When you compare different debt solutions, you’re likely to come across options like bankruptcy, IVA or DMP (debt management plan). But what are the differences, the pros and cons – and which are the best debt management programmes for you?
There are several factors to take into account when choosing a debt product. These include how much you owe, how much you can afford to pay, and whether you have any assets (like a house or car) you can sell to clear your debts.
In this guide we’ll look in more detail at the pros and cons of IVAs vs debt management plans, the differences between the two and some of the ways you can decide which is the right debt solution for you.
the differences between an IVA and a debt management plan
In a moment we’ll look at the pros and cons of a debt management plan vs an IVA, but first it’s worth understanding the differences between the two.
One of the biggest differences is that a DMP is an informal solution. With a debt management plan, you ask your creditors for more time to pay, to make your monthly repayments more affordable.
An IVA, on the other hand, is a formal debt solution. It can be used to write off debts you cannot afford to pay – but your name will appear on the public insolvency register.
Choosing between these different debt management programmes isn’t always easy, which is why it’s important to speak to a professional debt adviser before committing to repaying your creditors in a particular way.
the pros and cons of an IVA
Let’s look in more detail at the pros and cons of IVAs or ‘individual voluntary arrangements’.
Some of the basics of an IVA include:
- Formal debt solution
- Debts over £6,000
- Can afford to repay some of the debt
- Usually lasts 5 years
- Goes on public insolvency record
The benefits of IVAs include the ability to write off part of your debt at the end of the five years of repayments. This means that even after paying the costs of the IVA, you can still end up paying much less overall.
Once an IVA is accepted, the interest on your debts is frozen and your creditors cannot take any additional recovery action, leaving you with a single affordable monthly payment to make.
However, because an IVA goes on public record, it will be possible for people and businesses to find out about it – and it will stay on your credit rating for a period of six years.
the pros and cons of a debt management plan
A debt management plan, or DMP, is a less formal alternative to an IVA. DMPs can be useful when a change in circumstances has temporarily affected your ability to keep up with paying your debts.
Individual circumstances can vary, but in general a DMP can be suitable if:
- You can’t afford your monthly repayments
- You can afford to pay something
- Restructuring your debts will help
- You want a single, affordable monthly repayment
- You want to avoid more formal debt solutions
The benefits of a debt management plan are even greater when you work with a DMP company like Care About Money, as we can negotiate with your lenders so you don’t have to.
Once agreed with your creditors, you can make a single monthly payment to us, and we will pay the appropriate amount on to each of your lenders, reducing the stress and the admin burden from the whole process.
Some of the downsides of DMPs include the fact that, like with IVAs, there is a fee to pay. Your creditors may also continue to charge interest on your debts – although in some circumstances they may agree to freeze or reduce your interest rate.
which is right for you, an IVA or a debt management plan?
Now we’ve seen some of the pros and cons of a debt management plan vs an IVA, which are the best debt management programmes for you?
You may already have an idea in mind of whether you would prefer an IVA or DMP, but it’s important to always speak to a professional debt adviser before you commit. Our team is here to help with a sympathetic ear and some well-informed advice.
