As you’ve landed here, we’re going to assume that you’re in the middle of finally sorting out your debts. In which case, congratulations. Around the corner is a future that’s debt-free.
But between now and then, you have a critical decision to make in relation to the debt solution you choose.
Two of the most commonly compared debt solutions are IVAs and a Debt Management Plans, but which is best? This guide will walk you through it, helping you choose between the two.
Before we begin – do you really need a debt solution?
- Your cards are maxed out
- You’re receiving rejection after rejection for credit
- Your finances feel out of control.
- It takes a long time to see any progress at all on your debt levels
- You can’t afford basic necessities, like food, clothes and electricity
What is an IVA?
An IVA is a debt solution that allows you to be debt free in either five or six years, after which time up to 80% of your debt can be written off. The advantages of an IVA are:
- It runs for a fixed period of time
- You pay a fixed monthly repayment
- Repayments are based on your income and expenditure – making them genuinely affordable
- No more interest will be added to your debts
- Your creditors will no longer be able to contact you, except to send you statements
- There will be a possibility to change your repayments should your circumstances change through no fault of your own (this would be the decision of your IVA provider).
IVAs are government approved and managed through a provider, who’ll help you with your application.
IVAs are only suitable for non-priority debts such as:
- Personal loans
- Bank or building society loans
- Money borrowed from friends or family
- Credit card, store card debts or payday loans
- Catalogue, home credit or in-store credit debts
IVAs are not suitable for priority debts, which include:
- Court fines
- TV licence
- Council tax
- Gas and electricity bills
- Child support and maintenance
- Income tax, national insurance and vat
- Mortgage, rent and any loans secured against your home
- Hire purchase agreements, if what the item is essential
Your IVA – Things to Seriously Consider
In a perfect world an IVA would provide a debt solution that you successfully pay every single month. However you need to be aware that if you do fall behind with your obligations, and don’t catch up within a couple of months, the IVA could be terminated and your creditors may petition for bankruptcy.
Another thing to bear in mind is that debt solutions such as Debt Management Plans and IVAs will restrict your access to credit over the time they are active. An IVA will also appear on your credit file for six years from its start day. In comparison, a Debt Management Pan will only appear during the time that it’s active.
What is a Debt Management Plan?
Debt Management Plans are a form of debt solution that involve a single monthly payment being paid to a provider, who splits the payment between your creditors.
Debt Management Plans share a few similarities with IVAs, such as DMPs being:
- Suitable only to non-priority debts (such as loans, credit cards and store cards)
- Based on your income and expenditure, allowing you to repay your creditors at a rate you can afford
- Managed by a provider, who will help you figure out how much you can afford month on month
IVAs versus Debt Management Plans
An IVA provides you with a dead set date by which time you’ll be debt free. This is a big deal for most people who’ve struggled with mounting debt over the years. In contrast, a DMP has no set end date, a Debt Management Plan will run for as long as it takes to clear your debts or until your stop it.
On the flip side, DMPs are easier to stop than IVAs, so many consumers use them as a temporary solution to their financial troubles.
The final word – what’s best – an IVA or a DMP?
Whether an IVA or a Debt Management Plan is better for your circumstances ultimately comes down to how much you owe and whether you need a long-term solution. If you need input from a debt expert feel free to contact our team, who can tell you more about IVAs and whether it would be this solution or a Debt Management Plan that provides the best way forward.
You can also research other forms of debt solutions on our home page.