Can I Consolidate My Debts When I’m Unemployed?

November 5, 2014

Luke-Notley small (Custom)Unemployment and the subsequent change of a personal financial situation is one of leading causes of unmanageable levels of debt. A dramatic and sudden loss of income can lead to a difficult financial situation, necessitating a form of debt management.

Payday loans have grown in popularity over recent years amongst those struggling with debt, especially amongst the unemployed who need money before their benefits or other forms of income are received. The unemployed are able to apply for these loans, but they often lead to increased levels of debt and a spiralling pattern of repayment.

Consolidation Loans for the Unemployed

Similarly, many unemployed debtors seek debt consolidation loans as the solution to their financial troubles. Securing a debt consolidation loan is entirely at the discretion of the lender, so it can often be difficult for an unemployed individual to secure such a loan on favourable terms. Unfavourable charges and levels of interest may be added by the lender to protect their investment, but may subsequently increase the level of debt of the debtor.

In the long term, an unemployed debtor who secures a debt consolidation loan may suffer from increased repayment difficulty and increased levels of debt.

Subsequently, the debt charity Step Change strongly urge debtors not to take this drastic step as it only serves to increase the total level of debt. Furthermore, the charity argues against increasing credit card debt to pay off existing debts, increasing overdrafts and securing loans against your home.

Alternative Solutions

If it is unlikely your employment status is going to change and your outgoings outweigh your income, it may be necessary to take action against your debt. There are a number of solutions which may not increase your total level of debt and make it possible to escape the red and work into the black.

A debt management plan can help realign the repayment structure in-keeping with your financial situation. Furthermore, a debt advisor may be able to encourage creditors to freeze interest and added charges, making the debt repayment more affordable. This solution does not necessitate an additional loan to cover current debts.

A debt relief order is an alternative solution, aimed at debtors with little income and few assets. This solution freezes debts for 12 months, making it impossible for creditors to claim repayment from the debtor. If the debtor’s situation remains unchanged at the end of the 12 month period and they are still unable to make the necessary repayments, their debts will be written off. However, this solution has many negative stipulations such as severely affecting credit rating, meaning serious consideration needs to be made before entering into a debt relief order.

The last option to be considered would be bankruptcy. This could help a debtor become entirely debt free, but can have serious consequences. Read our guide to bankruptcy and the effects of seeking this solution here.

For more advice how to deal with debt, call our dedicated customer care team on 0800 072 6623.