Chris and Fiona were struggling big time with debt. They had recently purchased their first house and all savings (plus help from the bank of mum and dad) had enabled then to put a deposit down and they were delighted to have made it on to the property ladder. But the costs of moving and refurnishing were more than anticipated. Credit cards that had always been paid off in full were now increasing and only minimum payments were being met.
The first few credit cards were consolidated into a loan with their bank providing a much more affordable monthly payment. But unexpected bills plus the need for a holiday following the stress of the previous year meant that they had t re use the paid off credit cards. Card balances were juggled to use interest free deals but after a while they realise that their monthly outgoings on debts was simply unaffordable. The debt was spiralling. And the problem with the debt is that it began to affect other areas of life – sleep, health and the relationship itself began to suffer.
They decided to explore options. One of their friends had filed for bankruptcy but their hearts sank at the thought the house was at risk. They spoke to 1 or 2 advisors who estimated that they only had around £200 per month leftover for all the debts that were costing them over £800/mth. They were guided towards a Debt Management Plan. Paying all the combined debts with a monthly payment of £200 would allow them to live properly without need of extra credit. They could break the vicious circle of credit dependency. One major drawback was with debts of £40,000 plus, it would take at least 17 years to clear it.
Only then did they find out about an IVA. There was clearly not enough equity in the property to release any (though they did try), but an IVA would allow them to pay the £200/mth but for a fixed period of time. They took their time in understanding the downsides as well as the advantages of an IVA. They knew they would be asked to remortgage in year 5 of the IVA but thought this was unlikely given the low equity and that their credit ratings would be poor due to the IVA. They understood that the IVA may be extended to a 6th year in lieu of the unreleasable equity. And they knew that if income increased they may have to pay more into the IVA along the way.
But they also knew that they would be debt free at the end of the IVA. And that the house was safe. And that the payment would be affordable. And sleep may be better and health improved through less stress. And who knows – maybe their relationship would go up a further level!