DMP, IVA or Consolidation Loan?

For Brits overwhelmed with debt, a County Court Judgment (CCJ), or worse, a Declaration of Bankruptcy are the worst outcomes of the debt situation.  Either of these situations puts people in a position where it becomes very difficult to ever obtain reasonable financing again.  The good news is that there is an alternative before either of these steps becomes necessary.  Those who have attempted other debt management solutions, including self-managed debt consolidation, and are still facing unmanageable debt, should seek IVA debt advice.

A sense of shame and vulnerability sometimes prevent troubled or desperate borrowers from seeking proper debt advice.  However, getting debt help before it is too late can potentially save the future financing viability of a borrower.  The problem with borrowers failing to seek out debt help is that many consumers are not aware of all the debt management programmes and opportunities available.  Unfortunately, borrowers who have positioned themselves in a situation where no lender wants to take on the risk of new loans for debt consolidation have limited options.

IVA stands for individual voluntary agreement.  While it is a government supported debt management programme, it provides less long-term negative effects to a borrower’s credit than a CCJ or bankruptcy would.  Essentially, it is a formalised agreement between a borrower and creditors to accomplish debt payoff that is satisfactory to the creditors, but manageable for the debtor.  Creditors must agree to the terms of an IVA.  That is, 75 per cent of a borrower’s creditors must agree to the terms, with the remaining creditors being obligated to abide by the terms.  While creditors would much prefer to have a borrower fulfill the original debt terms, a government supported individual voluntary agreement is a more favourable solution to possibly other debt management plans with the borrower.

The benefit to creditors from the IVA is that it provides either initial lump sum payments or reasonable monthly payments that are consistent for the typical 5 years of the plan.  Borrowers benefit in many ways, mostly because they can avoid the more serious bankruptcy consequence.  Working with plan specialists, borrowers can compare IVA plan options to find the best debt management solution.  The important feature is a manageable monthly payment.  The good news for the borrower is that once they meet the terms of the agreement, the remainder of the debt is written off.  This can mean huge savings for borrowers as well as the psychological benefit of having the financial slate wiped clean.

However, IVA is not the right debt management solution for all borrowers.  The best solution is preventative measures that lead to more responsible use of loans.  Borrowers struggling with moderate debt challenges are better off developing manageable self-monitored repayment plans with debt advice from qualified experts.  Eventually, though, borrowers who are facing the worst case scenarios of CCJ or bankruptcy should look for debt help and explore the best alternatives for an agreement.  For both creditors and borrowers, a well-developed IVA plan is often the best solution to an unmanageable debt situation faced by borrowers.

The author of this article is John Smith. 

This article does not represent ‘financial advice’ as each individual's personal requirements will be unique to their specific needs. If there is something in the article which you wish to rely on, please check those details with the person with whom you arrange financial services such as IVAs, loans or debt management plans.

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