What is a debt management plan?
If you are struggling to meet your credit card and loan repayments a debt management plan is one way you can take control of your finances without taking out further loans. A debt management advisor will look at all of your income and outgoings to see what amount you can afford to re-pay your creditors each month. They then contact all your creditors on you behalf and negotiate new affordable repayment terms, turning your debts into one affordable monthly payment. All the paperwork and calls to creditors are taken care of for you.Reducing the amount you pay to your creditors will make paying off your debts take longer but debt management advisors can often freeze or reduce interest payments. Paying off your debts more slowly will increase the amount that you pay back and although your credit rating will improve in the long term entering a debt management plan could result in your creditors issuing a default notice which could affect your ability to obtain credit.
What is an IVA?
An Individual Voluntary Arrangement (IVA) is usually only applicable if you have over £15,000 of unsecured debt. It offers an alternative to bankruptcy with less of the stigma and constraints that bankrupts face. An IVA is a legally binding contract between you and your creditors based on you maintaining affordable monthly repayments. Typically an IVA aims to make you debt-free within five years, cancelling any remaining unsecured debt if you stick to the terms of your agreement. Once an IVA is agreed, your creditors are bound by the agreement so it protects you from further action by them. An IVA can offer advantages over bankruptcy as it does not carry the same restrictions as those imposed on bankrupts, i.e. someone with an IVA can still become a company director, hold public office, serve in the armed forces and operate a current account (without an overdraft facility).Participation in an IVA will most likely appear on your credit file and could affect any future applications for credit.
