There are two main options for those in major debt, debt management and an Individual Voluntary Arrangement or IVA. Your personal circumstances will determine whether debt management or an IVA is the right option for you. Please remember to take care when accepting advice from unethical companies, whether they are suggesting an IVA or debt management be sure that you are getting the right advice. Reputable credit counselling organizations employ counsellors who are certified and trained in consumer credit, money and debt management, and budgeting.
Debt Management
If you have debt related problems and you can't come out of it by yourself you can very well seek the help of a professional debt management service company. Many companies specializing in credit counselling offer debt management plans to help people with heavy debt and damaged credit get their financial situation under control. However, for all intents and purposes, debt management is a structured repayment plan set up by a designated third party, either as a result of a court order or as a result of personal initiation. However, it’s important to understand that participating in a debt management plan will still impact your credit score, and that any available credit may be inaccessible for a period of time.
Debt Management involves entering into an agreement with an established and ethical debt management company that is offering a deal that makes good financial sense.
Debt Management is ideal for those who do not have large enough debts to consider an IVA. It can be a way of putting you back in control of your finances.
Debt management does not supply you with another loan, but can provide a service that help to clear you debts, will distribute your monthly payments to your creditors on your behalf and negotiate to try and reduce/freeze interest and charges. Debt Management involves informal talks with your creditors to reduce your debt repayments to a level you can comfortably afford. It could be a realistic option if you are able to make a payment arrangement and stick to it.
A small, nominal fee is to be expected for debt management services, but it should not be based on a percentage of your debt or be a recurring monthly charge. All contact between creditors and yourself is handled by the debt management company. You will not receive any late payment fees because all transactions go through the debt management programme, and they may be able to adjust or stop any interest on your debts.
When considering debt management, you should also be aware that unlike an IVA (Individual Voluntary Arrangement), it is not a legally binding agreement. Debt management plans are often a good way of dealing with a multiple debt situation when other formal solutions such as an IVA or bankruptcy are not realistic options.
IVA
The IVA is an extremely powerful tool enabling you to clear your debt and return to a clean financial bill of health An IVA is an alternative to bankruptcy, but can only benefit those who have over £15,000 of unsecured debt.
IVA’s were introduced in the 1980’s as a way of creating a binding contract between individuals and people you owe money to pay smaller manageable repayments over the period of time, normally 5 years, without incurring further interest, and being sent repayment chasing letters and phone calls. IVA’s require 75% creditor approval to be implemented, so that if banks refuse their agreement, there's no deal.
The IVA enables you to cut your debts to an affordable level and clear them over a fixed period. What’s more, it is a totally private arrangement – nobody needs to know about it apart from you, your advisors and your creditors. Therefore the IVA gives light at the end of the tunnel to those who are struggling with serious debts. Once your IVA is accepted, the Court will ensure that the Creditors respect the agreement and will stop them from bothering you any more about your debts. While a Debt Management plan can sometimes be an option as well, it is not legally binding and people you owe money to can later change their minds if they wish to – unlike with an IVA.
To find out whether an IVA is the best debt solutions for you requires an assessment of your current financial position, an Insolvency Practitioner will need to present your IVA proposal to people you owe money to, and it will need to be agreed by a majority of people you owe money to. With larger amounts, an IVA can bring down repayments, freeze interest and end the hassle and stress caused by people chasing you for money. It is important to stress that although an IVA is an increasingly popular debt solution, it should never be entered into lightly. For example, it will be difficult to get any form of credit during the period of the IVA and for a period afterwards.
Plan your future
Once you have a real debt management plan or an IVA in place, it’s only a matter of time before you get back on the right track with your finances. Getting out of debt takes a lot of planning, discipline and sometimes changes to your spending habits.
Debt management plans and IVA’s have helped 10000’s of people with re-gaining control of their finances. To get started you need to contact a debt consultant who will review your income and outgoings.
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