Tips on how to afford the payments required for an IVA

If you are considering an IVA you will normally have to agree to repay a minimum amount each month. If this figure looks more than you can afford, do not discard the IVA solution. You could well afford it by taking a different look at some of your expenses.

To accept an individual voluntary arrangement (IVA), your creditors will normally require that you agree to pay back pay at least 25% of what you owe.

In order to reach this figure over the five years of the agreement, you will need to be able to pay back a minimum amount each month. On looking at the minimum payment, you may be put off the IVA because you believe that you simply cannot afford it.

However, you should not be too hasty to reject the IVA solution. There are reasons why it could be affordable which you may not have thought of:

Do you have a car on HP?

Car HP agreements are not included as creditors in your IVA. You need to continue paying these otherwise your car will be repossessed. As such, they should be included in your expenditure budget.

However, once your HP agreement comes to an end, the money you were paying to the finance company will be added to your IVA payments.

This will boost the remaining IVA payments you make and often mean that the overall amount you need to repay your creditors is reached.

Can home equity be released?

If you have equity in your property which can be released during your IVA, this will often make up the shortfall if you are making lower payments each month.

For example, if you need to pay £400 per month to make an IVA work, but you only have £200 of surplus income, on the face of it an IVA looks impossible.

However, if in the 4th or 5th year of your IVA, you can release equity from your property, this lump sum will make up the shortfall left by your lower monthly payments and make the IVA viable.

Change mortgage to interest only

One way of reducing your monthly mortgage expenses is to change from a repayment to an interest only mortgage. Because you are no longer repaying what you borrowed, just the interest, the monthly payments will be significantly reduced.

Of course, the issue with paying interest only is that at the end of the mortgage, you do not own the house.

However, we are not talking about staying with interest only payments for ever. As soon as your IVA is finished, you change back to a repayment mortgage once again.

Because at that time you will have no unsecured debts to pay, if you wish you can use any extra surplus income to overpay your mortgage therefore catching up on the payments missed during your IVA.

Of course, when considering an IVA to resolve a debt problem, you need to make sure that the living expenses you include in your monthly budget are sensible and reasonable.

After all, your creditors are being asked to write off up to 70% of your debt. To agree to this you need to meet them half way and repay as much as you can.

However, if you feel you have reduced your expenses as much as possible and you still fall short of the amount required for an IVA, the option should not be automatically rejected.

Working with a personal debt expert can reveal different ways to make an IVA practical and sensible.

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