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IVAs and Debt: Do IVAs Actually Help People?




Woman sitting at a table with head in hands worrying about debt
Debt affects mental health and we need to talk about it

Problem debt can be a bit of a taboo subject, but we need to talk about it.


A new report by Debt Movement shows that 50% more people are in problem debt in 2021 than before the start of lockdown in March 2020. This rise brings the total of problem debt across the UK to one in 20 households, a concerning figure that is changing the lives of millions.


Problem debt is considered different from simply being in debt. Around 80% of adults carry some form of financial debt — excluding mortgages — which includes personal loans, payday loans, credit card bills and repayments on goods like cars, jewellery and other valuable items. Much of this debt is manageable, if not unwanted. Problem debt, however, defines debt that is unmanageable so that those in such debt are unable to pay it back.


People in problem debt start to experience spiralling problems, usually because repayments are too high for their disposable income, and mounting interest rates just mean their debt keeps getting bigger and bigger. When your debts get this bad and your repayments don’t cover the increasing costs of interest, you might hear advice about turning to debt management solutions, like Individual Voluntary Agreements (IVAs), to help take back control of your financial problems.


If the thought of seeking help and taking your debt to an advisory service makes you uneasy, you aren't alone. It’s a big step moving forward, and you should be comfortable in your decision before you speak to anyone. That said, it isn’t something that will go away by itself so it’s important to ask for help if you are struggling. The more you know about IVAs, the easier it can be to decide if this debt solution will be helpful for you. So let’s talk about IVAs.


Why Do People Avoid IVAs and Debt Management Services?


With commonly searched terms around IVAs including, “Does an IVA ruin your life?” It's safe to say that there is undoubtedly some uncertainty around the solution.


From a financial standpoint, it is important to acknowledge that an IVA will impact your credit score, and you will be considered a higher-risk borrower as a result. An IVA will remain on your credit file for six years, and during this time, you may find it harder than usual to obtain credit. You can also only borrow up to £500 r while you’re on an IVA. For those in problem debt, this is often considered to be a reasonable trade-off.


What more people will struggle with is finding the right company that offers IVAs in the first place.


As with any industry or service, there are unscrupulous individuals and organisations out in the world looking to make money off the misfortune of others without actually offering them the debt help they’ve promised.


IVA providers have a similar reputation to that of PPI companies during the era of PPI claims. There was plenty of mistrust amongst PPI companies, often around fraudulent offers, mis-selling, cold call tactics and dodgy service management.


These same problems impact the perception of IVAs. Many people see them as a scam, just as many saw PPI as a scam too. The thing is, PPI itself was not a fraud or scam, and people genuinely did receive big and valuable cash settlements. One of the largest reported claims hit nearly £250k — a legitimate claim through a legitimate PPI claims management service.


For IVAs, the same rule applies. Thousands of people have had very positive experiences with IVAs and have managed to clear devastating, life-altering debts using this solution. IVAs and other debt solutions are not a scam, but there are scammers out there claiming to offer them.


If you’re worried about your debt and need help, an IVA could be exactly what you need, but to protect yourself from fraud and scammers, you should look in the right place for help so that you don’t get caught out.


A Quick Guide to Finding an IVA Provider You Can Trust


There is nothing more powerful in determining a debt service’s trustworthiness than social proofing. If other people have had good and positive experiences with a provider, if they can honestly report the service has been of help, then you’re onto a winner. So the first step to finding a trustworthy IVA provider is to look at their reviews and testimonials. Online financial forums are also a good place to look for recommendations and ask for feedback on specific providers.


Another great hack is to check in with social media.


People often head to social platforms to vent problems and make complaints. By looking at social media, you can get a sense of customer service. What’s important here is to note the response from the provider, rather than just the complaint. It’s hard to gauge how accurate a consumer problem is based on a social post, but if there are complaints on social platforms without a response, it's a red flag. This kind of inactivity demonstrates a service provider that isn’t investing in proper upkeep of their communication channels, and that is not a debt support company you want to be working with.


If there are complaints yet you can see the service is attempting to resolve the issue, you can be encouraged by the fact they are engaging their audience and seeking resolutions. Every major business has complaints, from Apple to Amazon. They cannot really be avoided, but it’s how companies deal with them that defines their customer service quality, and debt management is no exception.


It’s also important to not be taken in by cold calls and sales offers.


Genuine debt solutions providers won’t ring you up at random wondering if you’ve got debt. Instead, they’ll set up a platform that allows you to come to them when you decide it’s the right time to get help. Remember, it is a known fact that one in 20 households has serious debt, which means it’s only a matter of time until unsolicited cold calls find their way to a person who is in actual trouble. When that happens, it suddenly seems like the stars have aligned and you’ve been contacted at the right moment. But what’s more likely is that random chance and the rules of probability have led the cold call to your phone.


Finally, when browsing marketing materials or an IVA provider’s website, look for accreditations and affiliations. Only licensed Insolvency Practitioners can act on your behalf when proposing an IVA. Their website should clearly indicate the name of the Insolvency Practitioner and their licensing body - such as the Insolvency Practitioners Association. As well as specific insolvency regulation, the IVA provider may also be authorised to act by the Financial Conduct Authority. These bodies ensure that the IVA provider and Insolvency Practitioner comply with regulatory standards.


How Do IVAs Help People in Debt?


Bad debt is a nightmare experience. The stress, worry and endless calls and letters from creditors are enough to put a strain on anyone’s life. An IVA is not a magic wand that clears off all your debts immediately, but it does make them much more manageable.


But what is an IVA, and how does it help?


An IVA is legally binding, which means that you should always discuss your unique situation with an expert before you make a decision, as there are intricacies involved that must be carefully considered before moving forward. But, in general and simple terms, an IVA is an agreement between yourself and your creditors to write off certain portions of your debt, freeze mounting interest and develop a payment plan based on what you can afford over a set period of time, that will give you a roadmap to being financially free. Usually IVAs last for 5 years and after you have made all of your payments, you will be released from your IVA and the remainder of your debt will be written off.


Essentially, an IVA helps people by giving them a helping hand and paves the way to moving out of problem debt. These agreements promise clarity for everyone involved. You will be given a monthly payment schedule that must be adhered to — a schedule based on your income and expenditure rather than the amount of debt you hold. Your creditors, in return, will receive guarantees of repayments, particularly appealing for those creditors with whom you have fallen behind. Your IVA provider will deal with your creditors so you don’t have to.


Sure, you’ll have to tighten your belt and stick to your budget, but your payments will be agreed by you and your creditors and are designed to be affordable and tailored to your specific financial circumstances. You’ll be able to write some of your debt off, up to 85% of it in some cases, and in time you’ll stop getting all those horrible calls and letters about the money you owe.


And yes, this does mean you will be under a formal insolvency plan, which will affect your credit score and borrowing for a while. You may also have to sell off luxury items or return goods bought on payment plans. But, you won’t have to sell your home, you won’t have to worry about what scary payment notices could appear next, and you can start looking towards the future and a world where you are financially free.


If you’re in problem debt, if you’re feeling lost and anxious about how bad this could all get, then an IVA can offer genuine support options and help you get your life back on track. It’s not an instant fix, but for thousands in problem debt, it’s a light at the end of the tunnel.


Read more:


10 steps to get out of debt - How I paid off 16k