Debt management plan or IVA?

If you`re struggling with unmanageable debt and looking for a way out, would a debt management plan or IVA (Individual Voluntary Arrangement) be more appropriate?

Debt management plans and IVAs are by no means the only two debt solutions, but either could help you:

• Reduce your monthly debt payments
• Freeze or reduce the interest you`re paying
• Plan a realistic, affordable path out of debt

In some ways, they`re very similar...

Debt management plans and IVAs - the main similarities

Debt management plans and IVAs both:

• Deal with unsecured debts such as overdrafts and credit cards - not secured debts such as mortgages.
• Help people who can`t afford to keep up with their debt repayments.
• Involve asking a specialist to negotiate with creditors on the borrower`s behalf.
• Simplify the individual`s finances by replacing multiple payments with just one - to the financial organisation, which distributes funds among the lenders.

But in other ways, they`re very different...

Debt management plans and IVAs - the main differences

• IVAs are specifically for larger debts (£15,000 or more, in general).
• Debt management plans can help people deal with small debts or large debts.

• An IVA is a legally binding agreement - once it`s started, lenders and borrower alike are bound by the arrangement.
• A debt management plan is an informal arrangement - lenders and borrower can change their terms if they wish.

• If an IVA goes ahead, it will freeze interest on the debt and reduce the size of the borrower`s monthly payments.
• Debt management plans don`t guarantee this - but lenders are likely to agree to it if it`s clearly the best way for the borrower to repay the money.

• An IVA runs for (normally) five years. At the end of that period, any outstanding debt is written off.
• Debt management plans can run for varying amounts of time, depending on how much the borrower owes and how much disposable income they have every month. The projected length of the plan can also change if the borrower`s income goes up or down while the debt management plan is in progress.

Debt management plans and IVAs - who do they suit?

There aren`t any `hard and fast` rules, but in general...

• IVAs tend to suit people who have over £15,000 of unsecured debt, that they can`t repay in full in a reasonable time, while
• Debt management plans tend to suit people with multiple debts who can no longer afford their full monthly payments.

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Related resources:

• Debt management
• Debt management FAQs
• How we manage your debts
• IVA
• Facts about IVAs
• IVA FAQs
• How long will an IVA/debt management plan stay on my credit history?
• Debt consolidation v IVA – Which is better?
• How much debt do I need to qualify for debt management?
• How much debt do I need to qualify for an IVA?

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