One of the keys to attaining financial stability and security is to live a debt free life. However, this may not be easy especially in the current global economic climate. In view of this, many people are constantly looking for a solution for their debt problems. An Individual Voluntary Agreement is a legal contract between you and your creditors that enables you to repay your debt under more favourable terms. In the recent past, getting IVAs from IVA companies has become an increasingly popular solution for people who have large debts but who do not want to file for bankruptcy. However, before you decide to adopt any debt payment solution by signing a legally binding agreement, it is important to review carefully the pros and cons of the solution in order to ensure that it improves, rather than complicates, your financial situation.
The Pros of Individual Voluntary Agreements
• They are legally binding: This is a great relief because upon signing the agreement, your creditors would have to abide by the terms of the Agreement. A common requirement in such contacts is that creditors should not take any legal measures against you as long as the IVA is in place. According to the terms of the IVA, creditors are also required to write off a certain amount of a debt that both parties agree to. Furthermore, once you sign an IVA with an IVA company, your creditors can no longer contact you to remind you about your debt payments.
• Reasonable settlement period: Individual Voluntary Agreements enable you to settle your debts in about 60 to 72 months. This repayment period is quite fair and you will be able to pay your debts off in a nonstrenuous manner.
• You get to keep your home: If you get into an Individual Voluntary Agreement, it is not compulsory for you to sell your property or home in order to pay off your debt. This is one major advantage of IVA's in comparison to other debt settlement solutions. However, several months prior to the expiry of the Agreement, you may need to remortgage your home in order to complete your debt payments but this largely depends on the policies of different IVA companies.
• Retain some of your assets: Selling off your assets is a major part of any plan to settle debts. With an IVA, you may be able to retain some assets. However, you would need to make some extra payments in order to do so and this is subject to a mutual understanding between you and your creditors.
• You can make affordable payments: The repayment structure of IVAs allows debtors to make reasonable monthly payments. This means that you can still meet your basic needs from month to month. Furthermore, since the repayment agreement is binding for quite a long period of time, IVA's are quite flexible and the amount of monthly payments you make can be adjusted if your financial situation changes.
The Cons of Individual Voluntary Agreements include:
• Strict terms of agreement: In order to ensure that you pay off as much of your debt as possible during the term of the agreement, creditors may impose some stringent terms. For instance, you might require you to follow a financial budget that they closely monitor for the entire term of the contract. When you enter into an IVA, your creditors will most likely have the right to scrutinize your income and spending habits so that they can assess your commitment to clear your debts. However, depending on the IVA company you choose, this scrutiny may be necessary in order to enable creditors to assess if your current monthly payments are affordable.
• Significant failure possibility: IVAs give your creditors the right to monitor your income and spending. If your creditors determine that you will not be able to meet their expectations due to changes in your financial circumstances, they may rescind their commitment to the agreement.
• They affect you credit score: An IVA is a matter of public record. This means that for the 5-year duration of the agreement, financial lenders will limit the amount of credit you can borrow. In some cases, lenders may be unwilling to give you credit since an IVA may indicate that you have a poor debt repayment history.
Overall, all debt repayment plans have their own set of pros and cons. As such, it is up to you to review the advantages and disadvantages of different plans and determine which plan would suit you best based on your financial circumstances. You also need to identify if qualify for the various debt repayment plans. For instance, creditors are unlikely to agree to an IVA if your debt is below £15,000