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I’m
confused
Why choose a debt management plan over an IVA
Why choose a debt management plan over an IVA as you pay back less with an IVA?
Official
Response
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Thanks for your question, people choose debt management plans over IVAs for a number of reasons, but it all depends on the individual’s circumstances and ultimately the total amount of their debts. Debt Management Plans are typically for debts from £3,000 - £10,000 whilst for IVAs debts need to be over £10,000
A Debt Management Plan is often a choice for someone who doesn’t qualify for an IVA or can’t afford the minimum monthly contribution. A Debt Management Plan is a lot more flexible and although it doesn’t enable you to cut total debt like an IVA does, it can offer much needed benefits to someone struggling with debt such as:
- No more angry phone calls from creditors
- One, affordable monthly payment to a debt management company who will then distribute this to your creditors
- The opportunity to ask creditors to freeze interest on outstanding debt whilst you pay back what is owed
An IVA is often the preferred option for many people in debt, but if they don’t meet the criteria for this solution, a Debt Management Plan offers them an alternative option instead of leaving them to struggle with their debt and creditor relations.
If you're still confused about how to tackle your debt, why not take our online debt analyser, it only takes 30-seconds to complete and can show you the best options are available to you.
EMPLOYEE
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Thanks for your question, people choose debt management plans over IVAs for a number of reasons, but it all depends on the individual’s circumstances and ultimately the total amount of their debts. Debt Management Plans are typically for debts from £3,000 - £10,000 whilst for IVAs debts need to be over £10,000
A Debt Management Plan is often a choice for someone who doesn’t qualify for an IVA or can’t afford the minimum monthly contribution. A Debt Management Plan is a lot more flexible and although it doesn’t enable you to cut total debt like an IVA does, it can offer much needed benefits to someone struggling with debt such as:
- No more angry phone calls from creditors
- One, affordable monthly payment to a debt management company who will then distribute this to your creditors
- The opportunity to ask creditors to freeze interest on outstanding debt whilst you pay back what is owed
An IVA is often the preferred option for many people in debt, but if they don’t meet the criteria for this solution, a Debt Management Plan offers them an alternative option instead of leaving them to struggle with their debt and creditor relations.
If you're still confused about how to tackle your debt, why not take our online debt analyser, it only takes 30-seconds to complete and can show you the best options are available to you.Comment -
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In my view debt management should only ever be seen as a short-term fix while something else is being put in place. DMPs may not reduce the debt at all, just put it on hold and take the sting out of creditor pressure, perhaps while somebody is looking for a new job after redundancy. It should not be seen as a solution to debt for the long-term unemployed or those with meagre incomes and no significant assets. For those people a debt relief order or bankruptcy would probably be the best option.
It should also be remembered that there is as yet no regulation in the debt management industry and there are plenty of cowboys around who offer lots but deliver little, except their monthly invoices. I am an insolvency practitioner and have seen a number of people who feel they have been very badly let down by debt management companies. -
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Dear Alan,
I agree with you that, in many cases, a debt management programme should be seen as something short-term. But not necessarily whilst something better is being put in place. For example, it can be a very appropriate solution for people with short term (a few years) debt repayment problems who feel confident that their situation will change to allow them to repay more of their debt in the future.
Debt management can also be appropriate for people who have a lot of equity in their home and don't want to lose that in an IVA.
And, you are quite right - DMPs usually don't reduce the debt (though interest and charges are often frozen - which is a real benefit, when it happens) they just make it more manageable.
And, I can't quite agree with you that DMPs are always inappropriate for people in long term unemployment or on the poorest of incomes. Low debt may mean an IVA is undeliverable, a few assets and a DRO is undeliverable too. And, of course, bankruptcy puts the home (if the debtor is a homeowner) at risk - So, there are circumstances where the DMP is definitely that most unfortunate insect, the lesser of two weevils.
Yes, I am afraid you are right about the number of cowboys in the DM business - my advice would be to choose a provider who is a member of DRF or DEMSA, both of whom have high standards of behaviour for members. -
EMPLOYEE
