Is A Debt Management Plan Better Than An IVA?

     The right debt solution all depends on your individual circumstances. There is actually no such thing as the 'best' solution - all have their advantages and disadvantages, and you'll need to consider these before you can decide which would be the most appropriate for you.

     So a debt management plan could be better than an IVA (Individual Voluntary Arrangement) for you, but it depends on things like your income and expenditure - and how reliable your income is likely to be for the foreseeable future - as well as how serious your debt problem is.

When is a debt management plan more appropriate?

     Debt management plans are made to help people who can't afford their unsecured debt repayments. It works by asking lenders to let you reduce what you pay towards your unsecured debts to an amount you can afford, enabling you to pay back everything you owe over a longer period of time.

     In many cases, lenders also agree to put interest and other charges on hold, so that your debts can't get bigger. This can help you to repay your debts more quickly than you could if they were still accumulating interest.

     To qualify for a debt management plan, you will have to demonstrate to your unsecured lenders that your existing repayments are unaffordable, but that you can still commit to (reduced) monthly payments. As such, you'll need to have a regular income.

     Your lenders will also expect you to be able to pay a reasonable portion of your original payments every month, although what they consider 'reasonable' can vary.

     You should keep in mind the downsides of debt management, though. Missing the repayments you originally agreed can affect your credit rating - whether or not you actually join a debt management plan - and your debts will take longer to repay because of the smaller repayments. If your interest isn't frozen, this may also mean you pay more overall.

     Summary: best for people who can't afford their unsecured debt repayments, but can afford to repay everything in good time if their lenders will accept smaller repayments.

When is an IVA more appropriate?

     IVAs are designed to help people with completely unmanageable unsecured debts. You'll only qualify if you are unable to repay your debts within a reasonable period of time, and you must owe money to multiple lenders.

     Like a debt management plan, an IVA involves paying as much as you can towards your unsecured debts every month. One major difference is that an IVA is time-limited - it usually lasts five years. Providing you keep up with the agreement, any unsecured debt left unpaid after this time is written off.

     Again, there are downsides: your credit rating will be affected, and if you are a homeowner you may have to release some of the equity in your home in the 54th month of your IVA.

     Summary: best for people with completely unmanageable unsecured debts who don't want to go down the bankruptcy route.

     If you're wondering which debt solution could be right for your needs, take our free debt test for an instant recommendation.