Tightening conditions across the market will really pile the pressure onto debt consolidation but if this route is not available to the borrower, IVA.com director Terry Balfour believes that an increasing number will look to take out an Individual Voluntary Arrangement (IVA).
“Paying interest to several lenders on credit cards, store cards and loans is incredibly expensive so consolidating the debt into one loan is a good move – but the lending and spending boom is coming to an end and this is no longer the easy option," said Balfour.
“Hitting the brick wall of bankruptcy could seem unavoidable, but this grim prospect isn’t necessarily the only way out – settling their debts with an IVA causes less damage to future credit rating and employment prospects and is less of a social stigma.”
Although IVAs don’t suit everybody’s situation, they are useful vehicles for those with some disposable monthly income – at least £180 - and a willingness to pay the creditors.
Grant Thornton echoes these sentiments, forecasting that 10,000 people each month are likely to become insolvent in 2008, with excessive Christmas spending fuelling at least a third of these in the first three months of the year.
Mike Gerrard, head of Grant Thornton's personal insolvency practice, said: "Despite tight credit conditions, many individuals will have increased their spending over the festive period. So it is inevitable that more people will help flare up the statistics in the new year as they carry on spending even when available cash becomes tighter."
"I believe personal insolvency numbers will move forward at a much faster pace than anticipated. While they may settle down before next Christmas, they will do so having edged closer to a total of 120,000 personal insolvencies for 2008. With the credit crunch yet to fully bite, there are simply not the conditions in place to expect a drop."
