overall debt.
Then comes the best part of an IVA. The insolvency practitioner will then negotiate with all your creditors and will cut your total debt by up to seventy per cent at a stroke. That means that from that point on your total debt will be reduced by as much as two thirds.
This kind of advice is better than just getting another loan to add to your debt, wouldn't you agree?
The IVA is a legally binding agreement between the debtor and his or her creditors. Payments for the full amount must be made each month, and after the usual five year term (six years in Scotland) the debt is completely written off. During all this time your creditors are not allowed to contact you in any way. That means no more worrying phone calls, no more knocks on the door and no more nasty letters. After those five years, or whatever the time period set, you will be debt-free.
Debt consolidation advice like this is a bit less easy to find than the many adverts seen on all types of media screaming at you to take out another loan. That path of action is no longer recommended as it leads to greater debt and does not provide an actual solution to the financial problem that appeared in the first place.
Gordon Goodfellow runs consumer websites which add value. His debt consolidation advice site offers a wide range of services and options to those with debt. His associate site offers best debt consolidation in the United States.
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