DMP, IVA or Consolidation Loan?

Many of us are struggling with debt.  In fact, credit card and personal loan debt is at all time highs.  Consumers are using credit more and more to finance non-essential purchases.  This continued reliance on loan financing has put many people into unmanageable financial positions.  Some simply cannot afford to cover the monthly payment obligations required by their creditors.  Debt consolidation is a common approach to debt management.  Some borrowers attempt to work with lenders to consolidate higher interest rate debt into one more manageable, low interest loan.  However, at some point, many consumers wind up looking to IVA or other debt help solutions for their problems.

IVA stands for individual voluntary agreement and is one of the final alternatives for debt management that some people turn to in order to avoid getting a county court judgment (CCJ) or bankruptcy.   

So, at what stage do you think about IVA debt management? Unfortunately, some debtors find themselves in situations that they are not able to manage themselves.  Borrowers that are already overwhelmed may find lenders unwilling to take on the loan risks attached to conventional lending methods.  Even with secured loans or debt consolidation loans, some borrowers still cannot cover the monthly repayment costs if their loan amounts or interest are too high.  

Once people find themselves in situations beyond their control, they begin to look to experts for debt advice.  Many debt management websites are available for consumers to learn about sources of debt help.  The key for the borrower is to avoid a situation where bankruptcy is their only option.  Bankruptcy is a process that can put a borrower in a virtually irreparable financial situation.  Getting credit becomes especially tough for people who have gone through this process or have a CCJ attached to their name.  

An individual voluntary agreement is a plan under which 75% of an individual’s creditors agree to a settlement plan with the IVA provider.  This is a government regulated programme and it requires all the person’s creditors to abide by the plan if 75% do agree.  The purpose of the programme is to provide a government-supported debt consolidation option to help keep people out of bankruptcy.    

The borrower must commit to pay off as much as his or debt that he can, typically over a period of three to five years. Normally after this period of time, it is accepted by the creditors that any outstanding debt is then written off.

People often do not realise the options available for debt help.  Some consumers simply are too proud to get help.  Others just lack the knowledge to do so and do not realise how many alternatives there are.  This is why it is especially important that borrowers struggling with unmanageable debt do get debt help.  Industry experts can assist with finding the right debt solution for an individual’s personal situation.  However, as with all things, it is important to compare an IVA plan against other options to ensure it is right for the debtor.   

There are huge benefits to the IVA approach to debt management.  A large chunk of the debt is written off, which is a huge advantage.  This is obviously part of the challenge in getting some creditors to agree to the arrangement.  However, creditors ultimately understand it is better to get something than nothing.  It also reduces the number of creditors and the amount of hassle for borrowers, while positioning them to be debt-free in five years.

The author of this IVA article is John Smith.

This article does not represent ‘financial advice’ as each person's individual requirements will be unique to their own needs. If there is something in the article which you may wish to rely on, ensure you check those details with the person or company with whom you arrange financial services.

The views in this article represent those of the author and not those of Netbasic Limited.