When consolidating your debts and dealing with creditors things can get a little overwhelming, but there are solutions out there that can help which aren’t as drastic or life changing as declaring bankruptcy. This is when you have to choose between a DMP (debt management plan) or an IVA (individual voluntary arrangement) – but which one is the best option for you?
DMP aka debt management plan
This solution is taken out when those owing debt are struggling to juggle more than one creditor chasing them for money and want to consolidate their debts into one affordable monthly payment.
IVE aka individual voluntary arrangement
This is a more serious solution, designed to help those who do not wish to declare bankruptcy and owe more than £7,000 in debt.
Pros of a DMP
- All debt is paid off once complete – a DMP runs until all debts are cleared, so you can feel confident that once one is in place your issues will eventually be resolved.
- Affordable monthly repayments set up – a DMP aims to consolidate all your debts into an easy to manage, affordable monthly repayment.
- There is flexibility if you cannot meet full repayments.
- No repercussions in terms of public registry – An IVA or declaring bankruptcy is made public knowledge, with an IVA being added to an online public register and bankruptcy.
Cons of a DMP
- Interest and extra charges are not frozen throughout the duration of a plan – this means you could be making payments for longer than expected.
- Creditors still have the freedom to amend policies – because a DMP is an informal plan, this means it is not legally binding, so creditors can make amendments.
Pros of an IVA
- A large amount of debt is written off immediately – in most cases, when an IVA is agreed between creditors a large proportion of the money owed is wiped off.
- It is a legally binding agreement – this means creditors can’t amend the policy or add any further charges.
- An IVA freezes all debts – which prevents further interest or charges being added onto the amounts owed.
- Creditors can’t hassle you for payments – once an IVA is in place you will not receive any more threats or demanding letters.
Cons of an IVA
- You will be placed on a public register – while this is subtler than a bankruptcy announcement, details of your IVA will be available to the public online.
- IVAs last for five years – this might feel like a long time to continue making repayments. However, if you find yourself able to pay off the remaining balance you can.
- IVAs are voted on by creditors – and 75% of those you owe money to must agree to the plan for it to go ahead.
Debt management service PayPlan recommend seeking professional advice before taking out such a plan and that, “One person suitable for a DMP may not be suitable for an IVA,” so careful consideration must be carried out.