Many families may be wrongly encouraged to take on more debt as a way of handling the recession, according to debt advice organisations.

Debt advice charities have reported record numbers of calls from families and older people needing debt help, and who are struggling to maintain their loan repayments due to unaffordable credit commitments and rising living costs.

This has caused debt advice charities to warn against taking on further loans to relieve the cash-flow crisis, as consumers are often expected to consolidate loans as a way to resolve their stress.

According to Sainsbury’s Bank, nearly a quarter of personal loans are taken out to consolidate debts. Demand for consolidation loans is high, despite the tightening of lending criteria by the mainstream banks.

The first quarter of 2009 could see around 250,000 consolidation loans taken out, with a total value of almost £3bn according to Sainsbury’s. The bank also expects to see around 18% of this year’s personal consolidation loans to be taken out in January alone.

Often though taking on more loans to deal with the current problem isn’t the answer, as the client takes on more credit debt and ends up going further into the red.

Debt advice charities and professional debt help organisations offer a range of alternative solutions that can relieve the associated stress. Debt help solutions include debt management plans (DMPs) and IVAs (Individual voluntary arrangements) amongst others.

Debt management plans (DMPs) are negotiated with lenders on the client’s behalf (by the debt advice organisation), and remain flexible, allowing increased payments when a client’s circumstances change. Debt management also makes repayment more manageable, by spreading the total amount over a longer period – which is paid in smaller amounts. Debt management is an informal debt help solution, as no formal contracts are involved and clients are free to leave if they wish.

IVAs (Individual voluntary arrangements) are for a fixed term – usually five years – and offer the certainty of level payments. A qualified Insolvency Practitioner will need to carry out the IVA, following a full debt advice consultation – to ensure that an IVA is the right debt help solution. IVAs are a formal debt help solution, as they require a legally binding contract, drawn-up by a qualified Insolvency Practitioner.

Before taking on further loans to consolidate balances, it’s worth seeking impartial debt advice from a reputable debt help organisation. Established and well-regarded companies include Chiltern Debt Management, The Debt People and Hamilton Locke.