There are plenty of resources for borrowers who need debt help in the UK. From vital tips on budgeting and saving up to literature about a range of different debt solutions and schemes, there is a sea of information available for those who want to keep their finances in order.
That being said, it is really important to weigh out your options before entering any debt arrangement. That’s because most debt solutions can have a significant impact on your life and you should be fully informed before choosing to go ahead.
That is exactly why the decision to avail of any debt solution should not be taken lightly. It is of utmost importance that you take stock of all the routes available to you before picking one that is best suited to your specific situation.
To do that, you need access to reliable information. Consult only authentic sources and make sure you fact-check all the information you base your decisions on.
Money Advisor is committed to helping people make informed financial decisions. That is why today we will be debunking the five most common myths about IVAs.
But first, let’s take a moment to understand what an IVA is.
What is an IVA?
IVA stands for individual voluntary arrangement. An IVA is a formal and legal arrangement between you and your creditors that agrees on a monthly payment plan.
An IVA condenses most unsecured debts into a single, affordable and convenient monthly payment so borrowers do not have to keep a separate track of each one of their debts.
Individual voluntary arrangements usually last five to six years. Upon successful completion, any outstanding balances to the included unsecured creditors are written off.
Common IVA Myths
While IVAs are one of the most widely used debt solutions in the UK, there is still a great deal of misinformation about them.
To dispel some of the confusion surrounding this popular debt solution, we will be discussing the five most common IVA myths in this article.
Myth 1: An IVA Will Stay on My Credit File Forever
While it is true that entering an IVA will impact your credit rating, it will not remain on your credit file forever. Upon successful completion of your IVA, all the debts included in your arrangement will be written off, allowing you to start anew and work on rebuilding your credit score.
The IVA will appear on your credit file for six years, counting from the date you formally arrange an IVA, it will not be removed early if you complete your IVA early.
Additionally, your details are stored on the insolvency register and will be removed three months after your IVA ends.
Myth 2: An IVA Means No Savings
One of the key advantages of an IVA is that it takes into account your financial circumstances. You work out how much you can reasonably afford to pay towards your debts every month.
This amount is calculated based on your affordability. By going over your finances, considering your income and reviewing your monthly expenditure, leads to working out a payment plan.
If you then do overtime or receive a bonus during the term of the IVA, you can keep some or even all of the extra you receive (subject to the terms of the IVA). The best thing about this exercise is that it will give you a proper understanding of your monthly budget. You can then proceed to set saving goals for yourself based on how much you can reasonably siphon into your rainy-day fund.
Start by saving up a small amount every month and slowly work your way towards larger saving targets. This way, you will have enough to deal with an emergency or cover any unexpected expenses.
Myth 3: My IVA Will Fail If I Skip One Payment
No, your IVA will not fail if you skip a single payment. IVAs are a formal solution but they also offer some measure of flexibility. Since IVAs are a long-term solution, there is an understanding that your circumstances can change over time.
Should any unexpected circumstances arise, and you are unable to make your IVA payment, you should inform your supervisor immediately. In case of an emergency, you may be able to agree on a short payment break.
Your supervisor may also be able to make relevant changes to your payment plan in case of a small disruption. However, if you’ve had a major change of events or you require a longer break, they may need to renegotiate terms with your creditors.
Regardless of whether you cannot pay on time because of a major change of circumstances or a one-time hiccup, it is essential that you consult your supervisor. Once you speak to them, they will try their best to facilitate you in keeping your IVA intact.
Myth 4: I Will Lose My House
No, you will not lose your house. Homeowners are not required to sell their residential property to enter an IVA.
However, your total assets and property will be assessed and taken into consideration when you apply for an IVA. You may be asked to attempt to release equity from your home or re-mortgage in the last year of your IVA.
Any returns would be included in your IVA and used to pay back your debt. Inability to re-mortgage or release equity can result in a year-long extension in your IVA agreement.
Myth 5: I Can’t Have a Bank Account
One of the most common myths about an IVA is that after setting it up, one cannot have a bank account. This is incorrect. You can have a bank account.
However, in some cases, you may need to change your provider before entering an IVA. This applies only if you owe money to your current bank (or their wider group).
If you owe a debt to your existing bank, switching providers may be a smart move. That’s because sometimes banks can automatically deduct money from your account to pay the outstanding debt using their right to offset.
If you owe money to your current bank, you should make this clear when speaking to someone for debt help. They will explain whether you need to find a new account.
Money Advisor is committed to helping people get out of debt and manage their finances.
If you or your loved ones are struggling to repay their debts or regain control of their finances, we are here to help. Whether you need IVA-related resources or help with another debt solution, we’ve got you covered.
Get in touch with our friendly and impartial specialists for resources, debt help, and support.