USING AN IVA FOR DEBT CONSOLIDATION | February 2024
debt consolidation

February 2024

Using an IVA for Debt Consolidation in February 2024

Debt consolidation is a process whereby an individual takes out a new loan to pay off multiple debts. This can be an effective method by which to reduce monthly repayments and become debt free more quickly.

There are a number of factors to consider before consolidating debt, such as whether you will be able to consistently afford the new loan repayments and whether consolidation is the best option for your personal circumstances.

If you have already taken out an IVA (Individual Voluntary Arrangement), you may be able to consolidate your debts into this. This is known as an IVA debt consolidation and can be one of the most effective debt solutions to help you to pay off your debts more quickly.

Topics that you will find covered on this page

You can listen to an audio recording of this page below.

What is a debt consolidation loan?

A debt consolidation loan is a type of loan that’s designed specifc ally to help people who are struggling under the burden of other debts.

A consolidation loan can be helpful in a few different ways. Firstly, it means you don’t have lots of separate payments to make each month. Instead, with all your debts rolled into a single new loan, you’ll have just one monthly repayment.

There is also a chance to significantly lower your single repayment too. This will usually mean stretching the overall debt and loan amount out over a more extended period. Still, it can sometimes be an excellent way to help you regain control of your finances, as you might have more money to contribute to that single loan.

There are two types of consolidation loans:

An unsecured debt consolidation loan

With an unsecured consolidation loan, you don’t have to put up any of your possessions as security against the loan, but you may end up paying a higher interest rate.

Unsecured loans are seen as slightly riskier for lenders, so they’re often only available to people with a good credit rating.

Secured debt consolidation loans

With secured debt consolidation loans, you’ll need to use an asset such as your home as security against the loan. A secured loan means there’s a risk you could lose your home if you don’t keep up with the otherwise affordable repayments, but you should be able to get a lower interest rate.

How can I qualify for a debt consolidation loan?

Whenever you seek to obtain credit, a loan provider will examine your credit report.

In order to qualify for a debt consolidation loan, you must have a good credit rating. This means that you have a history of making repayments on time and in full. You will also need to prove that you have a regular income. This can be from employment, benefits, or a combination of the two.

What is an Individual Voluntary Arrangement (IVA)?

An Individual Voluntary Arrangement (IVA) is a legally binding agreement made between you and your creditors to pay off your debts over a defined period of time. It is overseen by an insolvency practitioner, a dedicated professional licensed by the insolvency practitioners association.

How do I qualify for an IVA?

To qualify for an IVA, you must be unable to maintain payments. You will need to have a regular income and owe more than £5,000.

You will also need to get approval from your creditors. Your insolvency practitioner will present their IVA proposal to your creditors, and they will take a vote. If more than 75% of your creditors agree to the IVA, it will go ahead. It will apply to all your creditors, including any who did not agree to it.

There is a risk that if your IVA fails for any reason, you might be forced into bankruptcy. An IVA needs to be carefully considered because of the possible consequences it could have for your personal, professional and financial life.

Is an IVA better than a Consolidation Loan?

If you are experiencing financial difficulties resulting from debt and are going over your options, a debt consolidation loan might be high on your list. But don’t discount the prospect of an IVA because there are financial circumstances where an IVA could provide a more suitable solution.

Whilst at first glance, an IVA and other debt solutions may appear to be similar and share many of the same qualities, fundamentally, they are very different. Whether either of these options is best for you will be highly dependent on your personal circumstances. You should, therefore, take the time to examine each option and to ensure you come to a fully informed decision.

Below is a list of the central differences between an IVA and a consolidation loan.

Duration or term

An IVA is a formal and legally binding arrangement that exists between you and your creditors. It typically lasts for five years, although it can be longer or shorter depending on if your financial circumstances change. An IVA also provides an option for those who want to offer a one-off payment to creditors as a complete and final settlement.

A consolidation loan, on the other hand, is a financial product which is essentially just a loan that you agree to repay over an agreed period of time. The term can be anything from 1 to 7 years or even longer in some cases.

debt consolidation iva

Debt write-off

One of the key advantages of individual voluntary arrangements is that, at the end of the term, any remaining debt will be subject to a debt write-off. This means you will no longer be liable for this debt, and it will be removed from your credit file.

A debt write-off amounting to between 25% and 75% of the total debt is a realistic expectation. However, the debt write-off amount for each customer will differ depending upon their individual financial circumstances and, of course, is subject to the approval of their creditors.

With a consolidation loan, you will still be liable for the total amount of debt, even after the loan has been repaid. The debt will also remain on your credit file.

Credit rating

An IVA will have a negative impact on your credit rating. This is because it will appear on your credit report for the duration of the IVA and for a further 12 months after it has been completed.

A consolidation loan will also have a negative impact on your credit rating. However, this will only be for the duration of the loan.

"A debt consolidation loan is a type of loan that's designed specifc ally to help people who are struggling under the burden of other debts."

Fees

There are no upfront fees with an IVA. You will only ever pay what you can afford, and there are no hidden charges.

With a consolidation loan, you may have to pay some upfront fees. These can include arrangement fees, valuation fees and legal fees.

Flexibility

An IVA is a fixed agreement, which means that your monthly payments cannot be increased, even if your financial situation changes. With a consolidation loan, your monthly payments can be increased if your circumstances change. This means you could end up paying back more than you originally agreed to.

Under an IVA, a payment break can be given by the Insolvency Practitioner if deemed necessary, or they could reduce your IVA payments by 15% without the need for creditor approval.

loans for people with an iva

Furthermore, an IVA could allow you more flexibility to have affordable repayments and to budget for mortgage payments or other unsecured debts. It also protects you from legal action on your current debts.

Debt levels

An IVA can only be used if you owe more than £5,000. A debt consolidation loan can be used for any amount of debt.

Affordability

An IVA is only generally reasonable if you can commit to making the agreed affordable monthly payments. If your circumstances change and you can no longer afford the IVA payments, the IVA could be terminated.

With a consolidation loan, you only have to make the minimum monthly payment. However, this means the loan will take longer to repay, and you will end up paying more interest.

Repayments

Under Individual Voluntary Arrangements, you make monthly IVA payments from your disposable income. These are agreed upon upfront and will usually be fixed for the duration of the IVA. Those you owe are not allowed by law to pursue payment for any debts included in your IVA.

With a consolidation loan, you make fixed monthly repayments, but these will be based on the amount you borrowed, plus interest. The size of your single monthly payment will, therefore, remain the same throughout the term of the loan, regardless of any changes to your income.

Can I consolidate my debts into my IVA?

Yes, it may be possible to consolidate your debts into your IVA. This is known as an IVA debt consolidation and can help you to pay off your debts more quickly.

Debt consolidation with an IVA is only possible if you have excess income each month after making your IVA payments. This surplus income must be used towards repaying your debts.

If you are considering consolidating your debts, it is crucial to speak to a professional debt advisor to see if this is the best option for you.

iva loan

Can I get a consolidation loan if I have an IVA?

During an IVA, you can’t borrow more than £500 from any lender without asking your Insolvency Practitioner for their permission first. This includes secured loans as well as:

  • credit cards
  • overdrafts
  • personal loans
  • payday loans (and other products from commercial lenders)
  • borrowing money from family or friends

Even if you get permission from your insolvency practitioner, you may find it difficult to borrow from many lenders because your credit history will show the IVA and defaults on your existing debts.

If you take out further credit of more than £500 without permission, you’ll be breaching the terms of your IVA.

Therefore, if you’re thinking of consolidating debts during your IVA, it’s essential to speak to a professional debt advisor first. They’ll be able to advise you on the best option for your circumstances.

Will it be challenging to get a consolidation loan if I have an IVA?

If you have an IVA, it may be more challenging to get a consolidation loan. This is because lenders may view you as a higher-risk borrower.

However, if you have an IVA and are looking to consolidate debts, there are some specialist lenders who may be able to help. These lenders will usually only lend to people with an IVA if:

  • you’ve completed at least 12 months of your IVA
  • your IP agrees to the consolidation loan
  • you pass a credit check with the lender

It is essential to compare different debt consolidation loans to find the best deal for your individual circumstances.

Can I take out a joint debt consolidation loan?

Yes, it is possible to take out a joint consolidation loan. This means that both you and the person you’re borrowing from are responsible for repaying the loan.

If you’re thinking of taking out a joint consolidation loan, it’s important to make sure that both you and the person you’re borrowing with can afford the monthly repayments.

It’s also worth considering whether you would both be better off taking out separate consolidation loans. This is because each of you would then be responsible for repaying your own loan and wouldn’t be liable for the other person’s debt.

Where can I seek professional advice about debt consolidation?

If you think that you require debt advice, there are a number of places you can go.

  • You could speak to a professional debt advisor. This could be done through a face-to-face meeting, over the phone, or online.
  • There are also a number of free debt advice charities in the UK that may be able to help you, such as StepChange, National Debtline, and the Money Advice Service.
  • The Money Advice Service is an independent service set up by the government that offers free and impartial advice on all aspects of personal finance, including debt consolidation, to help people manage their money.
  • You can also find a lot of helpful information on debt consolidation on the Citizens Advice website.

It is important to remember that you should never have to pay for debt advice. If someone is trying to charge you for debt advice, they are likely to be a scammer. You are always entitled to free advice.

Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – [email protected]

Frequently Asked Questions

What is a debt consolidation loan?

A debt consolidation loan is a type of loan that’s designed specifc ally to help people who are struggling under the burden of other debts.

How can I qualify for a debt consolidation loan?

Whenever you seek to obtain credit, a loan provider will examine your credit report.

In order to qualify for a debt consolidation loan, you must have a good credit rating. This means that you have a history of making repayments on time and in full. You will also need to prove that you have a regular income. This can be from employment, benefits, or a combination of the two.

What is an Individual Voluntary Arrangement (IVA)?

An Individual Voluntary Arrangement (IVA) is a legally binding agreement made between you and your creditors to pay off your debts over a defined period of time. It is overseen by an insolvency practitioner, a dedicated professional licensed by the insolvency practitioners association.

Can I take out a joint debt consolidation loan?

Yes, it is possible to take out a joint consolidation loan. This means that both you and the person you’re borrowing from are responsible for repaying the loan.

Share this page

Disclaimer: Please be aware that this site is no longer under active management. As a result, we cannot assure the accuracy or relevance of the content provided. Visitors should use their discretion and consider the potential for outdated or inaccurate information before relying on any material found here.

Disclaimer: Please be aware that this site is no longer under active management. As a result, we cannot assure the accuracy or relevance of the content provided. Visitors should use their discretion and consider the potential for outdated or inaccurate information before relying on any material found here.