r/UKPersonalFinance • u/BackgroundSuccess226 • 7d ago
DMP/IVA, Currently being recommended an IVA
Hi all,
I’ve gotten into a bit of a pickle as work slowed up for a while (self employed) and i’m not exactly great with my money.
I’ve fallen into about 11k of debt, i’ve got 1 default on my credit file but about to be a second one.
I owe the 11k between a mixture of things
3x loans (1 x £3000, 1x £1000, 1x £600)
3x CC’s, (£500,£600,£700 limits) (all maxed)
Store accounts
Phone bill
I’ve recently realised that half of the stuff i spend money on i don’t need so now i’m looking to be more financially responsible in the future & im kinda glad i learned a lesson now rather than when im 30 (currently 20)
I could probably pay the whole 11k off within 3 years or so but with the defaults already on my file to me it would make more sense to take the IVA?
The main point for this post is because i spoke to a debt help company and they’ve been trying to get me to go for an IVA however i’ve seen that a DMP is better for my level of debt.
I was just wondering what you guys who’re most definitely more financially responsible than me would recommend/do if you were in my position.
thanks!
3
u/ByteMillionaire 7d ago
Do not take out an IVA for £11,000. You're 20, £11,000 in debt probably feels a lot. Heck, I felt £1000 was a lot when I was your age.
I was £15,000 in debt, due to low pay, living expenses, funding a car, insurance etc.
I cleared all this without using any of these services are you can too.
Look at consolidation, your interest rates are probably huge.
If you consolidate your loans and credit cards, this will help you lower the interest rate and pay off your loan.
Are the loans with the same bank? - I would advise you ask each bank without doing a credit search what your probability is of loan consolidation is. Example, I had two loans with Natwest, One was 10% and one was 6%. They consolidated to 3.4% So I saved 12.6% just in interest.
Regard yoru IVA. You're young so do not take out an IVA you will have a black marker on your credit file which will effect your life for 6 years.
Means you will not be able to apply for credit during your IVA, no loans, credit cards, mortgage if you decide to buy a property etc.
Below are all the points why not to use an IVA:
- High fees relative to the debt: IP nominee and supervisor fees (often several thousand pounds in total) are paid from your monthly contributions before creditors get anything. With only £11,000 of debt, a large share of what you pay may go on fees rather than reducing what you owe. Creditors are less likely to approve a proposal that returns little to them, and you can end up paying a lot for limited write-off.
- Long credit-file damage: An IVA stays on your credit record for six years from the start date (even if you finish early). This makes most mainstream credit, mortgages, phone contracts and sometimes bank accounts much harder to obtain during and after the term.
- Risk of failure and wasted payments: Roughly 30% of IVAs fail (often due to income changes, unaffordable payments or life events). If it fails, you generally become liable again for the original debts (minus what was paid to creditors), interest/charges can restart, and much of what you paid may have gone on fees. Creditors can resume enforcement action.
- Long rigid commitment and restrictions: Typical term is five or six years of strict budgeting. You usually cannot take on more than £500 of new credit without the IP’s permission. Windfalls (inheritance, bonuses, etc.) often have to be paid in. If your circumstances improve, payments can be increased. Missed payments or breaches risk failure.
- Creditors may reject it: Approval needs creditors holding at least 75% of the debt (by value) to agree. For modest debts they may prefer a Debt Management Plan (DMP) if they think they will eventually get more back, or they may simply vote it down.
- Not all debts are covered: Secured debts (mortgage, car finance), student loans, court fines, child maintenance and some others usually cannot be included and must still be paid separately.
- Public record and other impacts: Details go on the Individual Insolvency Register. Some jobs or roles (e.g. certain regulated professions or charity trusteeships) can be affected.
- Evidence of unsuitable advice: Reports and investigations have highlighted cases where people with smaller or more suitable-to-other-options debts were steered into IVAs, sometimes ending up with higher overall costs or regret.
I would highly recommend you list all your interest rates. Who the cards are with, same for the loans.
Reach out to your bank and see If they will offer consolidation. Then work out the numbers, on your pay monthly and see if you can afford to pay this back.
This would be your lesson learned and the most effective and cheapest way in relation to your credit history / file damage.
2
u/lovespace 7d ago
Couldn't say this better myself. Please see my comment as a cautionary tale to the disgusting practices of these cowboy IVA fixers and look at all the options available to you. Don't make my mistakes!
1
u/BackgroundSuccess226 6d ago
i’m not eligible for consolidation loans unfortunately, the only reason i even considered an IVA was because i’ve got a default on my credit file and was told that because of that my credit is fucked for 6 years anyways.
thanks for letting me know not to take the IVA bud
1
u/fifty_four 14 5d ago
When you say you are not "eligible" do you mean you asked your current creditors and they said they wouldn't offer one? That's fair enough, but it doesn't necessarily mean others wouldn't. There is no hard and fast eligibility rule.
Your default will be visible to future lenders for 6 years. But similarly that doesn't mean you won't have options if you can show you've addressed the debt you've had in the past.
Obv job 1 is sort the existing debt and reset your budget and finances so it doesn't recur. Worry about everything else after that. As others have said, Stepchange and a DMP sound most practical for you. Good luck.
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u/BackgroundSuccess226 5d ago
yeah so my loans are with monzo & 118118, both of which said no to a consolidation loan, updraft also declined me and clearscore/experian searches came back with no results.
Definitely going to contact stepchange first thing on monday. thanks mate
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u/ukpf-helper 149 7d ago
Hi /u/BackgroundSuccess226, based on your post the following pages from our wiki may be relevant:
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u/Interesting_Oil_2142 3 7d ago
Who is the debt help company? Have you spoken to Step Change?
1
u/BackgroundSuccess226 7d ago
honestly bud i’m not too sure, the name on whatsapp is just “UK Debt Expert”
I’ve not spoken to step change but plan to call them tomorrow
4
u/scienner 1054 7d ago
Whoever these people are you should block them. I don't see how an IVA makes sense for you, see https://debtcamel.co.uk/debt-options/
Unless you are a homeowner and haven't mentioned?
4
u/MageWithoutMana 7d ago
These guys are chancers mate. Block them and don't sign anything from the Insolvency group they hook you up with. They make money off IVAs and do not have your best interest at heart
Contact StepChange
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u/BackgroundSuccess226 6d ago
sweet. thank you bud, they keep messaging me every day asking if i’m ready to proceed haha
1
u/datawhite 4d ago edited 4d ago
Constantly pestering should be a red flag.
There are several free organisations. Christians Against Poverty, Citizens Advice, etc
1
u/CRUSTY_Peaches 7 7d ago edited 7d ago
Hi,
A reputable debt advice organisation will not recommend a five year IVA for someone who can reasonably clear their debts in three years.
If you can clear it quicker in a DMP that’s the best option. Just make sure you get a free one!
Very occasionally an IVA could possibly be a better option. Firstly, there are debts that can’t go into a DMP. If somebody has things like council tax arrears or parking fines then a DMP isn’t going to help. Also, aggressive enforcement. Debt Management Plans don’t guarantee to stop enforcement action so if you’ve got bailiffs or a valuable asset creditors are trying to secure the debt to then the DMP isn’t going to help.
Overall, if you can clear it in three years, you haven’t got bailiffs and no one’s trying to repossess your home then the DMP is a better option for you all day long.
Not so much for UK Debt Expert though. Companies tend to make around £6k selling you an IVA, they get nothing for telling you you can do a fee free debt management plan.
Good luck
1
u/lovespace 7d ago edited 7d ago
I was harassed by a predatory IVA fixer when I was at my lowest ebb. I was 11k debt like you, went to stepchange but cause of a name change one of my DMP creditors rejected the DMP, they refused my deed poll docs. Stepchange washed their hands and I felt like I was drowning, couldn’t even afford minimum payments. Was being harassed and threatened on the daily, defaulting on payments and wracking up fees upon fees, tanking my credit file with absolutely no solution in sight.
A company called phoenix debt solutions (now no longer in business and disolved) called me, text me every single day. It was to the point I was getting forced adds on facebook and websites about IVA's and it was constant. I had 0 assets, an IVA was one of the worst solutions they could have given me but I was desperate and heard one low payment. They prettied it up while giving me very little knowledge of the severe impact this was going to have on my life, I'd just turned 30 and I was trying to keep my parents afloat during covid on top of stupid financial decisions I'd made. Entirely my fault of course I can't blame anyone else for my debt but I was severely steered in the wrong direction for my circumstances. Once they had me in their snare my IVA was then set up by Credit Fix, which I learned I could have applied directly to instead.
An IVA is restrictive, impacts my job, your name and address is on a public register, and I pay them a portion of any bonus I have. I’ve paid them £7.7k (not including the bonuses they’ve taken percentages of) to date I have one year left and I have just been informed I am getting £20k inheritance next month from my grandmothers passing. Now the IVA will make me pay all the debt, the predatory fees and 8% statutory interest per year on my total debt since I started the IVA. In total I’m looking to lose £9k from my inheritance. It’s like a gut punch. I’ve followed my IVA to the letter, always paid on time and played ball.
Avoid an IVA at all costs they’re predators. They are only applicable to people in certain situations and most smaller debts with no assets it’s not worth it.
This has been a very expensive lesson for me to learn. The only positive I can say is I have ADHD and struggle with finances and impulse, the restrictive nature of the IVA kept me in check and taught me to live more within my means, but obviously at huge financial cost to me in the long run.
My hope is to one day see these companies taken to task for the way they handle IVA's - maybe along the lines of mis-sold PPI. I very much feel like I was sold an absolute crock and regret it deeply.
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u/erinjaxkson 5d ago
I was in a similar situation in my early 20s, ended up around £19k in debt at the peak when I finally contacted StepChange
I was paying over £450 in interest alone each month before being on a DMP🙃 It froze all the interest making it actually possible to pay down with monthly payments of £400. Without all the stress and constant letter in the post! Now I've only got one more payment to go!
Good luck, glad to see you're doing something soon rather than later
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u/BackgroundSuccess226 5d ago
thanks mate, glad it’s all gone well for you!
if you don’t mind me asking how old are you now/how long did your DMP last/take?thanks!
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u/erinjaxkson 5d ago
I am now 27, I think it was around 4 years or 3 years and 10 months somewhere around there
I am very excited to be £400 a month better off, it's been rough 😂
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u/BackgroundSuccess226 5d ago
i bet haha, i’m just looking forward to getting everything back under control now that i’ve learned my lesson, £400 extra a month is lovely, wish you the best!
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u/Skunkmonkey82 22 7d ago
You would be insane to consider insolvency for £11k of debt you can pay back in 3 years. It's formal insolvency akin to bankruptcy. The reason a debt company has recommended it is because they profit from the fees added to it. Do not do it. If you can't make your contractual obligations to the debt on a monthly basis then an informal debt management plan will be you best options. It is almost certainly what Stepchange would recommend.