For people with unmanageable debt problems, two of the most common debt solutions are IVAs (Individual Voluntary Arrangements) and debt management plans.
Both are similar in that they reduce your monthly payments towards your unsecured debt to a manageable level, but there are also downsides of both that you should be aware of before you start.
Also, consider that IVAs and debt management plans are more suited to different people for different reasons. Before you enter into any debt solution, it`s vital that you understand what`s involved.
An IVA is a legally-binding agreement with your unsecured lenders in which you`ll repay as much of your debt as you can afford (once your essential costs have been covered) over an agreed timeframe (usually five years). On successful completion of the IVA, your unsecured lenders will write off the remainder of your debt and you will be legally debt-free (note that this doesn`t include secured debt - like mortgages).
Because you`ll be expected to pay as much as you can every month, you will be left with little spare income once you`ve made your payments towards your IVA and your essential expenses.
An IVA will also have a significant impact on your credit rating, which will make borrowing money more difficult / expensive for a year after your IVA finishes (assuming your IVA has taken five years). Plus, if you`re a homeowner, you`ll probably be required to release some of the equity in your home towards the end of the IVA.
IVAs are only suitable for (and available to) people who cannot afford to repay their full debt within a reasonable period of time. They are considered by many to be a preferable alternative to bankruptcy, but bankruptcy can in fact be a better option for some people - so make sure you speak to a debt adviser to establish which approach is right for you.
A debt management plan is an informal arrangement in which you`ll repay your unsecured debts in smaller monthly payments over a longer period of time. You will still be repaying the full debt, but at a manageable pace.
Because you`ll take longer to repay your debt, you`ll also pay interest for longer, and this is likely to cost you more in the long run (although it may well be possible to get a freeze or reduction in interest and other charges).
A debt management plan will also affect your credit rating, potentially making it harder and/or more expensive to obtain further credit during the six years it stays on your credit report.
Debt management plans can help people who can`t afford their existing repayments, but could afford to repay their debt in full over a longer period of time. If this doesn`t describe your situation, you may want to consider an alternative debt solution.
For more information on IVAs, debt management plans and other debt solutions, click here or call 0800 195 2911 to speak with one of our expert debt advisers.
Answer a few simple questions and we'll give you an instant recommendation on your best way out of debt.
Your privacy is important to us. All correspondence is held in the strictest of confidence and we will only request information required to find your best debt solution.Related resources:
Tags: iva, debt management, compare, comparison, compare iva, compare debt, compare debt management, compare debt management plans, debt management plans, iva debt management
Fees payable when continuing service is provided. Repaying debt over a longer period may increase the total amount to be repaid. Calls are recorded and are usually free from UK landlines. Mobile phone users may be charged and should check with their service provider.
Think Money Limited © 2010. All rights reserved. Pennington House, Carolina Way, South Langworthy Road, Salford Quays M50 2ZY. Company Reg No: 04926097. Registered in England and Wales.