A British Man's Take on Debt, Saving & Investing

Debt Management and Other Solutions Explained

Posted on April 05, 2012 by Lee

If you’re in debt, you’re almost certainly thinking about how you’ll get out of debt. There are several different ways of doing that. Some of them require specialist help and debt advice, while others are more a matter of determination and self-discipline.

Someone who’s a bit worried about the interest that’s racking up on their debt, for example, would probably benefit from reading around on the web, looking for money-saving tips that could help them free up some money from their monthly budget and get their debts repaid more quickly.

But someone who genuinely can’t keep up with their payments anymore might need to consider a debt solution such as a debt management plan or IVA (Individual Voluntary Arrangement) – two solutions which can help people struggling with their unsecured debts.

Debt management is a new repayment agreement with someone’s unsecured lenders. The borrower might find they’re willing to accept smaller monthly payments if it looks like the best way of getting the money repaid in full. They might agree to freeze interest and waive charges as well, if they think that’ll help, although they don’t have to agree to that (any more than they have to agree to lower payments) and repaying debt more slowly can cost more in the long run if interest is still accruing.

Gregory Pennington

An IVA, on the other hand, is a different kind of agreement – legally binding and overseen by an Insolvency Practitioner. Unlike debt management, an IVA is designed to write off some of the unsecured debt in question: assuming the borrower sticks to the agreement and makes the necessary payments, their unsecured lenders will actually write off the portion of the debt they couldn’t repay in time (over a five-year period, typically). Also unlike debt management, the borrower might have to release equity from their property if they’re a homeowner.

Debt consolidation loans, another debt solution you may have heard of, are for people in a different kind of situation. Loans like this can simplify the process of repaying multiple debts but aren’t appropriate for people who’re really struggling and can’t commit to making regular monthly payments. They’re there to help people who are confident they’ll be able to repay the loan as agreed. When people secure a loan against their home, that’s especially important, as they could be putting their home at risk if they don’t keep up with the payments.

Another difference: a debt consolidation loan won’t impact on someone’s credit rating, while entering a debt management plan or IVA will.

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