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We’ve all seen the ads charming you into ‘switching your debts into one, affordable lower monthly payment’ but are consolidation loans a good idea?

When you have a multitude of debt and creditors are holding out their hands in every direction, the simplicity of simply rolling all of your debts into one affordable, monthly payment can seem like heaven. You get your creditors off of your back and can simply relax, knowing that you only have to find one fixed sum per month for the life of the consolidation loan.

A consolidation loan is an ideal debt solution for many people as long as it is used properly. Many people fail to read the small print or do not look at the wider picture. Don't start a consolidation loan until you've investigated all your options, as something like an IVA may be more suitable.

It has been estimated that seven out of ten people are able to pay off their debt consolidation loans early but fail to realise that early settlement can incur penalty charges. Secondly, people using debt consolidation tend to run up other debts beside the loan. The temptation of a new credit limit on those nearly cleared credit cards is hard for many to resist.

In 2006, the IVA was a huge hit for those in severe debt. Although it was originally intended for small business owners rather than individuals, the IVA went from being an unknown debt solution to one of the best debt solutions available. As a result, the IVA expanded and mass advertising made it one of the most accessible and recommended debt solutions for the general public.

Many creditors are hoping that 2008 will be the year that the IVA bubble will burst. Some have become very hostile towards the IVA and are insisting on higher rates. Northern Rock voted against nearly every IVA proposal that was placed before them.

During 2005 and 2006, the IVA increased massively but this tapered off as creditors became more demanding and during 2007, the IVA lost its place as one of the most affordable alternatives to bankruptcy.

The need for IVAs is still here as personal debt goes through the roof and the sub-prime housing market hits rock bottom. Although this was primarily a problem for the US, the United Kingdom has suffered dramatically and people have been finding it increasingly difficult to re-mortgage their homes in the sub-prime sector. The United Kingdom has become swamped in debt and people are going to need every possible debt solution available to give them some breathing space to clear their backlog of mounting bills.

There have been many news articles urging caution over taking out an IVA (Individual Voluntary Arrangement) as an easy and effective way to get out of debt.

A recent report by Which magazine has been the main culprit along with many online blogs as people try to thrash out the pros and cons of an IVA.

An IVA is not an agreement that should be entered into lightly as it requires a long term commitment of five years and is only really suitable for those with debt above £15,000 as smaller debt can be resolved through debt consolidation or debt management . An IVA is a very favoured alternative to bankruptcy, but is not a quick fix solution to your debt problems.

The wording of the report in the Which article could be misunderstood and lead people to think that IVA companies are out solely to line their own pockets by making unscrupulous promises to clear debt and lure people into signing up to IVA schemes so as they can cream off the profits.

An IVA is the perfect debt solution for those who are happy to remain on a tight, budget for five years. Debtors should also be aware that they will not be able to obtain credit and opening a bank account could be impossible.

Having your bag stolen could leave you in debt for at least six days as it is a lengthy business cancelling credit cards, filling in paperwork and paying for new keys to be cut.

When emptying out the contents of one man’s briefcase, in comparison to a woman’s handbag, it was surprising to find that a man would suffer more financial loss if he were to have his briefcase stolen.

Nearly three quarters of men carry bags in some form, whether it is a briefcase, rucksack, satchel or even a supermarket carrier bag. These are filled with approximately £319 worth of goods. Woman shoulder the contents of a smaller £255 worth of items.

Having said this, what about the bag itself? Many people are partial to the odd designer label and will spend anything from a few hundred pounds to a thousand pounds to clasp a piece of class.

An expensive handbag left on the front seat of a car is a sure fire way to lose it. Some insurance companies provide cover for up to £300 for the loss or damage to a handbag and its contents but if you are uninsured, you will be left with the debt on your shoulders.

We often carry expensive items with us which may have cost us more than we could afford. This could give the wrong impression to a thief who may believe that these items can easily be replaced. Always keep valuable items well concealed and attach them to your shoulder or hand as though they were sealed to you with glue to avoid making yourself a target to theft. Simple precautions could save you having to go through the stress - not to mention causing yourself unnecessary debt problems.

When you read headlines such as ‘Britain is on a downward spiral of debt, do you feel pangs of guilt as you associate yourself with that statement or do you judge those who spend so irresponsibly?

The headline highlights thousands of people who have given up trying to save and are falling even further into debt as they use their house as a cash cow by constantly drawing from it to increase their mortgage and furnish their lifestyle. The Samaritans say that calls related to debt have even overtaken matters regarding stress within the workplace.

The debt cycle: So why do can some people save and others spend frivolously?
Money habits usually stem from childhood. If you were brought up in a household where it was important to count every penny, then it is likely you are still careful with money and will probably still stay this way even if you became a national lottery jackpot winner. On the other hand, if you came from a poor family background but were often showered with gifts to make you feel special, it is likely that you will continue spending money to use as an emotional crutch.

Finances and you: Are you an introvert or extrovert spender?
An introvert spender is someone who is very prudent with money and will deny themselves or others very little pleasure from the money that they have. On the contrary, an extrovert spender will shower friends and family with lavish gifts even if it means going into debt.

If you’ve been using unsecured loans and credit cards as a temporary fix to your debt problems, this could be the year to break the cycle and get your finances sorted!

Unsecured Loans & Credit Cards in 2008

The Bank of England are warning that unsecured loans and credit cards will get harder to obtain this year as lenders start implementing tougher criteria. If you’ve got a bad credit history, chances are this ‘credit crunch’ will make it harder to find a good loan and credit card.

So what can you do about it? Start managing your finances differently so you’re not relying on credit cards and loans to survive. Work on paying off the ones you have and look at ways to increase your income – and if you haven’t got a budget, I can’t stress how important it is to make one. If you’ve been relying on credit cards and short term loans and are finding you just can't get out of debt – another loan is not the answer!

Debt advice can give you answers on how you can start getting rid of your debt problems – and start getting rid of credit cards and loans for good!

People claim benefits as a means of getting out of debt but did you know that over £1.4 billion claims are from those ineligible to receive help?

Over 50% of fraudulent claims come from Job Seekers Allowance, Income Support and Housing Benefit applicants. As a result, public services fall behind. Instead of seeking a legitimate debt solution like an IVA, more people are trying to 'cheat the system'.

Fraudulent benefit claims are used to increase current benefit payments or to decrease rent or council tax payments. Some people claim Income Support when they are working part-time and do not declare their earnings.

Although some people are clearly abusing the system, others are doing so out of need to try to cope with everyday living costs and mounting debt.

Many find it difficult to give up their benefits and find full-time employment as a forty hour working week would not see them any better off financially. As a result, some claim benefits and take ‘cash in hand’ payments for work.

Those who are suspected of benefit fraud are visited at their homes by officers or requested to attend an interview. Benefits are likely to be stopped whilst the case is being investigated. The end result could be prosecution.

Everyday, people call the Debt Advice Trust asking for answers on a wide range of debt issues. The festive season may be over for another year, but how long are you going to be paying it off? If you put most of your Christmas expenses on credit, you'll probably be asking:

“What is the quickest way to clear my credit card debt?”

It only takes a second to run up debt on your credit card - but can take years to pay it off. This is a fairly simple question, with a fairly simple answer - although it can be hard in practice to clear debt:

Don't increase your credit card debt by continuing to spend! Cut up your cards if need be. Make it your New Years challenge to live within your means without taking out a new credit card or spending on ones you already have.

Make paying it off your priority! Consider if you can cut back somewhere on your expenses and use that money directly to pay it off, for example if you buy a magazine once a week, give it up for six months and read online magazines or borrow them from friends or the library. That extra few pound a week can make a big difference when you multiply it over a year.

Should you Consolidate? If you have high interest credit cards and short term loans, you could think about consolidating them with one debt consolidation loan. How does it work? You find a loan with smaller interest and smaller monthly repayments and pay off all your individual debts so you just have one loan to pay back. Talk to the Debt Advice Trust for advice on whether it will help with your debt.