IVA advisors told me to get debt management plan instead

[CaraMel]

Hey there!

I've run up some debt and I'm trying to pay it off to sort out my credit rating and to finally get on top of it. A few people told me to get an IVA and I was looking into it and it seemed like that was the best option. My debts are a combination of council tax to bristow and sutur now and a payday loan and an unrepaid student overdraft, and a few smaller niggly ones totalling just under 7 grand. I spoke to an advisor from iva advice and he was said I could get an IVA, but he would actually recommend a debt management plan instead from me. He mentioned something along the lines of I'd have to pay half of my overtime earnings and a few other things, mainly because my income fluctuates I think. Which I thought was pretty decent, he was helpful, but now I'm back to square one and know nothing about debt management plans, how do they differ from an IVA? I'd really appreciate some pointers, thank you.

[abbiesmum2003]

I am by no means an expert but i will try to explain-then I imagine Foggy will come along and be most helpful
i have completed an IVA and have been here nearly 8 years so reading posts on here will really help you understand what an IVA is and what your responsibilities are etc.
However, I’ll try to simplify.
A DMP, i dont believe, is legally binding. Its good for lower debt levels, More an informal agreement between you amd the creditors but you are required to repay every last penny. Over an unspecified time frame. This could be >10 years if high debt amd low repayment. Credit rating would be shot and you wouldnt be able to use the credit cards etc as i would assume theyd be frozen. As it is an informal arrangement it could be cancelles at any point amd you left to repay immediately.
An IVA is legally binding. A lot of work (should) go into it to find out wjat your disposable income is (this is established from your income minus allowable expenses-council tax, rent/mortgage, utilities, Food, petrol, phone, Clothes, Health costs) The disppsable income is whats left after your allowances are deducted and becomes your IVA monthly payment.
This is reviewed annually or if there is a change with your income/outgoings,it could go up if you earn more and you also pay in a proportion of overtime and any ‘windfalls’ over £500.
It is set usually at 60 months. Companies chsrge fees to setup/run your IVA which come out of whats paid in by you (not additional). you will always owe the full amount of debt but may not pay it all back over those 60 months however the aim will be to pay back as much as you can afford hence why overtime and windfalls are additional to your disposable income payment. So a lottery win or inheritance will be captured by the IVA.
again credit rating will be shot and you wont have credit cards loans or overdraft but it is for a set time frame and legally binding meaning companies are tied in and have to comply (as well as yourself) onthey cant send in bailiffs or request more from you.
If you are a property owner theres more to add to this but gets complicated then-find posts about equity release!
I hope that helps.
DMP-informal arramgement over X amount of years until paid back all of debt -best for lower debt amounts, less restictive.
IVA- legally binding for 5-6 years. Good for higher levels of debt. Some people find them very Restrictive and struggle with the requirements, but do help you budget and gain financial control. Annual reciews.

[Foggy]

Good explanation from Abbiesmum -- thank you

If you can manage it a DMP does less damage to your 'credit reputation' and is far less intrusive, in that you agree the payments at the start, based on your ability to pay, and this, more or less, remains 'as is' throughout the plan's life. This means overtime is still yours, if you get it, rather than sharing it with the creditors.

In an IVA, as long as you get the votes from creditors to accept it, even those creditors who disagree have to stick to it and all contractual interest is frozen. In a DMP creditors are free to say yes or no, to change their minds and even enforce payment if they so wish. Many will freeze interest, some won't.

If I were to go for a DMP I would speak to Stepchange as they do these 'fee free' ( they are funded by the banks for this) so creditors get paid more quickly.

Have a read here: https://www.iva.co.uk/debt-management-plan