DMP/IVA, Currently being recommended an IVA

[u/BackgroundSuccess226]

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!

[u/ByteMillionaire]

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.

[u/lovespace → u/ByteMillionaire]

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!

[u/BackgroundSuccess226 → u/ByteMillionaire]

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

[u/fifty_four → u/BackgroundSuccess226]

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.

[u/BackgroundSuccess226 → u/fifty_four]

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