An IVA is a fixed term repayment plan that helps individuals alleviate debt worries and retake control of their financial situation. It helps them to continue paying their creditors without having to resort to bankruptcy by allowing them to repay a reduced monthly amount. An IVA also protects that individual’s assets from being used to repay debts.

An IVA is a legally binding agreement on both sides and they were first introduced to the UK as part of the Insolvency Act passed at the end of 1986 and is only applicable in England, Wales and Northern Ireland. Individuals in Scotland can use a separate but similar piece of legislation called a Scottish Protected Trust Deed.

How IVAs work

The mechanics of the IVA are quite straightforward. The total unsecured debt owed by an individual is summed up and instead of paying each separate creditor, one affordable monthly payment is made which is then divided amongst all the creditors.

IVAs are normally agreed over 60 months, although on occasion they can take the form of just one lump sum payment. However, whatever the term and the monthly repayment once agreed an IVA cannot be changed by the creditors.

In most cases, to qualify for an IVA an individual must owe a minimum debt of £12,000 to two separate creditors, although it will depend upon individual circumstances and the insolvency practitioner involved. When it comes to repayments, a monthly sum of £150 is least that can be repaid and that amount rises in proportion to the debt and the individual’s ability to repay it.

However, although an IVA can solve an individual’s debt problems there are some disadvantages to taking out an agreement, such as not being able to take out any new credit until the IVA is completely repaid. Your credit score will also be affected so once your IVA has been repaid you may still find it difficult to obtain credit.

So, anyone considering this debt solution is advised to speak to a specialist advisor to discuss the full list of pros and cons before applying for an IVA.

By Garry Hudson – the Senior Online Marketing Manager at Baines and Ernst, a UK leading Financial Services Company specialising in debt management.

Stuart Carmichael, Trustee of Debt Support Trust said “It’s important to realise debt problems are more than a financial issue – the social impact is debilitating”. According to the survey, 77% of people encountered relationship problems with friends and family as a direct consequence of their money worries.

People in debt are using their available disposable income each month to pay debts, however this ‘treading water’ approach can only exist for a short period of time before decisive action is taken to relieve financial and social pressures.

Mr Carmichael continued “The survey provided an honest account of the impact debt problems have. At the end of the day, nobody wants to be in debt however most people don’t know how to resolve the problems or what solutions are available”.

Further research from the Debt Support Trust survey explained that “knowledge”, “reliability” and “Empathy and care” were the most important characteristics of a debt advice organisation. The least important were that the “company advertises” and the “company location”.

Seeking Debt Advice

People seeking debt advice may ask what debt solutions exist for those in financial difficulty. The advice can depend of the geographical location of somebody living in the UK. If you live in Scotland, then your debt advice may be different to people living in England, Wales or Northern Ireland. This is because of the different legislation.

In some instances people may simply require general debt advice to deal with one or two creditors. However, for larger debt problems a debt management plan, IVA, protected trust deed (Scotland only) or Bankruptcy are all popular options to resolve debt issues.

These debt solutions all have positive and negative aspects but can help you resolve your debts over time and become free of your debt.  An IVA will last typically for 5 years whilst a Protected Trust Deed last for 3. Bankruptcy would last for 1 year however you may have to make contributions to your debt for 3 years. The debt management plan will last until all of the debt has been repaid.

Debt Support Trust is a registered charity helping people with debt and money problems. You can contact the charity via 0800 085 0226 or visit their website www.debtsupporttrust.org.uk

There are many who would say that the best way to avoid credit card debt is not to apply for one in the first place. The realities of modern life make this unfeasible for many people, however. In addition, if used in the right way credit cards can also help you to build up a good credit rating which will help you with any future mortgage applications for example. With this in mind, here are ten tips to help you to be more sensible with your plastic:

1) Live within your means

Tip number one seems obvious but debt problems normally start when an individual increases their expenses every month without doing a proper assessment of whether they can afford it or not. Putting extra expenses on a credit card can become a habit and putting off paying the balance until ‘some point in the future’ also comes all too naturally for some people.

To avoid this situation it is a good idea to use a budget to work out what you can afford each month and ways that you can reduce your outgoings. It is also a good idea to review the budget constantly, especially if your income or lifestyle changes.

2) Sense the first sign of trouble

Sometimes credit card debt can sneak up on you before you know it. It is therefore a good idea to be able to sense the first signs of trouble. These include having to use your card to pay for essentials such as food, clothing and fuel, doing frequent balance transfers to avoid payments, withdrawing cash with your credit card and skipping one credit card bill to pay another.

3) Balance transfers

Many card companies currently offer zero percent interest on balance transfers to their card for a period of up to eighteen months. By doing this you can not only save hundreds of pounds on interest but your outstanding balance will also be paid off a lot faster.

If you do decide to go down this route there are one or two things you should note however. Firstly, you should be aware that most companies will charge you around 3% of the total balance to transfer the balance across. You also need to keep on top of your finances and know when the interest is going to start being charged. If there is still a balance on the card at this time then you can repeat the trick again by applying for another zero percent card.

4) Save up for emergencies

How often have you heard people say that they carry a credit card ‘only for emergencies’? Whilst it is a good idea to have a way of funding an emergency in place, it would surely be better to have an emergency fund than to use a credit card.

Find a savings account with the best interest rate you can find and put any spare money you have at the end of each month into it. When an emergency does occur with any luck you will have put enough away to cover it and this will avoid you having a large credit card bill to pay off.

5) Avoid withdrawing cash with your credit card

Using your credit card for cash advances is one of the worst ways you can use your credit card and a tell-tale sign that you need to do something about your finances and that you are developing a debt problem. As mentioned above, it is far better to have an emergency fund in place and to fix your monthly budget to avoid having to do this.

Most of us need to take on debt at some point or another in our lives – whether it’s a mortgage or borrowing a tenner from a friend until the end of the week – but the less debt you can take on, the less risk you’ll have.

A good way of reducing your risk of getting into debt is by putting together a budget plan.

How to create a budget plan

1. Start by taking your last few bank statements (the last three to six months should be fine) and noting down your regular expenses. This will include things like mortgage/rent payments, energy bills, council tax and groceries. For anything that varies, such as food costs, put down a generous estimate of your typical spend.

Now add up the total – this is your total monthly spend.

2. Now take note of your typical monthly income. If your income varies, make a conservative estimate (i.e. the minimum you think you’re likely to receive). This can help you keep from overspending, and you’ll know that any extra income you receive can still be spent safely, without putting your essential bills at risk.

3. Subtract your total monthly spend from your typical monthly income. What’s left is your spare income, which you can use as you wish.

It really is that simple. If you want to go a bit more advanced, however, you could set up a savings account in which you keep all your money until it’s needed. This can help to increase the amount of interest you earn over time, and it could reduce the temptation to indulge in impulse purchases.

However, if you’re going to do this, you might want to make sure you have an authorised overdraft facility in place just in case any unexpected costs come up. This can help you cope with those costs, leaving you free to focus on clearing your overdraft as soon as possible.

What if I’m still struggling to stay out of debt?

Sometimes people struggle with their finances even if they do try to keep to a strict budget. This can be for a number of reasons: perhaps a few unexpected costs came up that they simply couldn’t afford, or maybe a change in their circumstances means they can no longer afford their outgoings. Whatever the case, if you’re struggling, get advice from an expert as soon as you can.

If you’re already in debt and you’re struggling to pay it back, don’t hesitate to talk to a debt adviser or a debt management company about possible solutions. For example, if you’re really struggling, a debt management plan could help you to reduce your unsecured debt repayments and make them affordable again. Repaying your debts more slowly can damage your credit rating and cost you more in the long run, but this may be unavoidable if you genuinely can’t afford your monthly repayments.

Debt consolidation is a loan that pays off all your current debt, leaving you with one lump sum owed to one credit provider. Many people use this process because it makes it easier to understand what debt they have, there are not numerous payments to different creditors to remember each month and it can provide one low monthly repayment at a lower interest rate than store or credit cards.

A debt consolidation company will contact your creditors and negotiate settlement terms. This will often reduce your interest rate making your monthly payments significantly more manageable.

The debt consolidation company calculates the required sum to repay your debt over an agreed period of time. Each month only one payment needs to be made to the consolidation company and they distribute the pre-agreed payments to each of your creditors. Providing your one monthly payment is met this eliminates the risk of late/missed payment charges creditors would normally impose and consistent repayments will improve your credit score over time.

What to bear in mind when thinking about a debt consolidation loan:

1. What interest rates you will be charged
2. How long it will take you to clear the loan
3. What fees are involved if you accidently miss a payment
4. What other penalties or tie in’s are involved

Alway make sure you Know all the facts about debt consolidation & have spoken to a qualified advisor before taking any action. As With any any loan it is important that you ensure you can afford your repayments. When applying for a debt consolidation loan it is likely that the provider will require the loan to be secure against an asset such as a house or car. If you fail to meet your repayments your asset may be repossessed. Always way up your situation and think carefully before moving unsecured loans to a consolidated loan secured against your home or car.

It is also vital to remember that although debt consolidation can ease debt pressure, the debt has not disappeared and it is essential you review your spending habits to ensure you do not simply get further into debt.

How to teach your kids about debt, finances and budgeting

Kids are fast learner so if you can teach them good habits, you can make them responsible from their childhood. There are ways you can go for debt resolution as well as managed your kids together:

1.Computation with money : The time when your kids start adding up things, start teaching them about money. You can teach them how pennies add to one dollar and how can it be subtracted. You can also tell them the ways they can be saved and the real thing behind saving money. You can also give them examples to teach how they can get more things with the money they save. That way, they’ll learn to save their allowances till they get their next allowance. The money that they save may help you pay off your debts with the help of debt resolution options. You can also tell them about your debt problems without hurting their feelings much.

2.Truth about debts : When your kids reach a certain age, tell them about the side effects of debt accumulation. Debts are dark, depressing and foreboding. But don’t make it sound so bad so that they become depressed before they learn something from it. Try to tell them about the debt resolution options that are available for people in debts and the way it works. Try to show them the ways you manage your debts and pay them so that they understand the value of saving money and budgeting. Apart from all these details, you must also tell them about the economic situation of the country. This is the reason why they must save as the economic conditions may even get worse.

3.Help with jobs : If you have teenagers at home, you can help them find suitable jobs for them. This way they can help you with debt payments as well as help in the household chores. If you have any family business, they can contribute to it and study side by side. It all depends on you. The way you teach them about money management and other money related things, the more responsible they’ll be. If they get any part time jobs while they’re studying, they can support themselves and help you in your debt resolution process.

This way you can get debt resolution help as well as manage you family and kids. If you have the determination to work toward your debts, you can easily become debt free.