IVA (Individual Voluntary Arrangement) or Debt Management Solutions
While seeking debt solutions most people are debating between Individual Voluntary Arrangement (IVA) and Debt Management solutions. To learn which of the two options is best suited for you, read ahead and find out for yourself. Though both are capable of preventing you having to resort to bankruptcy.
Individual Voluntary Arrangement commonly known as IVA is a formal agreement between a debtor and his creditors while Debt Management Plan is not.
The main difference between the two is that IVA is legally binding whereas Debt Management is not, which can cause problems if the creditors decide to change the repayment terms. The main idea behind both options is to pay a reduced, affordable amount regularly each month. However in IVA, the interest charges will be frozen. Moreover, the debt will be written off on behalf of the creditor after five years. Under Debt Management, even though you pay an affordable amount, there is no provision for writing off your debt as there is no time limit involved to pay the debt. It can go on for a longer term, or until the full amount is paid.
Since the IVA is legally binding, the creditor cannot pressurize the debtor or change his mind. Thus, it is more secure. The Debt Management Plan does not offer this solution. Since it is not bound by law, the creditor can change the terms and conditions at his convenience.
The cost of administration is lower than IVA, thus enabling higher payments for creditors. It is always advisable to read the terms and conditions of both forms of solutions before making an informed decision. Beware of huge interest charges and other fees involved in the two processes.
One downside on an IVA however, is the credit rating of the debtor is likely to be affected more severely, which is not true with Debt Management.
Which one to choose greatly depends on the amount you owe and your income. By all means, the help of a professional must be sought if you are not completely sure which financial route is best for you
Is Debt Management Right for Me?
If you are having trouble repaying your unsecured loans and can’t see the proverbial light at the end of the tunnel then a debt management plan may be the best solution for you. Essentially, a debt management plan is an agreement drafted between a debtor and creditors to make debt repayment more manageable. The process involves combining all your monthly payments into a single debt repayment which often have a lower interest rate than your initial debts. This is usually a better solution that filing for personal bankruptcy.
Eligibility Conditions
To qualify for a debt management plan you need to have at least £8,000 in debt and owe more than two creditors. Debt management plans are only applicable to unsecured loans and credit card debt.
Debt management can be an option for many people in the UK.
Advantages of a Debt Management Plan
The main advantage of a debt management plan is that you will find it easier to pay off all your loans, even if it appears to take longer than the initial debt repayment plan, and your assets will be protected. However, since you have most likely been missing payments and accruing late fees and penalties the schedule may in fact be quicker than if you attempted to ignore the problem and continue as you have until now.
Another advantage to a debt management plan is that creditors will most likely stop calling you as long as you meet the agreed upon payment every month, which will be significantly lower than if you were paying each creditor individually.
Disadvantages
There are two sides of the fence in any situation and a debt management plan also has its drawbacks. For one it will take longer to pay off all your debt and even if the interest rates appear lower your loan will still cost you the same or even more. This is because your repayment plan will be spread out over a higher number of years and since interest rates are calculated per annum you will most likely end up paying a significantly larger amount.
A debt management plan bares no legal implication for either party which means that a lender can withdraw from the agreement any time they see fit and you can end up in the same situation as before. It should also be noted that creditors have no obligation to accept your debt management plan but most will if they see your payments are late or you have been missing them completely.
Money Management as a Debt Management Tool
Even if you do qualify for a debt management plan and successfully negotiate with your creditors, you will still have to employ a money management system to make sure you can make your monthly repayments. Whether you are in this situation because of the harsh economic climate or purely due to bad spending habits you still have to learn how to manage your money to avoid a similar situation in the future.
A good money management system is based on a budget. Yes, the dreaded budget, but if you don’t know what is coming in and what is going out then you will never be able to get out of debt. So, consider drafting a simple budget for the first month and only spend what you allot to each category. Of course, this is easier said than done but practice makes perfect.
Debt Management Plans: The Process
Your best option would be to consult a company that specializes in debt management plans because a professional counsellor will help you analyse your income and expenditure to determine the minimum payment you can make and to draft a customized programme for you.
Your debt management counselor will also negotiate with your creditors on your behalf and they are more likely to succeed as they have much more experience in dealing with lenders and drafting these types of agreements. A good debt advisor may even be able to help you write-off part of your loan and reduce your debt load, depending on your financial situation.
A debt management plan is the best solution as it does not place any of your assets at risk, unlike a debt consolidation programme, because it does not involve taking out another loan. Debt management is one of the best options for you to avoid bankruptcy, clear your debt and eventually repair your credit rating.
