IVAs

A very popular, formal, debt consolidation option is an individual voluntary arrangement (IVA). This is a legally binding arrangement between you and your creditors that helps you pay off your debt at a rate that is affordable to you. These payments are normally monthly and spread over five or six years. 

When your IVA comes to an end, any unsecured debt that is outstanding is written off. You can also often choose to make a one-off payment known as a lump-sum IVA.

You can only get an IVA through an licenced insolvency practitioner such as the one here at NDH Financial. Our insolvency practitioner is licensed to handle IVAs, and our team can help you work out what payments you can afford and how long your IVA should last.

You would need to give us details of your financial situation, including your income, assets, your outstanding debts, and your creditors. From this, we will be able to judge if an IVA is best for you.

IVAs could be a suitable debt solution for you if:

• Your debts are higher than £10,000. You can get an IVA if your debts are less than this but, other solutions may be more suitable.
• You have more than one debt. 
• Your creditors are based in the UK. If your creditors are based in the EU, then an IVA may not cover you. 
• You are based in England, Northern Ireland, or Wales. IVAs are not available in Scotland, where their equivalent is a Trust Deed. 
• You have spare money each month to pay your creditors. Your creditors are unlikely to accept an IVA if you can't pay at least £80 a month, as other options may be more suitable. However, there can be some flexibility in this, depending on your circumstances. For instance, if you have less than £80 a month but can sell something that will raise a significant lump sum, you may be able to pay off your creditors using this lump sum instead.

An IVA can have its risks and downsides, as will any consolidation option. For instance, if you start earning more money during the period of your IVA, you have to declare this to your insolvency practitioner so that they can adjust your payments accordingly. If you sell an asset, like your house, you may be required to introduce additional funds and, again this has to be declared to your insolvency practitioner. 

If you win the lottery or come into inheritance then this is likely to have to be paid towards your IVA. 

Basically, as paying off the debt is a priority once you start an IVA, any upturns in your financial situation will be directed towards your debt repayments, although an insolvency practitioner will always take account of any increases in your expenditure

Also, an IVA will affect your credit rating, and as it is a formal agreement, if you later change your mind and want to cancel, there are steps that will need to be taken before the IVA is no longer in place.

Interested in finding out more about how IVAs work? We’ve answered some of the top queries related to this debt solution in our IVA Learning Hub.

Debt Management Plans

A debt management plan (DMP) can be ideal if you are struggling with finance issues like credit card bills, bank loans, overdrafts, or student loans. It is not, however, suitable for priority debts such as your mortgage arrears, gas, and electricity debts, magistrates court fines, council tax arrears, TV licence fees, or maintenance payments to children or ex-partners. 

A DMP is essentially an informal arrangement between you and your creditors, which allows you to pay your debt in one agreed monthly payment. This is then usually divided between all your creditors by a DMP provider, who ensures they are all paid correctly. 

A DMP is not legally binding and, as such, you can walk away from it at any time. You are not tied to it for any set period. 

A DMP could be ideal for you if:

• You can afford to pay your priority debts such as mortgage payments, energy bills, and council tax. You are also able to afford essentials such as food.
• You can find the agreed payment each month without it impacting on your priority debts. 
• You would prefer to pay one monthly payment instead of numerous ones. Especially if it helps you to budget or to keep track of your finances.
• You would be happy for someone else to deal with your creditors. 
• You are disciplined and will keep up your payments despite a DMP not being legally binding.

With a DMP. you will need to make the agreed payment until the debt is paid in full, and it is usually not suitable if it would take you 10 or more years to repay the debt. Also, whilst creditors may agree to free interest and charges, this is not guaranteed, and there is no formal, legal protection preventing them from taking further legal action.

Balance Transfer Card

A balance transfer card is a specific kind of card that is designed for debt consolidation. It allows you to take the outstanding balances from several credit cards and transfer them all onto one card. 

The balance transfer card will normally have a low or zero percent interest rate on the transferred debt for a limited period of time. This is often twelve months, but may be up to five years if you can find a good deal. By giving you this option, it gives you a good chance to clear your debt before the interest kicks back in. 

Balance transfer cards help you consolidate multiple debts into one monthly repayment. 

Balance transfer cards may be ideal for you if:

• You are aiming to clear your debt fast. If you can clear the debt within the low interest period, you can make big savings on interest repayments and get the debt quickly under control. If you take too long to clear the debt, you may face a pretty high interest rate when the low interest period ends. 
• You are currently paying several credit card payments per month and wish to reduce this to one easy-to-manage payment. 
• You want to improve your credit score. Whilst getting a balance transfer card may initially negatively affect your score, it can help you to gain control of your finances again and will prevent missed payments. This will eventually improve your score again. 
• You have good self-discipline. Your balance transfer card is only there to help deal with your debts. If you become tempted to spend on it, you could find yourself facing very high interest rates and making a difficult situation worse.
• Your credit score is good. If your credit score is bad, most of the good deals will be out of reach. So you may not be able to get a card with a 0% interest period or, if you can, it might be for a much shorter amount of time than you had hoped for.

Debt Consolidation Loans

If you’ve got a lot of different creditors and you aren't managing to keep up with your repayments, you can put them together into one loan. This can potentially lower your overall payments as you are now only paying interest on one debt rather than many.

You essentially borrow a loan that covers all your outstanding debts. You pay the debts with this loan, wiping them out. This means you now only have to pay back the loan. 

There are two types of debt consolidation loans - secured and unsecured. A secured loan means it is secured against an asset – usually your home. If you fail to pay back the secured loan or miss payments, you are at risk of losing your house. An unsecured loan isn't secured against any assets. 

If you have a bad credit history or if you owe a large amount of money, you are likely to struggle to get an unsecured loan. Loan companies will want the security of knowing they can get their money back, so will want to secure it against your house or other large assets.

Always think carefully before taking out a secured loan as even if you feel you can keep up the repayments now, if you suddenly get too sick to work or you are made redundant, you may struggle to do so. Then you are in real danger of losing the roof over your head.

Only use a debt consolidation loan if:

• You know you will be able to keep up the payments, regardless of your job status, your health, rising interest rates, and any other potential unknown factors. 
• Your savings aren't wiped out by fees and charges.
• Your interest goes down compared to when you were paying the individual debts, and the total amount you are paying is also less. 
• You have had professional advice regarding your debt management.