Can I change from a debt management plan to an IVA?

A debt management plan can give immediate relief from a debt problem. However once the dust settles, the option of changing to an IVA may bring significant advantages.

If you are struggling with debts, you are probably borrowing to make all the required monthly payments. Using one card to pay off the minimum balance of others and increasing your overdraft to pay for the weekly shopping.

Using a debt management plan (DMP) will give an instant solution to this problem. Your monthly debt payments are reduced straight away and you no longer have to borrow to maintain your living expenses.

However, one of the main issues with a DMP is that it is not legally binding. The agreement with creditors to reduce the monthly payments they receive is purely informal.

This means that creditors are not under any obligation to stop interest or charges. Very often account balances carry on growing as large amounts of interest and charges are added.

Changing the solution

After six months of being in a debt management plan, the continual addition of interest is one of the main reasons why people start to question whether it is the right solution and think about changing to an individual voluntary arrangement (IVA).

Many people worry about changing their DMP. However, if you decide that it is not the right solution for you, changing to an IVA is very easy.

Because the debt management plan is informal, you can change or break the agreement at any time. You are not legally bound to continue to use it and if you stop your payments, there should be no penalty.

Nevertheless, if you are changing to an IVA, it is good advice to maintain your DMP payments up to the point when your IVA is in place. If you stop your payments without this, your creditors will start to hassle you for money again.

Should everyone change?

The significant advantage of an individual voluntary arrangement over a debt management plan is that you have legal protection from your creditors.

All further interest and charges are stopped and creditors cannot take any further action against you to collect their debt such as applying for a charging order against your property.

In addition, unlike in a DMP where you have to repay everything that you owe, an IVA will mean that up to 70% of your debt is written off meaning you should be debt free in a far shorter time.

However, despite these benefits, an IVA is not for everyone.

If you receive any bonuses, increases in wages or cash windfalls, you will have to share these with your creditors. If you are expecting anything like this, it is sometimes best to stick with your DMP and use this money to make settlements with your creditors.

If you are a home owner, doing an IVA many mean that you have to release equity from your house for the benefit of your creditors. If you want to keep you home equity separate from your debt solution, an IVA may not be for you.

Because a debt management plan is an informal agreement with creditors, it is a very flexible solution. This means that payments can be increased, decreased and even stopped at any time.

As a result, if you feel that a debt management plan is not working for you and want to change to an IVA there is no reason you should not do this.

However, before making any changes to your DMP, you should discuss your situation with a personal debt expert. Even though an IVA will stop interest and charges are being added to your accounts, the solution is not right for everyone.

If you are struggling with debt, visit www.BeatMyDebt.com

Our vibrant forum gives free access to industry experts and others who have suffered with debt problems.

Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.

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