IVA or Debt Consolidation?

IVA or Debt Consolidation
A debt consolidation loan is only suitable for lower levels of debt or when there is an asset to secure the debt against, as in a mortgage.

A comparison of the relative benefits of a debt consolidation loan or remortgage against those of an IVA.

YourTotal Cost

In a IVA, some of the initial debt is forgiven by creditors when the IVA is successfully completed. How much varies from case to case; but 50% is about the average.

With a debt consolidation loan; while monthly payments and interest may be reduced; you actually pay back more over the longer term of the loan. You may have £20,000 of debt over several credit cards and loans, but a lone to cover this amount over say 5 years (the normal length of an IVA) at @ say 10% interest would see you payback in total £25,496.

Remortgaging may seem a easy option; but need to have a reasonable amount of equity to do this and you should consider the total cost over time.

Risk To Your Home in an IVA

In a IVA, you are not putting you home greater risk of repossession, in fact the IVA is providing protection. if you have mortgage payments to meet every month; allowances are made for this in determining how much can pay into the IVA each month.

If you take out a secured debt consolidation loan or are re-mortgaging your home; then you are decreasing how much of your home you own and increasing the risk repossession if you fail to make repayments.

Your Credit Record in an IVA

If you take out a debt consolidation loan and repay other debts in full with this money; then you are not breaking any agreements and will not get defaults on your credit record. In fact, borrowing money and paying it back helps build your credit profile.

The danger here is that not all the debts are repaid or more than needed is borrowed which is spent. It's tempting, I know. The result - more debt than when you started. However, you are paying back less, so you can afford to borrow more. Which you do, until you need to consolidate again. This is a vicious circle which is leading to one destination; financial meltdown.

On a IVA, you are entering into Insolvency and this, like all adverse information, remains on your credit file for 6 years from the start of the IVA. You will not be allow to borrow more money while on the IVA; there are exceptions, but this needs the approval of your IVA supervisor.

An IVA does not require equity or assets

In currently times, post the 2008 credit crunch, it is not easy to borrow large sums without being about to secure it against an asset. if you've £15,000 on unsecured debt, you've little chance on consolidating this with an unsecured debts.

An IVA can reduce you debts and repayments with the need to risking loosing an asset of value.