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Is IVA less daunting than bankruptcy?
IVAs can be a more flexible solution to money problems, and can be a lot less daunting than bankruptcy. Bankrupt people still face the stigma of going through courts; they have their names in the paper and will forever be excluded from certain types of work. But with an IVA, although not a light choice to take, you will be free from your debts in five years with less impact on your credit report.
We’ve all seen the ads for IVA, but it’s not as simple as they make out. You have to be realistic about the money you owe, willing to change your spending habits and have to negotiate how much you pay. You will still have people probing all your finances and will have to be prepared to stick to a tight budget.
Make sure you visit a reputable firm to execute your IVA. There are charities such as the Consumer Credit Counselling Service (CCCS) who are much better qualified than those firms who advertise on TV. Plus charitable and voluntary organisations are much more likely to have your best interests in mind and can therefore advise you better.
Why I don’t lie about debt
I don’t lie about debt to my partner. I think that one of the main things about an honest relationship is transparency, and it is an important feature to maintain a healthy relationship.
I have seen in the past, with firsthand experience, how debt can affect families. My Dad suffered greatly with debt when he was in his mid-forties and he almost had his house reclaimed due to a mortgage he really couldn’t afford to pay off. He eventually shared his problems with the rest of us, and we were able to help him.
It increased family tensions, and I would not wish to put my family through similar circumstances which is why I think honestly is essential in any relationship.
I have, of course, had debt problems and sharing them with my partner really relieves the weight that the debt carries. If I had them bottled up I would not know how to cope.
The flexible solution to serious debt problems?
Something I frequently read is that an IVA is more flexible than bankruptcy.
An IVA will certainly give you a degree of control over what happens in the event of serious financial difficulty.
When compared to Bankruptcy, there isn’t anywhere near the same level of intrusion into your life and financial history. You provide your practitioner with the information requested, including a breakdown of income and expenditure, so affordability can be determined. Bankruptcy results in a full and compulsory analysis of your accounts and can lead to a Bankruptcy Restriction Order (BRO). This would mean that you can be held accountable for up to 15 years in the event of unnecessary risk or fraudulent activity.
Another appealing factor for many is that you can protect your professional status of employment (lawyer, accountant, police etc) and family home within an IVA. You will still be expected to re mortgage at the end of year 4, but only if this is affordable and sufficient equity exists.
Your IVA will not be advertised in the local press so nobody will be made aware, although it will be recorded on the insolvency register. There are also new debt solutions such as the Debt Relief Order (DRO) released in April 2009 which could be an option for you. But of course, it will largely depend on your financial situation as to what debt solution is best for you.
Use credit cards for everything but credit
Credit cards are a tricky subject. I don’t want to encourage anyone to spend dangerously on their credit cards or to spend above their means, but I also think it’s good to discuss how to use a credit card in a smart way to actually help control your finances.
First of all avoid the worst way to use your credit card – long term borrowing. If you need a loan it will almost always be cheaper to get it from a bank, especially if you are a home owner. Another method you could consider is your overdraft facility. A friend of mine has a particularly good deal with his bank that works out for him cheaper than a credit card for those small purchases. He finds the charges smaller for his spending needs.
But, assuming you won’t borrow any money for longer than a month or so, there are a lot of benefits to having a credit card. Indeed some goods and services, such as hire cars, are very hard to get without one.
This is because of the extra insurance and guarantees that your card provider gives you. Using your credit card for an expensive purchase can be worth it – I know someone who got £100 back after he broke a new camera. Even though he admitted he was at fault he was still partially covered. It is worth finding out what you are entitled to from your card.
Many credit cards also offer cashback or bonus schemes. So long as you use them for spending you would be doing anyway this can be a great saving – sometimes as much as 3% or 4%!
Basically credit cards can be great products if used right. Credit cards should never be used for credit! Use credit cards the smart way.
How to Stay Out Of Debt
It is so easy to get into debt, but not as easy to get out of it. The best solution is of course never getting into debt in the first place. Here’s my advice on how to scrape those pennies together if money’s a bit tight to avoid the debt cycle.
The first thing you need to do is set a realistic household budget. List all things you have to spend money on i.e. Gas – Electric, mortgage, then list all the things you want to spend money on. The goal is to separate between ‘Need’ and ‘Want’ for example you ‘need’ to eat or you ‘want’ that new CD. I would also thoroughly recommend using an online money management program to track your spending and help you get a bigger picture of your finances. Read my post on Kublax if you’d like more information.
The idea is to look at you outgoings and see where you can make cut backs, set yourself a shopping budget for food. Some examples of how to save money on groceries and household bills are as follows:
1. Ask your supermarket what time they mark down there products, and purchase these when they are cheaper. Most things can be frozen to restore the sell by date.
2. Grow your own vegetables and fruit allot cheaper than buying.
3. Use price comparisons sites to check you are not paying to much for your gas – electric or mortgage.
4. Check with your energy supplier to see if you have an economy setting, do you washing etc in the evening as it is cheaper.
5. Take a shower instead of a bath, its cheaper.
6. Do you really need the heating on? Can you just put on another layer of clothing?
7. Hang clothes to dry on a rainy day indoors over the bath or use a clothes airer, it’s cheaper than the tumble dryer or radiators.
8. Use natural products for cleaning its cheaper and better for your health!! eg. Vinegar for cleaning windows.
Overall just think about ways to do things on the cheap. Research is rewarding and you will be saving money and getting out of debt. I’m always reading brilliant blogs on frugality such as Almost Frugal.
As my wise mother told me as a kid – If you look after the pennies, the pounds will loook after themselves.
Pros and cons of IVA
At MoneyStand, we frequently talk about debt solutions to offer some advice to anyone landing on the blog looking for some support and advice. Judging by UK debt news, theres been some increases in the amount of people getting IVAs, so this week I’m going to talk about Individual Voluntary Arrangements. An Individual Voluntary Arrangement, or IVA is a formal agreement with your creditors to pay some or all of your debts. An IVA will normally last five years, after which you will be debt free as a large proportion of your debt may be written off.
IVAs offer a number of advantages over bankruptcy. You will probably be allowed to keep your home, you can keep the matter private rather than having it announced in a newspaper, you can still hold a current account (albeit one without an overdraft) and you can still act as the Managing Director of a company or hold a public office. This means that the stigma of IVAs is much less than that of bankruptcy.
However there are also a number of disadvantages. Firstly, an IVA is only an option if you owe more than £15,000, and creditors representing at least 75% of the amount you owe must agree to the IVA arrangements. If your IVA fails you may still be made bankrupt, and the cost of your IVA will be added to your debts. Finally, your finances will be heavily scrutinised by an Insolvency Practitioner, and your IVA will appear on your credit file, thus affecting any subsequent applications for any type of credit.
Can you use credit cards to make money?
Here’s an interesting thought that a friend of mine got into my head over the weekend: Can you use a credit card to actually make some money?
From my experience, by owning a credit card you are probably going to spend more money then you would have usually spent, just because it is all too easy to buy something on your card and not worry about the price. You don’t physically hand the money over, and you think that you will have ages to pay if off, so you don’t really care so much.
However, a friend of mine recently told me about a credit card they have which is a 0% interest on purchases one. This means that she can buy things on the card, and then doesn’t have to pay the bill until the end of the month – at no extra interest. Her reasoning on ‘making money’ this way is that she can put the money that she would have spent into a savings account – earning interest on money that would have been spent. According to her, you can easily earn a few hundred pounds a year simply by using credit cards this way.
Another way of using a credit card that could be considered is by applying for a cashback credit card – then you simply get paid to spend on your card. So if you spend £1000 on your card say, you might earn 5% cashback – which is about £50. This cashback is money that you wouldn’t have earned if you paid by cash, so it’s a bonus really. However, as the age old saying goes “there’s no such thing as a free lunch” so always investigate your options throughly when looking for a new credit card, and only spend what you can pay off within a reasonable time frame.
Three alternatives to Bankruptcy you should think about FIRST
Bankruptcy in the UK
Bankruptcy is a very difficult decision, but there are a few alternatives to the procedure.
Firstly, an IVA (Individual Voluntary Arrangement) is an option. This is where you arrange an agreement with your creditor in which they decide to pay all or part of your owings. This is flexible according to the individuals own circumstances. The arranged fee is generally more than the creditors would receive if bankruptcy is filed by the person(s) in debt. Read this article on ‘What is IVA‘ if you’d like more information.
Secondly, an Administration Order can be installed in which a court will decide your payments scheme. The small print is that you must have a regular paying wage and debts that do not exceed 5,000 GBP to be eligible for an Administration Order.
Thirdly, a similar, yet more informal agreement can be attained which is an agreement between an individual and a creditor in which they both agree to a schedule of payment. This is referred to as a Family Arrangement. This however is not legally binding, and the creditor can decide that the arrangement will be scrapped and the full amount should be repaid.
If Bankruptcy is a real possibility for you and your family, it’s not something to go into before you’ve explored every other option first and considered what else is available. Before you go Bankrupt, understand all other debt solutions. Even if you do end up going bankrupt, it won’t be the end of the world. You can start again on a clean slate. THINK positive. CHANGE your spending habits. ASK for help.
Debt advice – 5 important steps
It’s time for some more debt tips! If you’re at the stage when you know you have to face up to your debt but still find the idea a bit daunting, here’s my FIVE most important Steps:
Step One:
There has to be a lightening strike when you are honest with yourself as to exactly how much trouble you are in. Sit down take a deep breath and open all the bills that are stashed away unopened because you have never dared. Write down a list and work out exactly what you owe and to whom. Read that list and cry, grieve, if you need to, and then decide that you are going to sort it.
Step Two:
Set two is tell you loved ones exactly what a mess you are in. They may be angry, shocked or disapointed to start but they will give you the emotional support you need. Once you’ve told your loved ones you will feel better – a problem shared is a problem halved as they say. Your freinds and family won’t just give you emotional support, they’ll also encorage you and help you in other ways – you just have to ask for their support.
Step Three:
Cut up the plastic and stop spending. I don’t care how hard it is or how much you ‘need’ to buy something – this is about tough love here. No excuses. Start riding your bike to work, walk the kids to school, make lunch before you leave the house, use up your tinned food and freezer food that’s just lying around instead of getting more groceries, change your mobile phone plan, anything you haven’t used for a year – put it on ebay, cancel your gym membership and get fit the old fashioned way – there are no excuses here. You CAN stop spending and you CAN make changes right now to reduce your monthly, weekly and daily budget. It’s the only way things will get better, trust me.
Step Four:
Ring a not for debt advice charity, debt advice line, or debt agency – just make sure it’s free to call first. They will not take a fee but will help you go through the options of how to go forward they will contact your creditors and will help you with a budget suitable for you circumstances. Be cautious if they sound like they are trying to sell you a debt solution – make it clear you are calling for a free intial chat about your options and are calling multiple services to get the best advice and will have to discuss it with your family/partner/friends before you choose what road to go down. When you speak to them do not feel embarrassed – they speak to thousands of people around the UK who are having some money problems.
Step Five:
Remember you are not the only person in this situation. It’s nothing to be ashamed of and now you have taken the first steps your life will seem allot easier with a weight lifted from your shoulders. Take a moment to yourself to congratulate yourself that you’re on your way. Positivity and will power is key to changing your financial situation.
Discussing Home Improvement Loans
Home improvement loans do tend to have many advantages and disadvantages. Of course it really depends on what you plan to use the loan on in order to assess whether they are a good way of adding value to your home.
Home improvement television programmes often show how a new kitchen or bathroom can increase the value of a home almost instantly. Home extensions such as adding a conservatory or extra bedrooms can often add a lot of value to a home. They are a particularly good measure if you are planning to sell your home and want to improve its value prior to selling it. If you do you research well and look at similar properties which have had the same work done, this will give you a great indication of whether it is worth taking out a home loan to do the work.
One disadvantage could be that the home loan taken out is a larger amount than is added to the value of your home. This would mean that you are paying interest on money which you may not necessarily make back when selling your home.
Of course taking out a home loan to improve your home, even if you plan not to move is a great idea! It often is cheaper than moving home and means that you can add on extra rooms that you may want from a new home. You do of course have to take into consideration the cost of the loan and whether the benefits out way the risks of borrowing money.
Since the economic downturn however, people are finding it more difficult to get these kinds of loans, as banks are far more hesitant to lend. Although there are many reports coming out that things are looking up, it’s never advisable to get a loan in economic uncertainty – especially in a time when house prices are temperamental so if you are thinking of improving your home to increase it’s sale value, it could end up being a big mistake.