Debt Management Vs IVA

Debt Management Vs IVA

If you're in a situation where you need to get back in control of your unsecured debts, here are two debt solutions that might be able to help: an Individual Voluntary Arrangement (IVA) and a Debt Management Plan.

Both have benefits and disadvantages - so let's look at them for a comparison.

Affordability of Debt Management Vs IVA

One of the many benefits of debt management is that it can lower your monthly repayments towards your credit card, overdraft, personal loan or other unsecured debt to an affordable level. This involves contacting your lenders and asking them to allow you to pay less every month, based on what you can afford, on the agreement that you will pay back the full amount you borrowed in the first place.

An IVA could also lower your monthly payments (again, to an affordable level), although the majority of your unsecured lenders have to agree to your IVA before it can start. An IVA usually lasts five years, and any unsecured debt that you couldn't repay would be written off once you've fulfilled your side of the agreement and your IVA successfully concludes. However, during the IVA itself, any pay rise or bonus would have to be declared, and lenders would probably expect you to pay more if you can afford it.

Flexibility of Debt Management Vs IVA

Debt management is an agreement, but it isn't a legally binding contract. Your lenders aren't obliged to accept the agreement and will probably ask you for higher monthly payments if your circumstances improve. On the other hand, if you were temporarily out of work, for example, you might be able to lower your payments for a short time, so debt management does offer some flexibility.

An IVA is usually five or six years in length, no matter how much debt you have. It's a legally binding agreement and is overseen by an Insolvency Practitioner (IP), who may be able to arrange reduced payments if your situation deteriorates and that seems to be the best way to bring your IVA to a successful close.

Interest and charges on Debt Management Vs IVA

Interest and charges are frozen on an IVA. At the end of a successful IVA, when every payment has been made, the interest and charges are written off, as well as any additional unsecured debt that the borrower can't afford to repay.

Debt management could last longer than an IVA if the payments are spread over a longer period, delaying the day you clear your debt. Spreading your payments this way could also mean you end up paying interest for longer. That can work out more expensive than your original agreement. However, lenders often agree to freeze or lower the interest and charges for people on debt management - which could ultimately save you money in the long term and reduce the repayment period.

Other things to consider: Debt Management Vs IVA

Both of these debt solutions would affect your credit record for six years, making it harder to borrow money.

If you're a homeowner, you would probably be expected to release equity in your home in the final year of an IVA, whereas you wouldn't be expected to do this on debt management. Homeowners are equally able to apply for Debt Management.

These debt solutions are only suitable if you have enough income to put towards your debts every month, once you have paid your tax, national insurance and essential household / living costs.

Lucy Bower