Debt Consolidation Loan vs IVA
Thursday, December 25th, 2008 Subscribe To Our Feed
Being in debt with a number of creditors can be a stressful situation. Not only do you have the inconvenience of having to make several payments every month, it can become a balancing act if your payments become unaffordable – trying to pay off the ‘most important’ debts first.
Of course, when you’re in debt, it’s important that you pay them all back. Thankfully, there are a number of debt solutions that can make that an easier task.
Here we take a look at the advantages and disadvantages of two debt solutions well-suited to dealing with multiple debts: debt consolidation loans and IVAs (Individual Voluntary Arrangements).
Debt consolidation loan
A debt consolidation loan is essentially a new loan used to repay your existing debts. This means that instead of repaying a number of creditors, you will make a convenient single payment each month.
Many people take out debt consolidation loans to lower their monthly outgoings, and this can work for two reasons. Firstly, it potentially reduces the amount of interest you pay (especially if you are consolidating high APR debts, such as credit cards).
Secondly, repayments can be spread over a longer period of time, meaning you pay less each month – although this will mean you pay more interest than if you had repaid the debt consolidation loan in a shorter period of time.
Debt consolidation loans can even be used for smaller debts – some people simply prefer the convenience of a single monthly payment.
BEST FOR: People with multiple debts who do think they will be able to pay them back within a reasonable period of time. Also, people who just want to simplify their finances.
IVA (Individual Voluntary Arrangement)
An IVA (Individual Voluntary Arrangement) is typically for people with over £15,000 of debt who do not think they are able to repay the full amount.
Your IVA is a legally-binding agreement, usually taking place over the course of five years, in which you will agree to make monthly payments based on how much you can afford. Once the terms have finished, your remaining debt will be considered written off.
Because creditors do not receive the full amount they are owed, an IVA must be formally approved. Creditors accounting for at least 75% of your overall debt must approve the proposal for your IVA to go ahead. If this happens, even those who voted against the IVA must accept the terms.
BEST FOR: People with over £15,000 of debt who do not think they will be able to pay it back within a reasonable time period. IVAs are usually considered a preferable alternative to bankruptcy.
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December 31st, 2008 at 1:52 pm
Lots of people around the world are trying to find a way to get out of the financial crisis. At present the services and resources offered by debt consolidation companies are really helpful. It was one of my friends who referred bills.com to me. Utilizing their online resources and advices made it very easy to choose the right loan and plan.