If you are considering an IVA you will have many questions about how it works and whether you qualify. However you should also think about the effects of an IVA and how your life may change as a result of it.
Jump to article contents:
- Day to day effects of an IVA
- Effects of an IVA on family and friends
- Short term versus long term effects
Day to day effects of an IVA
One of the immediate changes you should notice is that you are less stressed. Debt that gets out of control can create considerable anxiety, especially for people who are juggling family and working lives.
In an IVA you are no longer responsible for paying your debt. You do have to meet the terms of your IVA and pay what you can afford each month. However you don’t have to worry about debt collectors, bailiffs or constantly battling with a budget that doesn’t work.
An IVA creates for you and affordable monthly budget. Everything is accounted for, even costs that only come up every now and then. So you don’t have to worry about unaffordable bills. This gives you more time to focus on the other important parts of life like family and perhaps your professional life.
An IVA is a great way of taking back control of your finances. You have to stick to a tight budget, but you can spend with the knowledge that your debt is not increasing. This can rebuild your confidence which can have a knock on positive effect on other areas of your life.
Effects of an IVA on family and friends
On the journey into debt, many people have to borrow from family or friends to help them get by. This is fine to an extent, but it doesn’t solve your problem; it really just papers over the cracks. An IVA can take the pressure off your family and friends as they will not need to support you financially.
Some people get into unaffordable debt situations because they have been supporting family members with money they didn’t have. This resulted in them borrowing to cover their normal expenses and in time having to find a debt solution themselves.
You may not be comfortable telling your friends or family that you are entering a formal debt solution. Perhaps you are embarrassed or are worried how they will react. You don’t have to tell them, but everyone in an IVA is entered onto the insolvency register which is a searchable database online.
In general, once family and friends realise that the IVA is a responsible route to becoming debt free, they are usually supportive. After all, this way your creditors will get as much of their money back as possible and you will not need to build up any more debt of your own.
Short term versus long term effects
In the immediate future you will have to change the way you think about your money. You will have little/no access to credit during the IVA. You will need to understand your monthly bills; paying them first will avoid the need to borrow more money.
You will need to be prepared to tighten your belt during the IVA. You won’t be able to buy lots of luxury goods and go on regular holidays abroad. Spending less during the IVA means your creditors get as much possible. This is fair – after all, they are agreeing to write off anything you cannot afford at the end of the IVA.
The benefit long term is of course that you will become debt free after the IVA term (usually 5 years). There will be a period after this when credit will be hard to get, but you can repair your credit rating over time. If you are a home owner you may need to release some equity if it is possible. However you would be made fully aware of this before you start the IVA.
An IVA can be quite a steep learning curve. Getting used to only spending money you have is different, but for many it is a great learning tool. Often people who complete IVA’s rely far less on credit after their IVA, even though they are able to borrow again.