Both the Debt Management Plan and the IVA are growing in popularity with cash strapped consumers struggling to make ends meet and manage their monthly debt repayments. But which one is the best option for you?

There are a number of similarities between an IVA and a Debt Management Plan.

  • They both deal with unsecured debts only, for example credit card debt, store cards or overdrafts. They are not designed to deal with secured debts such as mortgages.
  • Both involve a certain degree of negotiating with creditors.
  • Both combine debts into one monthly payment, often totalling less than the full amount you owe.
  • Both last for a certain amount of time, at the end of which your debts are considered to be settled.

However, there are some core differences between a Debt Management Plan and an IVA that makes each option more suitable for people in different circumstances.

  • An IVA is a legally binding agreement, whereas a Debt Management Plan is more informal. This means that neither you or your creditors are obliged to stay within the terms of the debt management plan.
  • If an IVA is agreed, it definitely freezes interest on the debt. With a debt management plan, your creditors are not obliged to freeze interest in that way.
  • Typically, IVAs are for those with debts in excess of £15000. Debt Management Plans handle all sizes of debt.
  • An IVA runs for, typically, five years. With a Debt Management Plan, the length of time for which it runs can vary dramatically. Some run for ten years or longer, some run for much less time than that. If your income or financial situation changes during the course of the DMP, your terms could change too, meaning that the length of time over which it runs will also change.
  • If 75% of creditors agree to the IVA terms, it goes ahead regardless of whether the other 25% agree or not. With a Debt Management Plan, each creditor must agree before they will be part of the DMP.
  • IVA statistics and info are kept on a central insolvency register. There is no such record of Debt Management Plans.

These are just two of a number of debt solutions available to those who are unable to pay off their debts in a reasonable time. Which of the two is better suited to you depends largely upon the level of debt you have, the number of creditors to whom you owe that debt amongst other factors. Seeking the advice of a debt specialist will give you a better idea tailored to your own individual circumstances.