Can I pay my student loan with an IVA or Debt Management?
If your debts are becoming unmanageable, it`s important that you find a debt solution that can ease the situation. Two debt solutions commonly used to help people with unmanageable debts are IVAs (Individual Voluntary Arrangements) and Debt Management Plans.
Quick guide to IVAs
An IVA is a formal, legally-binding debt solution in which you will repay as much of your debts as you can afford (within an agreed time period), and write off the rest.
You will normally make monthly payments towards your IVA over a five-year period. On successful completion of the IVA, you will be legally debt-free.
An IVA is considered by many people to be a preferable alternative to bankruptcy, as it avoids some of the downsides (such as losing your house or car). However, it will still have a significant impact on your credit rating, and in some cases bankruptcy may still be the better option - so always speak with a debt adviser if you`re considering either option.
What will it cover?
An IVA will cover non-priority debts (unsecured personal loans, credit cards, overdrafts, etc.). It can also sometimes cover arrears, such as unpaid bills.
An IVA does not cover priority debts, such as your mortgage or secured loans. Some lenders may consider your student loan repayment a priority debt - although this is not always the case.
Even if your IVA doesn`t cover your student loan directly, it can still help indirectly, as your payments will be made to fit around your priority debts.
Quick guide to debt management
A Debt Management Plan is an informal arrangement with your creditors in which you`ll make lower monthly payments, based on how much you can afford, over a longer period of time than originally agreed.
In some cases your lenders may also agree to a freeze or reduction in interest and other charges, which can prevent your debt from getting any bigger.
As it`s an informal debt solution, you can set up a Debt Management Plan on your own. However, because of the time and effort involved, you may prefer to use a professional debt management company, which can arrange the plan on your behalf.
What will it cover?
As with an IVA, a Debt Management Plan will directly cover non-priority debts, and the monthly payments will fit around your priority debts, ensuring that all of your expenses are covered each month.
However, there are key differences between an IVA and a Debt Management Plan that mean they are more suitable for different people.
In general, an IVA is suitable for people who cannot see themselves ever repaying their debts in full within a realistic timeframe. A Debt Management Plan is more suitable for people who are struggling with their existing arrangements, but would be able to repay the debts in full over a longer period of time.
However, both will have a significant impact on your credit rating that could affect your ability to borrow money for several years.
Of course, no two people`s situations are the same. If you`re struggling, you should always speak to an expert debt adviser, who can help you decide which debt solution is right for you.