Consumers should weight up pros and cons of IVAs

Over recent years the number of people struggling to repay their debts in the UK has rocketed, and the level of bad debts has gone up significantly. As a result of this more and more debt management companies have started to advertise the benefits of an Individual Voluntary Arrangement (IVA), putting out glossy advertisements on the TV and in magazines, and even cold calling consumers in order to try and talk them into considering an IVA as a solution to their debt problems.

A recent report has revealed that a number of debt management companies are actually contacting lenders and offering them large amounts of commission – sometimes up to fifteen hundred pounds – in order to obtain the contact details of customers that are struggling with debt. These companies then contact the customers on the list with a view to talking them into an IVA. Why? Because fee based debt management companies stand to make thousands of pounds in profit for every IVA they set up.

However, consumers are urged to consider both the pros and cons of this type of solution before making any commitment. An IVA means that the borrower repays creditors a set amount each month for a five year period, and the remainder of the debt is then written off. Debt management firms claims that they can reduce debt by up to seventy five percent in some cases, but consumers should not see an IVA as an easy way out of debt. This type of process can affect your financial future for many years to come, and can have a significant adverse effect on your credit rating.

Experts advise consumers that are struggling with debt to contact their local Citizen's Advice Bureau for advice, or to get advice from a non-fee charging agency, who will have the consumer's best interest at heart rather than focussing on profits.