Debt could be a scary notion if you have never gotten out of it successfully. The success stories on internet seem far-fetched and unrealistic. But if you conduct yourself with proper discipline, you can get on top of your creditors in no time. IVA is another good option if you need discipline in your life. However, if you’ve currently got enough money to pay all of your bills and still eat, you can get out of debt without putting your life on hold to live like a monk.
To make those things possible — both the fun and the not-so-fun stuff — while still gradually paying down debt, you must work to increase your income while cutting back in areas that didn’t matter much to you. These non-essential expenses are different for different people.
You might be able to get out of debt faster by going extremely frugal instead. However, a better option might be slow but steady while still having fun. This is important if you think that freedom from debt is a way of life, not a fad diet.
That means there’s no magic pill, and no get-out-of-debt free card. There’s no massive restriction followed by bingeing. There’s no “one easy payment”, no frantically moving debt around, no rolling one debt into another. You can’t borrow your way out of debt.
Instead, getting out of debt is about changing your behavior for good. It means only spending money you already have. Paying what you already owe and not future credits. Preparing for your future, both short & long term. Tackling the past. Living the life you want to live.
The first step is making a strict budget and the rest of the steps are sticking to it. There are different ways to resolve debt like DMP and IVA. Even those ways need a strict discipline for them to work. Learn what our experts have to say on this way of life. There is a lot of advice out there to resolve debt. All you have to do is listen and follow well.
As the world continues to learn more about COVID-19, or the coronavirus, it’s clear that the pandemic may impact several aspects of our lives. The spread of COVID-19 has caused turbulence in global and U.S. economic markets and local economies. Concern and uncertainty over what’s to come have resulted in wild market swings, leaving many Britons questioning the state of their finances.
If you’re concerned the spread of COVID-19 could impact your finances, retirement, personal investments or credit, here are five actions you can take that could help keep you financially sound:
1. Reconsider Your Budget
If you think current conditions could impact your income or finances, consider tightening your budget to help make sure you have enough funds to cover your expenses. Making a budget and sticking to it is a sound strategy at any time, but especially when your finances may take an unplanned hit. Putting more of your money into an emergency fund is one budgeting move that could help you weather income uncertainty during this time.
2. Make All Payments on Time
While it may get difficult, try to make at least your minimum debt payments by their due date every month. Credit scores are greatly impacted by late or missed payments.
3. Get Help if You’re in Financial Trouble
If you find yourself unable to pay your bills, contact your creditors before missing a payment to see if they can assist. If you feel you may not be able to keep up with minimum payments and need help managing your existing debt, consider working with a certified credit counselor.
4. Stay on Top of Your Credit
Whether or not you’ve missed any payments, staying on top of your credit reports and scores is always a good idea.
5. Put Your Health and Well-Being First
While the current uncertainty can be unnerving, staying calm and taking actions to protect your health and financial well-being will position you to weather the COVID-19 health crisis as well as possible.
An IVA is a legally binding debt solution that looks to protect the interests of both you (the debtor) and your creditors. Due to the nature of an IVA, there is a defined procedure that every IVA application must follow.
The Right Debt solution
Although you might think an IVA might be the right debt solution for you, it is still recommended that you seek free debt advice from our experts. Debt solutions have their own criteria and while you can check for yourself whether you qualify, certain solutions might be better suited than others for your circumstances.
The role of the Insolvency Practitioner (IP)
If an IVA is the right solution for you, the first step is to find an Insolvency Practitioner (IP). An IP is a qualified professional, authorized by a regulated professional body, to advise on and oversee formal debt solutions. Your IP will look at your finances and work out whether an IVA is likely to be approved. They will go through your income and expenditure and work out how much you can reasonably afford to offer your creditors. Your IP will then make a suggestion for your proposal and discuss what an IVA will mean for your home and assets. If you have any questions or concerns your IP will be available to provide you with the information you need.
The IVA Budget
Your proposal will be based on your monthly income and your necessary living expenses. Your budget will be decided based on what money you have left after your living costs have been deducted. Your budget doesn’t just take into account household bills, rent and food – it will also consider clothing, toiletries, travel, school expenses and childcare to name just some examples. An IVA is designed to help you get out of debt so while you will have to make cutbacks on luxuries you won’t have to struggle financially – you can still live comfortably while repaying your debts. Each year your income and expenditure will be reviewed to ensure you are still paying the correct amount – if you can afford to increase your payments you will be asked to do so.
The IVA Creditor’s Meeting
Once your IP has submitted your proposal, it is then a case of waiting for your creditors to come to an agreement. At least 75% in value of the creditors who vote on your IVA must be in your favor for it to be approved. Therefore, the creditors you owe the most money to will have the biggest say.
It is a common horror story of the modern era that many of us struggle with debt daily without making much progress. With this problem plaguing your life every day, paying debt may seem like a great idea, but it could turn out to be the wrong move if you do not have a budget and emergency savings in place.
Fund Your Emergency Savings
If you are living paycheck to paycheck, the idea of funding an emergency savings account may seem impossible. However, if you create a budget and review your spending you will be able to see where you are wasting money. In addition to cutting back your spending, you can also increase your income through many different avenues. If a part-time job will not work in your current situation, you can have a yard sale and start selling things you don’t use or can live without.
The Debt Payoff Balance
If you are struggling with debt, the emergency savings will protect you from adding more fuel to your debt fire. In the event, you are forced to take money from your emergency savings, stop paying extra towards your debt until you replenish your fund. When the savings account is full again, go back to attacking your debt.
I Have A Budget And Emergency Savings – Now What?
The two main debt payoff methods that are constantly debated are the Debt Avalanche Method and the Debt Snowball Method. Even with their differences, they both recommend paying off debt in the same manner:
- Pay the minimum on all of your debts except the one you want to pay off first
- Put all of your extra money towards one debt at a time
Paying off debt can be scary but if you have made the decision to break free from it, make sure you set yourself up for success! Make sure you have a budget and emergency savings in place before you tackle that debt. Without these two items, you’re bound to end up back in debt again. For a more expert opinion to allay all your fears and doubts feel free to contact us.
To keep your financial affairs in order, it is pertinent to have a budget in place. If you currently do not have a budget, you should not spend any money until you have one in place. For as long as I can remember, budgets have received a bad rap. If you talk to someone who budgets successfully, they will tell you how empowering and freeing a budget can be. A budget is a plan that gives you the ability to tell your money where to go rather than letting your money control you.
Despite popular opinion, living on a budget does not mean you can no longer enjoy life. In reality, a budget gives you the power to spend your money on what you truly value in life rather than wasting it out of habit.
There are unlimited examples of people who make an average salary and can get out of debt and build wealth. With a proper budget, you can not only make a plan to eliminate your debt, but you can also figure out how to pay for all those bucket list items you dream about.
Right now, your credit cards maybe your insurance policy for when life happens. Rather than relying upon a bank who is willing to charge you 16% or more to borrow money in an emergency, you can be your own insurance policy.
If you do not have any money in a savings account and you are forced to put money back on a credit card, you are moving backward. If you have emergency savings and an unexpected money issue happens, you can pull cash out without having to increase your debt.
With this method, you are your own bank and you can guard yourself against going further into debt.
This self-financing method works like a charm every time. It is expert recommended and definitely the way you should proceed with your financial safety nets. For more great advice, follow our knowledge hub!
Choosing the best debt management program can free you from the nightmare of unpaid bills and help you return your finances to good health. The best debt management program offers a structured path out of debt, a budget that helps you manage your money and a monthly payment that is affordable while eliminating credit card debt in 3-5 years. However, a poorly designed program – especially one you can’t afford to finish – can make your situation worse.
Before enrolling in a debt management program, understand the scope of your financial problems. To make that assessment, you need to speak with a credit counselor. This is a mandatory first step before you enter any sort of debt-relief program. The good news is that the first meeting is free. Every certified nonprofit credit counseling agency will look at your financial situation and advise on the best solution to your problem at no charge.
Some things to look for include:
- Search for a counselor through a professional organization as their members are required to adhere to best-practice standards.
- If you know a bankruptcy attorney, you can ask for a reference. Bankruptcy attorneys usually can tell you about the most reputable credit counselors in your area.
- Choose a counselor that conveniently offers services. Many credit counseling agencies do their meetings by phone or over the internet. Not every consumer can schedule an appointment during business hours. Ask if the counselor is available to speak by phone or meet after standard work hours.
- Do your research. Creditors might be able to refer you to a counseling agency. You can also check online sources for news stories about credit counselors.
- Remember that this is serious stuff. If you enter a debt restructuring and repayment plan, you’re expected to stick with it and that usually means 3-5 years. Credit counseling agencies work with card companies to reduce the interest you pay on your debt. If you don’t follow through with the payments, those interest-rate concessions can be canceled.
- Speaking with a credit counseling agency – Solution2Debts has no impact on your credit score.
Type ‘IVA’ into internet search engines and you’re greeted with sponsored adverts making bold claims like ‘Write off 80 per cent of your debt from as little as £75 a month’ etc. This is just an example found with a quick a search online – it appears the Individual Voluntary Arrangement is being billed as the latest life hack to solve your money woes.
Many people are accusing these agencies and consultancies of false advertising. The most obvious reason for that is IVAs are not a one size fits all solution for everybody, and it’s certainly not a life hack – it has risks. It is better to jump in after testing the waters, as the metaphor goes. So we have compiled the biggest risks associate with IVA to help you in decision making.
- Savings and personal pension payments will usually be used to pay your creditors in an IVA. It may affect your job and you might have to remortgage your home if you own one.
- If your circumstances change, you could struggle to keep your IVA payments. This means that the arrangement could fail and you could be made bankrupt.
- It also impacts your credit score. Citizens Advice says that people with an IVA might find it difficult getting credit in the short term, while getting more than £500 of credit requires you to get written permission from your insolvency practitioner, unless the credit is for public utilities.
- Longer-term, it’s likely to have an impact even once the IVA has finished. Details of IVAs are kept in a public register called the Individual Insolvency Register. Your IVA will stay on that register for the length of the IVA, and removed three months after the IVA has ended.
- Details of the IVA will also be kept on your credit reference file by credit reference agencies, and it will stay on your credit file for six years from the start of the IVA. This means creditors can see you’ve used an IVA when they check your credit rating before agreeing to lend you anything.
Much of this is not revealed in the advertising. But you need to be aware of these aspects before you enter into a formal agreement. We hope this list helped you. Happy Financing!
In financial matters, one of the worst things you can do is be hasty. Financial matters require a deft hand and a keen eye. Here are a few steps you can consider before taking the truly life-altering step of bankruptcy. You can even consider a few other options like an IVA or a DMP.
Consider a Short Delay
Sometimes, it can be beneficial to wait before actually declaring bankruptcy. You can avoid losing valuable assets, or keep from going straight back into debt again by waiting a relatively short period before filing. You might not know what the future might hold. So don’t rush. Let a credit counseling service guide your decision.
Consider Your Recent Income
If you recently had a high income, then you need to take another look at your bankruptcy situation. This is because when you file for bankruptcy, the court looks at your monthly income. The monthly income is determined by averaging it over the past six months. If you’re considering filing bankruptcy, but you recently had a high income from a job you lost, it may be prudent to wait a few months until your six-month average income decreases.
Consider the Monetary Value of Your Assets
When you file bankruptcy, the court will take your non-exempt assets and sell them to pay your creditors. In this case, you’ll probably get more money if you sell them yourself. You’ll be able to pay down more of your debt than the court would, or you can spend the money on reasonably priced exempt assets. Don’t attempt to hide any money, though, or you’ll get in trouble for giving assets away the court could have sold.
Consider Your Debt Status
Once you submit your bankruptcy petition, you won’t be able to add to the list of debts you’re having modified or discharged. So if you expect a large, unavoidable expense in your future, consider waiting until after you incur it to declare bankruptcy. This way, you can include those bills on your bankruptcy petition.
Creditors are a scary notion even for those with no debt. Having to owe someone money and having that person follow your every move like a hawk is intimidating to say the least. One of the biggest motivations behind opting for an IVA is avoiding the constant calls by the creditors. However, you still have to go through them to get your IVA plan approved. Here’s everything you need to know regarding creditors and their IVA reactions!
Creditors and voting on an IVA
All the creditors need to vote positively for approval of an IVA plan. When it comes to the vote itself, remember that creditors have their own agendas when judging your application. They will review the amount being offered as a repayment, how much you owe, the value of your assets, how much they expect to receive from the IVA and the reasons for your debt. Creditors will also consider how committed you are to repaying your debts and may expect you to give up luxuries such as beauty treatments and holidays to ensure you can manage the monthly repayment.
You have to remember that it is not personal. Additionally, your insolvency practitioner will know best about the reactions of these creditors. Your IP will also advise you on whether it’s likely that your IVA will be accepted by your creditors. You won’t have to give up everything as part of your agreement. Creditors simply want to ensure you are doing what you can to repay your debts.
How your IVA payments are calculated
Your monthly payments are usually based on your basic monthly net income minus all your essential living costs – such as mortgage/rent, utility bills, telephone costs, travel costs and housekeeping.
When your creditors vote on your IVA, they can ask for your monthly payments to be increased if they think your expenditure is excessive. Your income and expenditure will be reviewed annually during your IVA to see if you can afford to increase your payments into your IVA. If you can’t afford your monthly payments into your IVA due to a change in your financial or other circumstances, then it is possible to ask creditors to accept a revised proposal to reduce your monthly payments. If your creditors accept this, then your IVA will continue on the revised terms.
Don’t let creditors worries get you down. We are here to allay your worries!
IVA is a formal and legally binding document that allows you to get out of debt. This is done by the consent of creditors and under the keen eye of an insolvency practitioner. How an individual voluntary arrangement is set up is a detailed process. However, we have explained it briefly for you!
Before the IVA
The insolvency practitioner should explain all options available to you before you commit to an IVA. You can also get second or third opinions on this from credible debt consultancy services.
Steps of an IVA Process
Step one: applying to the court for an interim order
Your insolvency practitioner will apply to the court for an interim order. This will stop your creditors from taking action against you while the IVA is being set up. They can’t get a court order against you or make you bankrupt.
Step two: discussing your finances and repayments
Your insolvency practitioner will look at your financial situation with you. This will include your spare monthly income, savings, and assets. With the help of your insolvency practitioner, you will work out a repayment plan to your creditors. You will need to offer as much as you can realistically afford, otherwise, the creditors may not agree to it.
Step three: drawing up a proposal
Your insolvency practitioner will help you write a proposal for your creditors and the court. In the proposal, you will agree to repay your creditors in part or in full over a certain period, normally three to five years. Your insolvency practitioner will also prepare a report for the court which includes their opinion as to whether the proposal will work or not. The report and proposal will include:
- a full financial statement
- a proposal setting out the terms
- reasons why the creditors should agree to the IVA
Step four: creditors agree or reject your proposal
Your insolvency practitioner will call a creditors’ meeting at which the creditors vote on whether or not to accept your proposal. If enough creditors vote for the proposal, the proposal is accepted and this is reported to the court. The IVA will then be binding on all the creditors, even those that voted against the proposal.
After the acceptance of the proposal, you can start paying the agreed-upon installments.