IVA - Good Form of Debt Management?

Over 21 million people in Britain do not know exactly what an IVA - or Individual Voluntary Arrangement - is. Many believe it's a fail-safe way of alleviating debt, and think it should be more widely available for people with mounting debts.

An IVA is a legally binding agreement between a debtor and creditors, which ensures you pay off all your unsecured debts, provided they total over 15,000, in a fixed plan. Over a period of 5 years you pay a reduced amount which is more affordable to you and the interest is frozen to prevent the debt increasing further. At the end of the 5 years the debt is classed as settled, and the remaining amount dissolved.

It's seen as a preferable option to bankruptcy, which tends to be a very high-risk and humiliating experience for most. When you file for bankruptcy all your major assets, including your house, can be seized to pay off your debts, whereas an IVA enables you to keep your assets - and pride - while clearing your debts.

An IVA, when settled, will stay on your credit file for 6 years. However, filing an IVA will shatter your credit rating, making it extremely difficult to get credit for anything, even as small as a mobile phone contract. Getting things like loans and credit cards will be virtually impossible.

As a form of debt management, an IVA should be a last resort, only one step above bankruptcy. It's true that an IVA will enable you to get your life back on track, but explore all other options before going ahead with one. If you miss payments on an IVA you risk bankruptcy unless you get the permission of your IVA supervisor. Even then, it's unusual to be allowed more than 2 missed payments during the 5 year term, and only then if it'd deemed an emergency.

If your debts don't exceed 15,000, or you feel you don't need to go as far as an IVA, there are other ways to get out of debt. A debt consolidation loan, available to all except the worst credit scores, will allow you to pay off all your debts in one fell swoop, leaving you with a single monthly payment instead. These can take two forms. The first, and most favourable, is to apply for a loan with an independent lender or bank, and pay off the debts yourself after contacting all your creditors. The other way, which could mean higher interest, is to go through a debt consolidation company which will contact all your creditors on your behalf and pay off your debts with them. You would then pay the consolidation company instead.

Whichever consolidation method you choose, the important thing is to keep up with the repayments. Anyone can fall into arrears once, but if you do it consistently it may be worth seeking some debt counseling instead.

Get help with your debt management by shopping around.

J Tillotson is a UK author who specialises in personal finance, modern technology and communications, utilities and travel.

Source: www.articlesphere.com