IVA Or Debt Consolidation Loan

IVA Or Debt Consolidation Loan – which is most suitable for me?

Your Total Cost

In an IVA, some of the initial debt is forgiven by creditors when the IVA successfully completes. Typically people completing an IVA will have some debt written off – but this depends on personal circumstances.

With a debt consolidation loan, while monthly payments and interest may be reduced, you can pay back more over the longer term of the loan. You may have £20,000 of debt over several credit cards and loans, but a loan to cover this amount over, say, 5 years (the normal length of an IVA) at, say, 10% interest would see you payback a total of £25,496.

IVA or Debt Consolidation
A debt consolidation loan is only suitable for lower levels of debt or when there is an asset to secure the debt against, as in a mortgage.

Remortgaging may seem an easy option, but you will need to have a reasonable amount of equity to do this and you should consider the total cost over time.

Risk To Your Home In An IVA

In an IVA, you are not putting your home at greater risk of repossession – in fact the IVA is providing protection. If you have mortgage payments to meet every month, allowances are made for this in determining how much you can pay into the IVA each month.

If you take out a secured debt consolidation loan or are remortgaging your home, then you are decreasing how much of your home you own and increasing the risk repossession, should you fail to make repayments.

Your Credit Record In An IVA

If you take out a debt consolidation loan and repay other debts in full with this money then you are not breaking any agreements and will not get defaults on your credit record. In fact, borrowing money and paying it back helps build your credit profile.

The dangers here are that not all the debts are repaid, or more than needed is borrowed which is spent. The result: more debt than when you started. However, you are paying back less, so you can afford to borrow more – which you do, until you need to consolidate again. This is a vicious circle which is leading to financial meltdown.

On an IVA, you are entering into insolvency and this, like all adverse information, remains on your credit file for 6 years from the start of the IVA. You will not be allowed to borrow more money while on the IVA. There are exceptions, but this needs the approval of your IVA supervisor.

An IVA Does Not Require Equity Or Assets

In current times it is not easy to borrow large sums without having to secure it against an asset. If you have £15,000 of unsecured debts, you’ve little chance of consolidating this with an unsecured debt consolidation loan.

An IVA can reduce your debts and repayments without the need of further risk to losing an asset of value.