Debt Management vs the IVA

If you can or want to avoid bankruptcy, debt management or an IVA are normally the two solutions a debt advisor will consider for you. They both offer very different things but share a common objective. They both aim to make you debt free and your monthly repayments manageable. The key areas of distinction are:

Only one is legally binding
An IVA is a legally binding contract between you and your creditors, an debt management plan is what is referred to as an ‘informal arrangement’ and as with anything that is informal, you or your creditors can change your mind.

One practically guarantees a debt write-off
Often considered to good to be true, an IVA often involves writing off a significant part of you debt. This is often in the order of 50% to 60%. You then pay the rest over 5 years.

With debt management it would be very unusual for debts to be written off and you normally pay 100% of your debt back.

Debt levels
Typically an IVA is proposed if your debt levels are around the £15,000 mark or more, and you have 3 or more creditors and have sufficient income to make the lower repayment over 5 years.

With debt management there is no debt level requirement, but you do need to be able to afford the lower repayments negotiated.

Interest and Fees
With an IVA, fees and interest are frozen. With debt management they are usually frozen but it’s a decision taken by creditors individually. Some may not agree.

Your home
With an IVA you are going to have to release any equity you have in your home both at the beginning and end of the IVA. With debt management you won’t have to.

Failure to make repayments
Both allow you to try and negotiate changes to the repayments agreed. If can’t agree and fail an IVA then bankruptcy is the likely result. Failure of a debt management plan can result in an IVA being proposed or bankruptcy.

Speed
An IVA normally takes 3 months from start to finish, a debt management plan can be much quicker, and often involves weeks not months.

Cost
IVA’s should feel like they are free to you as fees are already included as part of the agreed reduced repayments. This means your creditors don’t get 100% of the amount you agree should be paid back. Some goes to Insolvency Practitioner.

Debt Management is more complicated. There are free debt management plans and ones that you pay for. We would normally recommend the free option as it means 100% of your repayment goes towards reducing your debt. This means you become debt free faster with free debt management.

Which one is best for you?
That very much depends on how much debt you have, what type of debt you have, how much you earn, your expenditure, how much equity you have in your home, and a few more factors.

We would be happy to recommend an organisation that will tell you which is the right solution for you and then arrange it for you. If an IVA is the right solution for you, you will not be charged fees. If a debt management plan is the best solution for you, once again, we’ll recommend a free debt management plan to you. Just complete the form on the site and we’ll help you start the process of getting your debts under control.