Consumer experts are warning people in serious debt to think carefully before considering an Individual Voluntary Arrangement or IVA to sort out their financial problems.
Which? says hard-sell TV ads make IVAs look like an easy option with debts wiped out in five years and people struggling with debts only having to pay back 80 per cent of what they owe.
Put like that it sounds too good to be true – and according to Which? that is exactly what an IVA is. But it’s undeniable that serious debt is a serious problem and if you have money worries you will be desperate for a solution.
Figures show more than 120,000 were declared bankrupt or entered into IVAs in 2006. That was 50 per cent up on the previous year and this year is expected to see another rise.
MoneyExpert.com explains what your options are if debts are getting too much for you..
What is the debt problem?
- MoneyExpert.com research shows 2.48 million adults are very concerned about their ability to keep on top of their debts.
- Around one in four of us have increased the amount they owe in the past three months as they struggle to juggle their borrowing burden.
- As many as seven per cent of us have increased debts by as much as 20 per cent in the past three months.
- Up to 31 per cent of us are concerned or very concerned about our ability to manage our debts.
Of course not everyone in debt is struggling but if you are what can you do?
- If you cannot keep up repayments on your debts you should talk to your creditors and agree a plan.
- Prioritise your debts – if you are homeowner you don’t want to get into trouble on your mortgage as that could mean losing your home.
- Make sure you are claiming all the benefits you are entitled to – you may be entitled to help from the Government.
- And try and cut your spending – draw up a budget and eliminate unnecessary spending. Simple things like spending less every week at the supermarket or giving up a daily coffee or even giving up smoking can pay big rewards.
An IVA is one way out but you need to go through a specialist debt advice group if you are to get the best advice. Ask the debt adviser if they offer a range of solutions. Many just sell IVAs or arrange bankruptcy. If you have problems you want the best possible advice and not just to be sold what suits the adviser.
IVAs last for five years and involve the debt and interest being frozen. You agree to make a fixed payment and that can be as little as 80 per cent of the total owed. However all your creditors have to agree to the scheme and that can take some time.
Bankruptcy involves writing off your debts but it can have severe consequences. You will struggle to get a range of financial products such as a bank account and even insurance.
Watch out for
Fees on an IVA can be as much as £7,000, according to experts, and there will also be fees involved in a bankruptcy. When you are struggling financially paying out fees can add to the pain. There are free services which can help so start with them.
Citizens Advice Bureau and National Debtline are funded by the Government while the Consumer Credit Counselling Service is funded by finance firms.