IVAs 'Not Best Option' For Those In Debt

Britons are showing a lack of awareness when it comes to methods of managing their debts, a new study has shown.

Britons are showing a lack of awareness when it comes to methods of managing their debts, a new study has shown.

According to a study conducted by moneysupermarket, about half of Britons (49 per cent) claimed to not know what an individual voluntary arrangement (IVA) is. However, given the high levels of advertising the product is receiving and increasing concern over debt levels, the price comparison website claimed that it is "staggering" that so many people are unaware about what the arrangement, which may be taken out by those struggling to pay off loans and credit cards, actually involves.

Meanwhile, government research has shown 11,105 IVAs were taken out in England and Wales between April and June - a rise of 35 per cent from figures recorded during the previous quarter. However, moneysupermarket suggested that many of those signing up for the agreement may not be truly aware of what they are getting themselves into.

Overall, young people were shown to have the least amount of knowledge about the product as 64 per cent of 18 to 24-year-olds are unable to say what it actually it. The findings also showed that men possess a greater awareness as 42 per cent claim to not know what the product is, in comparison to 56 per cent of women.

More than half of Britons surveyed stated they would consider getting an IVA if they developed "serious" problems in making repayments on personal loans and other forms of borrowing. With 40 per cent claiming that they would only do so as a last resort, 17 per cent reported that they are a good alternative to being declared bankrupt. As a result, moneysupermarket suggested that consumers are unaware of the arrangements' "true consequences".

Tim Moss, head of debt for moneysupermarket, suggested that opting for an IVA is unlikely to be the best option for the majority of borrowers in the long-run. He said: "For people suffering from spiralling debts, an IVA might seem like an ideal escape route. However, an IVA is not something that should be entered into lightly and without considered thought. It is a serious financial agreement with creditors that will typically last five years. Once entered into, it will make obtaining any forms of credit, even for such everyday items as a mobile phone contract, almost impossible."

"There are many simple and practical steps people can take to get to grips with their financial situation before taking a drastic step such as declaring bankruptcy or entering into an IVA," Mr Moss added. He claimed that consumers struggling to pay back money owed on loans and credit cards should look to seek advice from a professional advisory service such as Citizens Advice. Meanwhile, reducing unnecessary expenditure and switching to competitively-priced borrowing products was also suggested. In addition, taking on a second job as a means of bringing in extra cash was revealed to be a way of managing debts.

Last month, Ian Boden-Smyth, spokesperson for the UK Insolvency Helpline, claimed that creating a budget should be the first step taken by those with seemingly unmanageable debt difficulties. He added that asking for guidance from professional advisory organisations, in addition to opting for a debt consolidation loan, could also be a way in which to get their finances back into the black.

About the author: Abbi Rouse writes for All About Loans. Visist us today to apply for secured loans, personal loans, and debt consolidation loans.