Many people have been turning to their credit cards to get them through various tight spots financially, and without even realising it may have accrued a large amount of credit card debt that they suddenly realise that they will struggle to repay.

An official from a national debt advice agency has said in a recent report that some of the people that find themselves in this position, with a high amount of credit card debt and other unsecured debts that they cannot afford to repay, may find that their best option is to opt for one of these IVAs, which is a legally binding agreement that could help them to get through their debt problems more effectively.

An IVA is often referred to as a softer form of bankruptcy, and in order to qualify borrowers will need to have a certain level of unsecured debt.

For those that do qualify an assessment of outgoings and income is made, and then a plan is set up whereby the borrower makes a set monthly repayment to an agent, which is then distributed amongst the different creditors on a pro rata basis.

Generally, after five years any amount that is still outstanding is written off and the IVA is considered complete.

An official from the debt charity Credit Action stated: “A lot of people are reliant upon being able to borrow on their credit cards to smooth out peaks and troughs in their income and in many unfortunate situations they rely on cards simply to buy essential living costs.”

More people could end up taking out IVA due to credit card debt is a post from: Glitec Loans

However, all of this could change as a result of debt advice and debt management companies and debt charities being given new powers that could allow them to take more control no matter what the lenders think. Under the new powers, which are in the Tribunals, Courts and Enforcement Act passed last year, these debt companies and charities will be able to write off a portion of the client’s debt themselves no matter that the lender thinks of the situation.

In other changes that come as part of the act, utility companies that are owed money will not be able to cut off the supply of consumers that are clients of these debt companies. Likewise lenders will not be able to petition for bankruptcy if the consumer is a client with the debt company or charity. The debt firms will also be able to enforce a repayment schedule with the lenders, even if the lender is not happy about the schedule.

There are currently around 70,000 in debt management plans with these debt advice firms and charities, and with household finances becoming increasingly strained this figure could rise. In the past some consumers have found that lenders have refused to accept certain offers even if they have been put forward by their case officer at the debt firm. However, the lender may soon no longer have a choice.

One official from the Justice Ministry stated: ‘Such schemes depend on the voluntary participation of the debtor and creditors and operate without any form of regulation. There is currently no power to compel creditors to adhere to the terms of a debt repayment plan.’

Once the plans have been reviewed the Justice Secretary, Jack Straw, will provide licensing to approved debt agencies and charities so that they can utilise these powers when setting up debt management plans for their clients.

This is just one of the measures that the government is bringing in to try and help consumers with high levels of debt. Later this year a more simplified version of the IVA (Individual Voluntary Arrangement) is due to be brought in, and this could help more people to find a suitable solution to deal with their debts. In April of next year and simplified form of bankruptcy filing known as a Debt Relief Order is to be brought in, and this can help those with under £15,000 of unsecured debt.

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Debt advice companies and charities get new powers is a post from: Glitec Loans

However, industry experts state that there could be a problem if you have entered into an IVA and you are a homeowner. The IVA does not require the homeowner to sell their home, but there is a clause in the agreement that requires them to use the equity in their home to put towards their debts in the final year of the programme. The IVA usually lasts for five years, and in the final year homeowners will have to borrow against any equity in their home to pay some more towards their debts, and this could prove very costly.

For many homeowners in an IVA programme interest rates are far higher now than they were when they originally took out their mortgage, and for many this may mean having to remortgage on a much higher rate, or borrow money against their equity at a higher rate. In addition to this, the consumer will be charged additional interest as a result of being classed as a sub-prime customer due to being in an IVA programme.

One industry official stated: ‘There is a problem here. People in an IVA will be remortgaging into something significantly more expensive. Not only are mortgage rates higher than when these people bought their houses, but they could well be classified as sub-prime – that is to say as riskier borrowers who need to be charged more to compensate for that risk.’

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Refinancing mortgage could prove costly to IVA consumers is a post from: Glitec Loans

The term of the IVA is usually five years, and eligible consumers agree to make a set repayment each month, which is then distributed amongst the different creditors. The remainder of the debt following the specified term is then written off, leaving the borrower debt free.

The good thing about an IVA is that the person entering into the agreement does not have to lose their home in the event that they are a homeowner, and this comes as welcome relief to many homeowners who have huge unsecured debts that they can no longer manage to pay, as it gives them a chance to cut back their outgoings and get out of debt within the space of five years.

However, there is a downside, and this has been highlighted in a recent report, which claims that some homeowners that have entered into an IVA could soon find themselves having to pay a fortune in mortgage interest as the result of a clause that is in the IVA agreement. As part of the IVA the homeowner has to use the equity in his or her property in the last year of the agreement in order to put towards their debt, and experts have stated that this could cause a problem for some homeowners, as it could cost them dearly in terms of interest.

According to reports having to borrow against the equity in the home in the last year of the agreement means that some homeowners will have to take out a mortgage or secured loan at a far higher rate than the one that they currently have, and this is due to rises in interest rates. However, it does not end there. Another problem that these people are likely to suffer is the fact that they will be classed as high risk borrowers due to their IVA, and this means that they will be hit by even higher interest rates when borrowing against the equity in their homes.

An industry official from an insolvency firm recently stated: ‘There is a problem here. People in an IVA will be remortgaging into something significantly more expensive. Not only are mortgage rates higher than when these people bought their houses, but they could well be classified as sub-prime – that is to say as riskier borrowers who need to be charged more to compensate for that risk.’

IVA homeowners that are looking to borrow against the equity in their homes as part of their IVA agreement are advised to shop around and compare different mortgages or secured loans in order to find the most competitive deal, although they should be prepared for the higher interest rates that will be charged due to market conditions and due to their sub-prime status.

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Are you a homeowner on an IVA programme? is a post from: Glitec Loans

However, there is a clause in the IVA agreement with relation to homeowners. Whilst those that have entered into an IVA do not have to sell their home in order to go through this process, the clause states that in the final year of the IVA the homeowner must use any equity in the home to put towards the outstanding debt, and this could result in these consumers facing crippling interest rates. Experts state that it means the homeowner will have to take out finance against the equity in the home, and this will probably be at a far higher rate than when they originally took out their mortgage.

IVA homeowners will also face a second blow, as their poor credit profile resulting from the IVA means that they will have to pay an even higher rate of interest on the money they borrow, which could make the repayments crippling.

One industry professional stated: ‘There is a problem here. People in an IVA will be remortgaging into something significantly more expensive. Not only are mortgage rates higher than when these people bought their houses, but they could well be classified as sub-prime – that is to say as riskier borrowers who need to be charged more to compensate for that risk.’

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IVA homeowners could face problems is a post from: Glitec Loans

There are, of course, many people that can benefit from debt consolidation, and these are people that can afford the monthly repayments on their consolidation loan, are able to get a consolidation loan based on their circumstances and credit, and have the willpower to maintain repayments on the loan without running up other debts again.

Consolidation loans are available from a wide range of lenders, and can be taken out on a secured or unsecured basis depending on your needs and circumstances.

If you are a homeowner and you have good credit then you can usually choose whether you want to opt for a secured or unsecured loan depending on the amount that you wish to borrow coupled with other factors. If you are a non-homeowner you can only go for an unsecured one, and will therefore need decent credit. If you have bad credit then you may find it difficult to get an unsecured consolidation loan, and may therefore need to be a homeowner.

The good choice of consolidation loans available means that you should be able to find a loan with competitive rates of interest and affordable repayments, and if you take the time to compare a number of loans from a wide range of lenders you can boost your chances of finding an affordable loan. By consolidating your debts by repaying them and replacing them with one larger, lower interest loan you can reduce the amount that you have to pay out each month, and you could ease financial management with just one debt to deal with.

Consolidation of debts is not appropriate for everyone. Some people may find that their debt levels are so high that they cannot keep up with repayments on a consolidation loans. Some people may find that they cannot get a consolidation loan due to their credit or due to some other factor. Some may not be able to exercise enough willpower to resist running up credit and store card debts again after repaying them through the consolidation loan. This can result in an ever worse situation, leaving the borrower to repay their original debts as well as the consolidation loan.

Debt consolidation can be a very effective and sensible solution for many people, but there are other debt solutions available for those that do not qualify or do not feel that debt consolidation is for them. Some of these solutions include debt management plans, debt advice and counselling, or in severe debt circumstances an IVA could be considered.

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Does it make sense to consolidate? is a post from: Glitec Loans

Experts have urged those in debt to remember that burying your head in the sand is not the answer, as the situation will only get worse until you end up in court, and in the meantime your physical and mental health could suffer, not to mention your home life, your relationships, and other aspects of your life. It you are finding it increasingly difficult to keep up with your repayments then you need to address your debt problems right away so that you can find the best solution.

There are a number of options that are available, which could help you to clear your debts more effectively. Simply going through a debt counsellor to learn how to better manage your finances could help, as these counsellors are trained to provide financial and debt help. You could consider a debt management plan, where you can make one affordable monthly repayments to be distributed by your case officer to each of your creditors on a pro rata basis.

You may prefer to handle the situation yourself and contact each of your creditors with a view to coming to an informal arrangement about the amount you pay each month and over what period. By coming to an arrangement with your creditors with regards to reducing your repayment and extending your term to accommodation the reduction you could effectively ease your debt problems.

If you want to clear your existing high interest debts, ease financial management, and reduce monthly outgoings you may find that a consolidation loan will do the trick, and this will not affect your financial future or credit. You can use the loan to repay your current debts, and enjoy one lower rate loans with just one convenient repayment to make each month.

There are also other possible solutions for those looking to get help with their debts, and those in serious debt may wish to consider an

or bankruptcy, which – whilst not encouraged because of the long term effects on your future – may be the only option for some people because of the level and severity of their debts.

No matter which solution you decide to opt for, it will be a positive move in helping you to deal with and clear your debts. The worst thing that you can do is to bury your head in the sand and hope that the problem will go away, as it will simply continue to get worse, and can affect all areas of your life.

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Options That Can Help Clear Your Debts is a post from: Glitec Loans

An IVA is known as a softer alternative to bankruptcy, and enables borrowers to repay a set amount each month, which is then distributed between the creditors. This is paid for a fixed period, which is usually five years, and after this period any remaining balance on the debt is written off. In order to be eligible for an IVA you or your partner must be employed full time, and you must have at least £15,000 of unsecured debt. The majority of your creditors must also agree to the IVA before it can go through.

Over recent years there have been concerns that whilst many debt agencies have been pushing IVAs with their advertisements and marketing materials, consumers were not being told enough about the risks of this process. In addition, many creditors were clamping down on IVAs, rejecting many applications and forcing borrowers who were unable to repay their debts to take other courses of action. With more and more people trying to go down the IVA route after the mass influx of advertisements – which many said made the process sound like an easy way out of debt – creditors became even stricter about accepting IVAs.

However, a new IVA protocol has recently been developed, where debt agencies, creditors, and campaigner have all worked together in order to put together a protocol that could make this process more transparent, and could see a drop in rejections from creditors.

The Insolvency Service has been involved in drawing up the protocol, and one official from the service said: “The Insolvency Service has facilitated a process which has successfully produced a voluntary code for IVAs to reflect the changing needs of the market. It will provide greater transparency for creditors and debtors alike by using standard clauses and a consistent format. Today’s protocol is a significant achievement for everyone involved.”

The move has also been welcomed by the banking industry, and a spokesperson from the British Bankers’ Association said: “The BBA, the Insolvency Service and the participating IVA providers are united in support for this agreement, which should provide customers with the reassurances they need in order to make the right choice for their financial futures.”

An industry professional added: ‘All this does is tighten up and simplify what’s already in place. I’m not sure we will be forwarding more people for an IVA, but this means that more people should be accepted and less will have to resort to bankruptcy.

Will IVAs become more transparent? is a post from: Glitec Loans

However, for those that are also homeowners there is a clause in the agreement that requires them to use the equity in their home during the last year of the plan in order to reduce their debts further. For many homeowners on IVAs, this will mean soaring interest rates, as they could be hit by increased rates twice.

Interest rates have soared over the past couple of years, and whilst the base rate has been cut twice since December it is still much higher than it was before August 2006, when the rate hikes began. Those looking to borrow against the equity in order to honour their IVA agreement face having to pay higher interest rates because of the rate hikes and the global credit crunch, which has seen many lenders increase their standard variable rates.

In addition to this many of these homeowners will find that they are now classed as sub-prime lenders, and as a result will pay an even higher rate of interest.

One insolvency professional stated: ‘There is a problem here. People in an IVA will be remortgaging into something significantly more expensive. Not only are mortgage rates higher than when these people bought their houses, but they could well be classified as sub-prime – that is to say as riskier borrowers who need to be charged more to compensate for that risk.’

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IVA homeowners face soaring interest rates is a post from: Glitec Loans

First of all it is important to remember that an IVA is not something that should be taken lightly, as the consequences can be long term and can really impact upon your financial future. There are many other debt solutions available that will not cause such long term problems, and these should be looked into before an IVA is considered. However, there are cases where the borrower has no real chance of paying off their debts, and this is where the IVA route can prove invaluable.

There are a number of benefits that borrowers can enjoy when going through an IVA, but it is important that you ensure that an IVA is the right course of action for you. You can do this by speaking to a specialist debt counsellor or even by discussing the issue with an adviser from the Citizen’s Advice Bureau. If you decide to go down the IVA route you should make sure that you can honour this legally binding agreement, otherwise you may find that the creditors are no longer prepared to accept you on an IVA program.

The benefits of an IVA include:

Easier financial management: You will only have to make one payment each month rather than making separate payments to a range of creditors, and this can make it far easier to manage your finances. You will make one set repayment each month to your IVA case officer and this will then be distributed amongst your creditors depending on how much your original debt with each creditor was. Payments will be made on a pro-rata basis.

Increased affordability: Your monthly repayments will be set at an amount that you can comfortably afford without overstretching yourself, and will be based on your income and outgoings. This amount will be set by your IVA case office at the start of the plan, so you know exactly how much you will be paying out each month and you will only have to make on payment, which will then be distributed amongst your creditors on your behalf.

Getting out of debt faster: With an IVA plan in place you could be free of debt far quicker. In most cases the IVA is set up for a period of sixty months, and once you have made the set repayment for that sixty months any remaining money owing to your creditors will be written off, and the debts will be cleared.

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The benefits of an IVA is a post from: Glitec Loans