What is the best way to manage debt effectively? The three popular ways to get back into the black have been listed as bankruptcy, or taking out of IVA’S and debt consolidation plans. All three are viable options, but which of the three is the most effective at getting you out of debt.

IVA

An IVA is an online organisation which provides advice to people who are stuck in debt problems and also helps strike Individual Voluntary Arrangement between borrowers and lenders to facilitate repayment.

An IVA helps to produce a legal contract between you and your creditors, it is a legally binding arrangement supervised by a Licensed Insolvency Practitioner. The sole purpose of an IVA is to enable you to reach a compromise with your creditors to reduce payments into easy to manage portions and to avoid the consequences of bankruptcy.

The other pros for such an agreement centres on the fact that it’s a private arrangement made between yourself, your advisors and your creditors. No one need know.

With an IVA you make one single payment no matter how many debts you may have with the promise that debt could be wiped clean within a matter of years.

The selling point for this deal comes within the terms of the agreement, which states that you must contribute as much as possible within your budget, which means that you should always be able to afford the monthly payments. So gone is all the stress over what you owe, replaced with order and stability.

Of course there are always two sides to every story. The negatives come in the form of any equity you may possess, be it your house, an endowment policy linked to your mortgage, or valuable assets may be required to pay to your creditors.

Debts under £15,000 means you probably would not be accepted for this service and generally speaking you must be able to afford payments of £200 or more.

Judging from the press written on IVA’s they are becoming more and more popular by the day. According to the latest figures 53% of the professionals know someone who has taken out an Individual Voluntary Arrangement (IVA), but 72% think it is a legalised way for people to avoid paying their debts whilst avoiding bankruptcy.

Debt Consolidation

A debt consolidation loan takes the bundled mess that is your unpaid loans and substitutes it for one single loan monthly payment. The only stipulation for this scheme is that you must keep up with the regular payments throughout its entirety. The only choice left for debtors would be to decide if they wished to proceed with an unsecured or secured loan, meaning the difference between risking equity for lower interest rates or suffering higher repayments.

Now, the beauty of this loan is that the pressure is removed from the various different creditors that may be on your back. The loan arrangement means that one payment is made by yourself which is divided amongst those you owe. It all centres around a liberated sense of a restoration of order which the debt has helped to unravel.

Bankruptcy

This option pretty much falls under the last case scenario. When accepting a bankruptcy order it pretty much equates to you saying that you can’t pay back the debt you have incurred, take what you can I’m finished. Assets will be stripped and removed pretty much leaving you with nothing.

The main negative for this course of action is that it remains on your file for at least 10 years, meaning obtaining credit in the near future is pretty much out of the question. The main point to note which goes some way to justifying this extreme course of action is that it completely rids you off debt in an instant. For those who have racked up a mountain of unpaid bills this could be viewed as a happy place to be.

So what’s better? It pretty much depends on the severity of your situation, but be safe in the knowledge that all three require deep thought and expert guidance before coming to a decision.