EXCLUSIVE: How IVA could answer your debt SOS

When 2008 recession struck, Gavin* found himself struggling with debt and out of work for almost nine months. His story is not dissimilar from many sole traders at the time, who found themselves losing clients attempting to save money themselves.

To keep things ticking over, and with no money coming in, the 35-year-old decided to take out a bank loan and began to rely heavily on credit cards. Denial of his tough situation later caused problems. “I carried on as normal, thinking everything would be okay,” he admitted.

“I was living beyond my means and ended up with five or six pay day loans. I was just scraping by.”

Suddenly, Gavin found himself £20,000 in debt and struggling to make ends meet, despite never missing a payment on loans and credit cards. Unnecessarily high interest rates on quick turn-around loans are what most often catch most people out. They often believe they can make payments back before this is added to final amount but it quickly spirals out of control before they can do anything to prevent it.

So, what did Gavin do about his debt? He did what most of us do when we have a burning question ... and turned to Google. After a quick search he discovered debt management service PayPlan who instantly put him at ease and assisted him with setting up an individual voluntary arrangement.

PayPlan confirmed its debt management service offered free advice to 55,491 people last year, suggesting in the UK there are more people in this position than we might realise.

The money charity confirmed, in its August report, we in the UK "owed £1.484 trillion at the end of June 2016" with average debt per household (including mortgages) standing at eye-watering £54,952.

The overall amount has actually increased from £1.444 trillion the year before, which works out around £777.90 per adult. While many might not consider their mortgage ‘serious debt’ if payments are missed they could quickly find themselves in trouble and potentially lose their home altogether.

In the end, Gavin’s IVA ended up grouping what he owes into monthly repayment of £128.52 but he understands it is his responsibility to erase and clear them as early as possible: “I know that in five or six years, it’ll all be over. I got myself into this situation so it’s up to me to sort it,” he said.

So what does an IVA involve? And how did it help Gavin get out of debt? According to PayPlan, the scheme is a solution that freezes all debts and consolidates them into one manageable monthly repayment. They were introduced in 1986 and designed to help small businesses with financial trouble but since then have been extended to assist those with personal debts of £7,000 or more – requirement when completing an IVA application.

IVAs are very different to Debt Management Plans, mainly due to their ability to write off a large portion of the debt and freeze all interest and charges. An IVA involves repaying debts over set period of time at a rate you can afford. You only make one monthly payment into your IVA and the amount is calculated based on your individual circumstances.

An IVA is an ideal solution as it ensures, providing you keep to the agreement, you finish the repayment schedule debt free and able to start again with a clean slate. It’s important to note however, if arrangements fail, you risk bankruptcy.

While an IVA is usually five years it may require you to release equity from your home if you are a homeowner to clear a portion of the debts and,if you can’t remortgage to do so, you may have to extend your solution by a further 12 months.

Since completing his IVA, Gavin is now fully employed as a stonemason, work is busy and he claims he feels more in control of his finances: “I feel a lot more set up now than I did a few years ago. I’m budgeting now and make sure I always use cash.”

PayPlan's average IVA customer is married, aged around 42 and in debt by an average £30,830.32. In terms of location in the UK, 45.6% of its IVA customers live in the north of the country while 53.6% reside in the south and 92.3% are located in England. It also revealed average debt clients dealt with in 2015 was shocking £25,404.51 – an increase of around £5,000 in just a year!

Full time carer Martin (57) also found himself struggling after taking out a number of credit cards and large overdraft with his bank to pay bills. His wife is blind and in early stages of dementia but Martin’s pay as a full time carer wasn’t covering costs of expensive equipment and medicine his wife needed.

“I was digging a deeper hole for myself and I was worried that bailiffs were going to turn up at the door. Some days I didn’t know which way to turn.” Martin said. He knew he had to do something about the situation and reached out to a debt management service but discovered their administrative fees were affecting his ability to make repayments.

In the end a friend told him about PayPlan, who he contacted and found a much more positive service: “Words can’t describe how good they were to me. They treated me like a human being and were very sympathetic. When I explained about my wife’s health problems and mentioned all the equipment and products I needed to buy for her they took that all into account.”

Martin’s IVA repayment schedule involves him paying £100 a month to his creditors and has transformed his life: “Taking on the IVA has helped me live again. We’ve moved to a new house to start a new life and I no longer fear that knock on the door. We haven’t got much but I’m so much happier.” He said.

Martin’s experience has taught him to handle his money more responsibly and hold his hands up should he make an error of judgement: “I did do something very stupid not long [ago].” He admitted. “My bank offered me a credit card, to [use] if I was in trouble. I started spending on it but then realised I had to stop, so I rang up my caseworker and admitted what I’d done.”

“If my story stops someone from being tempted to take out credit cards, if I can save them from having to go through what I have, then that would make me even happier.”

If you are struggling with debt, it’s important to remember there is help out there, including free advice and plans that can help you get your finances back on track. Don’t suffer in silence, seek support from family and friends and you can clear your debts with some careful planning and responsible spending on your part.

*Last names omitted to protect identities.