Individual Voluntary Arrangement vs Debt Management Plan

If you are struggling to keep up with your debt repayments and are looking for a solution you may be considering a Debt Management Plan (DMP) or an Individual Voluntary Arrangement (IVA). In the UK, IVAs and DMPs are two of the most common ways in which people with unmanageable debts solve their financial problems.

IVAs and DMPs compared

Individual Voluntary Arrangements and Debt Management Plans are similar in many ways. When comparing the two the main similarities are that both will -

  • Lower your debt repayments to an amount you can afford
  • Help you deal with unsecured debts such as loans, overdrafts and credit cards. Secured debts including mortgages can't be included in either a DMP or an IVA.
  • Consolidate your debts so that you make only one payment each month
  • Involve a third party negotiating with your creditors of your behalf. This third party - either the Debt Management Company or IVA Supervisor - will be responsible for distributing your repayments to your creditors.

Despite their similarities IVAs and DMPs are designed to suit different financial circumstances and so there are a number of differences between them -

  • IVAs are a legally binding agreement between you and your creditors and the terms of the arrangement are fixed. In comparison Debt Management Plans are informal and can more easily be altered if your circumstances change.
  • DMPs can run for varying amounts of time depending on the size of your debts and your income. Individual Voluntary Arrangements however run for a fixed period of time, usually five years, at the end of which any remaining unpaid debt is written off.
  • For an IVA to be an option you will usually need to have debts of at least £12000. DMPs are more flexible and can help people with small or large amounts of debt.
  • Entering into an IVA will stop any interest being charged on your debts. Although your debt management company will try to agree a freeze on interest there is no guarantee that creditors will agree to this in a DMP.
  • The qualifying criteria for an IVA are much stricter than those for a DMP.

IVA or DMP - what is the best option for me?

There is no one set answer to which of an IVA or a Debt Management Plan is the best debt solution. What is most appropriate for you will depend on your own particular circumstances. For this reason it is always advisable to get professional financial advice before committing to any one solution.

Generally you may want to consider a DMP if -

  • You owe less than £12000
  • Your debt problems are only temporary, for example from a short period of unemployment
  • You don't qualify for an IVA
  • You would prefer a more flexible arrangement

An IVA may be best if -

  • You have high amounts of debt
  • There is no likelihood of you repaying your debts in a reasonable period of time
  • You owe money to several creditors

For a quick answer to which of an IVA or Debt Management Plan is best for you use our free debt solution calculator

Financial Advice and Debt Help UK

If you are undecided on which is the best option for you Royal Exchange can help. We provide impartial advice on all personal debt solutions including Debt Management Plans and Individual Voluntary Arrangements.

To speak to one of our advisors call us on 0800 028 4422 or complete the enquiry form and we will call you back.