What is an IVA and is it right for your debts as record numbers take one out – The Sun

STRUGGLING people taking out individual voluntary arrangements (IVA) to help manage their debts has risen to an all-time high, according to new figures.

But what are IVAs and are they right for you? The Sun explains.

A record 77,973 people took out an IVA in 2019 – a 6 per cent rise compared to 2018 when 70,796 people took one out, according the Insolvency's Service's latest data.

It's also the highest level of IVAs recorded in England and Wales since their introduction in 1987.

Sarah Coles, personal finance analyst at financial provider Hargreaves Landsown, warns that part of their rise is down to the "enormous sums" spent on promoting the products.

And she says just because they're growing in popularity, doesn't mean they're right for everyone in debt – particularly with fees of around £4,000 often involved in setting one up.

How to get out of debt

RECORD numbers of Brits are seeking help to manage their debt.

While getting back on track can seem like a daunting task, we've taken a look at what you can do to help you on the way.

Get help for free: There are lots of groups who can help you with your debts.

  • Citizens Advice – 0808 800 9060
  • StepChange – 0800 138 1111
  • National Debtline – 0808 808 4000

Don't ignore bills: Ignoring your bills won't make them go away, as tempting as it may be, and the problem will likely escalate. It's best to tackle debt head on by working out exactly what you owe and when you need to pay it back.

Make a budget: Once you know what you need to pay back, it'll become easier to prioritise your finances. The next step is to create a detailed budget so you can see how much you have going in and going out. Use an online tool like one from Citizens Advice to help you do this.

Switch and save: Households can save hundreds of pounds by checking if they can get a cheaper deal elsewhere. In fact, MoneySavingExpert says families can save £330 on average by switching from Standard Variable Tariffs (SVTs) to a better rate. Use a comparison site like MoneySuperMarket or Energyhelpline to see what deals are available.

Get a balance transfer card: If you're paying interest on your credit card balance, this can ultimately add to your debt pile. A better option could be getting a 0 per cent balance transfer card. These types of card will let you transfer an existing balance to a new card and gives you the chance to clear it fully without incurring interest. MoneySavingExpert's eligibility calculator will let you know what deals you will likely qualify for. You'll need to have a good credit rating to qualify for one.

See if you're entitled to benefits: It's important to check if you're entitled to any extra benefits or tax credits if you're struggling financially. Citizens Advice can help you see what help is available and there's a benefits calculator on the Gov.uk website. Help ranges from tax credits, job seeker's allowance and universal credit.

Also consider: You can find information about Debt Management Plans (DMP) and Individual Voluntary Arrangements (IVA) on the Money Advice Service website and on the Government's Gov.uk site. But make sure you know exactly what you're signing up to as these plans aren't suitable for everyone. Many firms charge a fee for the service, either upfront or one that's incorporated into your monthly payments.

She said: "While they’re a valuable alternative to bankruptcy, they’re not right for everyone, so there’s a risk people in debt could be picking the wrong option.

"The issue is that people with problem debt who hear about IVAs may opt for one without properly exploring the alternatives."

So here we take you through what an IVA is, and what the alternatives are.

This information is typically based on England and Wales as the rules are slightly different in Northern Ireland and  Scotland.

What is an IVA?

An IVA is often taken out when people are struggling with multiple debts from different providers and failing to keep up with the minimum repayments.

With an IVA, you decide on a repayment plan with all of your creditors that's designed to be manageable for you – and often lenders will wipe some of the debt.

You make the payments to your insolvency practitioner, which will take a cut to pay its fees, while the rest is distributed to your lenders.

This is a legally binding agreement, which means lenders have to stick to it and they can't chase you for debts while the IVA is in place.

It's also usually time limited, for a set period of around five to six years.

Is an IVA right for me?

Charity Citizens Advice says IVAs can be right for you if you owe more than £10,000 to at least two different lenders, you don't want to deal with your creditors directly, and you have enough money to meet the IVA repayments.

National Debtline recommends needing at least £80 a month to put towards debts.

The downside is IVAs are expensive; Citizens Advice puts the average cost at between £4,000 and £5,000, which it says you typically pay in instalments.

How to cut your bills

IF you're struggling financially, you might be able to cut the cost of your bills to help you get out of the red.

Council tax: You can apply for a council tax reduction on the Gov.uk website but you'll need to meet certain criteria. Your bill could be cut by as much as 100 per cent if you’re on a low income or claim benefits. Carers who look after someone in the household for at least 35 hours a week are also exempt from paying.

Water: Households might be able to save money by getting a water meter but it all depends on how much you're using. To check if it's finacially worthwhile, use the Consumer Council for Water's free ater meter calculator.
Rent: If you have the space available and your landlord or local authority says it's ok to do so, you might want to consider getting a flatmate. Not only will you split the cost of the rent, but also the other bills.

Hire purchase: If you're struggling to make your repayments on your hire purchase, you can usually end the contract by returning the goods. You will have to pay all the instalments due up to the time you end the agreement but this will limit the amount you owe. Contact Citizens Advice for free for more help with this.
Gas and electricty: MoneySavingExpert says families can save £330 on average by switching from Standard Variable Tariffs (SVTs) to a better rate. Use a comparison site like MoneySuperMarket or Energyhelpline to see what deals are available.

Mortgage: If you get into debt with your mortgage payments, don't wait for your lender to chase you. Work out what you can afford using the Citizens Advice budgeting tool so you can discuss your payment options moving forward with your mortgage provider.

Secured Loan: Your secured loan might be covered by the Consumer Credit Act and if it is, you may be able to apply for a Time Order. This is a special agreement by the courts allowing you more time to make payments. Secured loans not covered by the Consumer Credit Act include gas, electricity or water meters, payments that need to be written off in full, mortgages, credit union loans, loans from an employer and some short term trade agreements.

County Court Judgements: If you receive a County Court claim form talk to a free debt advice service straight away. This includes Citizens Advice (0808 800 9060), StepChange (0800 138 1111) and the National Debtline (0808 808 4000).

TV licence: Some households are eligible for a reduced fee or free TV Licence. Pensioners over the age of 75 currently get a free TV licence but this is due to change in June 2020. Check here to see if you are entitled to a reduced or free rate.

You'll also likely have to sell high-worth possessions, such as your car, and possibly put any savings or pension payments towards your debt repayments too.

Having an IVA will also likely have a negative impact on your credit file making it difficult to borrow further – including remortgaging your home or buying your first home.

Also be aware that private companies are likely to charge more than charities to set-up the IVA as they'll take commission on top – so speak to a charity such as Citizens Advice, National Debtline or StepChange first.

Are there other options?

Alternatives to an IVA could include a debt management plan (DMP) if your debts centre around credit cards, loans, and store cards.

Again, your debts are bundled up with you making one monthly repayment to the DMP provider.

But unlike an IVA, this is an informal agreement meaning you're not legally tied into it and can cancel it.

You can get a DMP for free, although some providers will charge, so again, speak to a charity first for advice.

A second option if you have debts of £20,000 or less, don't own your own home, and don't have much spare income or own anything of value,is a debt relief order (DRO).

There's a £90 fee to apply for one and most debts will be wiped after a year.

But this will stay on your credit file for six years, which can make it hard to take out further credit in future or buy or remortgage your home.

If you're renting, a DRO can also affect your tenancy so speak to a free debt advice organisation first.

Lastly, there's bankruptcy, which wipes debts of at least £5,000.

This costs £680 but again it affects your credit rating for six years, as well as potentially your rental agreement too.

You may also have to sell some of your possessions and even your home.

Always consult a free debt organisation before making any decisions – see the box above for contact information.

Sadly, a record number of Brits are also "living on a financial knife edge", according to new StepChange figures.

Banks have also been warned to help customers with large overdraft debt as they hike rates to up to 50 per cent from April.

Here's how to claim back unfair overdraft fees if you've been charged.

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