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IVA Debt Consolidation – All You Need to Know, FAQs & More

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Scott
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Scott Nelson

Managing Director

MoneyNerd’s founder, Scott Nelson, has a decade of financial industry experience, including 6 years in FCA regulated loan and credit card companies. Troubled by a lack of conscience in the industry, he founded MoneyNerd to give genuine advice to those in debt and struggling financially.

Learn more about Scott
&
Janine
Janine Marsh Profile Picture

Janine Marsh

Financial Expert

Janine Marsh is an award-winning presenter and a valuable member of the MoneyNerd team. With a wealth of experience as a financial expert, she's been featured on BBC Radio 4, BBC Local Radio, and BBC Five Live, and is a regular on Co-op Radio.

Learn more about Janine
· Feb 6th, 2024
Could you legally write off some debt? Answer below to get started.

Total amount of debt?

For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

Featured in...
IVA Debt Consolidation

For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

Are you searching for clear answers about IVA debt consolidation? You’re in the right place. Over 170,000 people visit our website to get guidance on debt solutions each month.

In this friendly guide, we’ll discuss:

  • What an Individual Voluntary Arrangement (IVA) is and how it works.
  • The benefits and drawbacks of a Debt Consolidation Loan.
  • How to choose between an IVA and a Debt Consolidation Loan.
  • Tips if you’re struggling with unaffordable debt.
  • What to do after getting an IVA.

We know that every situation is unique. Our team has plenty of experience in dealing with debt and understands the challenges you might face. We’re here to offer advice, so you can make the best decision for your circumstances.

Let’s get started.

Could you legally write off some debt?

There are several debt solutions in the UK, choosing the right one for you could write off some of your unaffordable debt, but the wrong one may be expensive and drawn out.

Answer below to get started.

How much debt do you have?

This isn’t a full fact find. MoneyNerd doesn’t give advice. We work with The Debt Advice Service who provide information about your options.

What is an Individual Voluntary Arrangement (IVA)? 

An IVA is a formal and legally binding agreement between the debtor and their creditors, which states that the debtor will make payments towards their debts for an agreed-upon period of time (typically five years).

Once this duration is over, any remaining debt that the debtor has will be written off.

How does an IVA work?

An IVA is managed by a focal person known as an insolvency practitioner. The insolvency practitioner deals with both you and your creditor to ensure everything runs smoothly, and that no party involved in the IVA is treated unfairly.

Insolvency practitioners are typically accountants or lawyers and are licensed by the Insolvency Practitioners Association. If you ever feel you’re being treated unfairly by your IP, you can report them to the Insolvency Practitioners Association. 

Please note that in order to be eligible for an IVA under the IVA Protocol, you need to have a minimum of three different debts with a minimum of two different creditors

What are the benefits of arranging an IVA?

It’s important to note that the debtor will only make monthly payments that are affordable to them

An IVA also prevents creditors from taking any legal action against the debtor while it is in place. Thus, it protects the assets of the debtor.

Furthermore, when an IVA is in place, all interest and additional charges on the debts are frozen as well. 

While an IVA does take a long time to complete (typically five to six years), it’s an extremely flexible and affordable solution for debtors and it ensures that you’ll be debt-free by the end of it. 

» TAKE ACTION NOW: Fill out the short debt form

What is a Debt Consolidation Loan? 

Taking out another loan when you’re trying to get rid of your debt may seem counter-intuitive. 

However, a debt consolidation loan is a great way of making your debts a lot more manageable, and your payments a lot more affordable

Suppose you have a number of different debts with many different creditors; all of them have different interest rates, and you’re finding it very hard to deal with all of them at once.

This is where a debt consolidation loan comes in. The idea of a debt consolidation loan is to take out a single loan in order to pay off and settle your debts with all of your previous creditors, just like this forum user is discussing below.

Source: https://forums.moneysavingexpert.com/discussion/3804785/debt-consolidation-loan

In this way, you’ll only have the one debt consolidation loan to deal with and you’ll only be answerable to a single creditor, making it a far more manageable solution.

However, this aspect isn’t what makes the debt consolidation loan such an attractive option for most debtors. 

Debt Consolidation Loan Benefit: Lower Interest Rates

Something that makes debt consolidation loans worthwhile is if you choose to opt for one that has a lower interest rate compared to the debts you already have

If you opt for a debt consolidation loan that has a lower interest rate compared to the debts you have currently, you’re going to end up paying a lot less money overall. 

Thus, you can reduce the overall amount you pay simply by combining all your debts using a debt consolidation loan with a lower interest rate. 

How a debt solution could help

Some debt solutions can:

  1. Stop nasty calls from creditors
  2. Freeze interest and charges
  3. Reduce your monthly payments

A few debt solutions can even result in writing off some of your debt.

Here’s an example:


Situation

Monthly income £2,504
Monthly expenses £2,345
Total debt £32,049

Monthly debt repayments

Before £587
After £158

£429 reduction in monthly payments

If you want to learn what debt solutions are available to you, click the button below to get started.

Get started

Debt Consolidation Loan Drawback: Hidden Costs

Always make sure to gather all the information you can from a lender and be aware of any hidden and additional charges they may have. For example, some lenders may offer ‘teaser rates’ that only last for a certain period of time, after which your lender will increase the pay rate.

You have to keep in mind that while the interest rate on a debt consolidation loan may be lower, the duration of your monthly repayments may be a lot longer. This may cause you to still pay more money than you were before, even if the interest rate was lower. 

If you already owe a lot of debts to different creditors, chances are that your credit rating might be quite low. It’s quite likely that lenders will refuse to give you a debt consolidation loan at a low-interest rate if you have a poor credit rating, which is definitely something you should be aware of. 

» TAKE ACTION NOW: Fill out the short debt form

A debt consolidation loan is almost never worthwhile if it is at a higher interest rate than your current debts. 

What’s Better: an IVA or a Debt Consolidation Loan? 

Honestly, when it comes to debt solutions there isn’t an option that is objectively better than the other.

What may be the best choice for you may not be better for another debtor. It depends on:

  • The amount of debt you have
  • Your assets
  • Your financial circumstances

If You Can’t Pay Back Your Debt in Full

An IVA can be great for you if you can’t afford to pay back your debts in full. This is because when the agreed-upon period of an IVA ends, any remaining debt you have left is written off.

This isn’t the case when you consolidate debt, of course; you’ll still have to pay back the debt in full if you go for this route. 

Thousands have already tackled their debt

Every day our partners, The Debt Advice Service, help people find out whether they can lower their repayments and finally tackle or write off some of their debt.

Natasha

I’d recommend this firm to anyone struggling with debt – my mind has been put to rest, all is getting sorted.

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If You have Valuable Assets 

If you have valuable assets such as a car and a home and you want to protect them, then opting for an IVA would be a much better option. 

Keep in mind that a debt consolidation loan is still a loan, and it won’t protect you from legal action from your creditor in the event that you fail to make your monthly payment (or monthly repayments). 

If you start missing payments towards your debt consolidation loan, then your creditor will most likely pursue legal action, potentially resulting in bankruptcy

IVAs are flexible 

IVAs are a lot more flexible when it comes to your monthly payment, compared to a debt consolidation loan. Your Insolvency Practitioner (IP) will be working closely with you to ensure you’re only making payments that are affordable to you.

Furthermore, your IP is a person who you can always go to for advice and information throughout your IVA. They will guide you and provide you with information to ensure your IVA is a success. You may not have access to this guidance when you opt for a debt consolidation loan, unless you hire a private debt management company.  

You must keep in mind that not every solution is the best one for your particular situation. 

It’s important to be thorough and seek information and professional advice in order to determine which option would be the best for you. For more debt advice and advice on which option would be the best one for you, you can contact charities such as National Debtline or Payplan

Could you legally write off some debt?

Answer below to get started.

How much debt do you have?

This isn’t a full fact find. MoneyNerd doesn’t give advice. We work with The Debt Advice Service who provide information about your options.

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The authors
Scott Nelson Profile Picture
Author
MoneyNerd’s founder, Scott Nelson, has a decade of financial industry experience, including 6 years in FCA regulated loan and credit card companies. Troubled by a lack of conscience in the industry, he founded MoneyNerd to give genuine advice to those in debt and struggling financially.
Janine Marsh Profile Picture
Debt Expert
Janine Marsh is an award-winning presenter and a valuable member of the MoneyNerd team. With a wealth of experience as a financial expert, she's been featured on BBC Radio 4, BBC Local Radio, and BBC Five Live, and is a regular on Co-op Radio.