If your debts have become unmanageable and you are finding it difficult to regain control of your finances, then a professional debt management plan or an IVA (Individual Voluntary Arrangement) might be appropriate – but which one?

Debt management plans and IVAs could help individuals:

1.    Lower their monthly debt repayments.
2.    Reduce, or even freeze, the interest on their debts.
3.    Work out a reasonable, affordable way out of debt.

Differences between IVAs and debt management plans

1.    IVAs are designed for people with unmanageable debts, who cannot afford to repay them within a realistic timeframe, while debt management plans are designed to help people with debts that they can afford to repay (even if they need to repay them more slowly than originally agreed).

2.    An IVA is a legally binding agreement, meaning that once it starts, creditors and borrowers can’t change their terms (unless an IVA variation is agreed). On the other hand, a debt management plan is an informal agreement, meaning that once it has begun, creditors and borrowers can change the terms. This may happen if, for example, a borrower’s circumstances changed and they were unable to make the agreed repayments.

3.    An IVA usually lasts for 5 years. When it comes to a successful conclusion, any remaining unsecured debt will be written off. However, a debt management plan doesn’t have a set duration period. Instead, it depends on a range of factors. For example, how much money the individual owes, whether or not the interest/charges have been frozen and whether the borrower’s situation changes during the course of the debt management plan. If the individual’s circumstances do change, and they can afford to settle their debt upfront, then the plan may be cut short – on the other hand, it could be extended if their circumstances deteriorate further.

4.    When an individual enters an IVA, any interest on their debt will be frozen. On a debt management plan, lenders are not obliged to freeze interest (or accept any other changes to their repayment agreements) – although they generally will do if they see it as the best way to get their money back.

Similarities between IVAs and debt management plans – they both:

1.    Involve unsecured debts (such as credit cards/store cards), while helping to make sure that individuals can afford their priority bills (such as mortgage/rent).

2.    Help borrowers who can’t afford to maintain their current debt repayments.

3.    Involve consulting a professional debt adviser, requesting that they negotiate with lenders on the borrower’s behalf.

4.    Help to simplify the individual’s financial situation by replacing multiple monthly payments with just one. This one sum is paid to the financial organisation, which will share the money amongst lenders as agreed. However, it is important to note that some debt management organisations may not provide individuals with this service.

Everyone’s financial circumstances are different, and it is important that individuals seek personalised debt advice from a professional debt adviser before committing to any debt solution.