There are various debt solutions available in the UK – all with their own benefits and risks – but with so many factors to consider, choosing the right one for your financial situation can be a challenge.
Before committing to a debt solution for several years, you must do your research to ensure the option you’ve chosen is best suited to you and your individual circumstances.
What is a Debt Arrangement Scheme?
A Debt Arrangement Scheme (DAS) is a formal agreement between you and the people you owe money to (your creditors) to repay your unaffordable debt through a series of monthly payments.
The main aim of a DAS is to allow you to repay your total debt over a ‘reasonable time’ without the added pressure of your creditors hassling you for payment or threatening you with legal action.
A DAS can only be managed by a DAS-approved money adviser, who will review your income and expenditure and work with you to create a Debt Payment Plan or Debt Payment Programme (DPP). This is essentially a summary of your financial situation and how you plan to repay your debt.
With a DAS, you’ll be expected to make payments for as long as it takes for you to repay all of your debt. This can take anything from four to 20 years, but the average length is six and a half years.
Are you considering a DAS?
What is an IVA?
An Individual Voluntary Arrangement (IVA) is a legally binding debt solution designed to help you better manage your debt repayments by consolidating what you owe into smaller monthly instalments.
With an IVA, your monthly payments will be based on your income and expenditure to ensure you can always afford them alongside any other financial obligations you have, such as your mortgage and bills.
Like a DAS, an IVA can only be managed by an Insolvency Practitioner (IP), who will communicate with your creditors and distribute your payments among them on the same date each month.
The length of a DAS is typically set at four years, but an IVA can be extended by 12 months if you miss payments or have a payment break.
What are the similarities between a Debt Arrangement Scheme and an IVA?
The terms ‘DAS’ and ‘IVA’ are often used interchangeably and while there are some key similarities, there are also several differences between them.
We’ve outlined the main similarities between a DAS and an IVA below:
They’re both formal debt solutions
Both a DAS and an IVA is considered a formal debt solution.
This means that they are legally binding contracts that both the debtor and creditors must adhere to and there can be serious consequences for missing payments or whatever reason.
They can help you repay unsecured debts
Most debt solutions can help you repay your unsecured debts, and a DAS and an IVA is no different.
Unsecured debts are debts that are not tied to an asset (e.g. a home or a car) that can be sold to repay the debt.
They will impact your credit rating
Unfortunately, there are not many debt solutions available – if any – that don’t negatively impact your credit rating.
Entering into a DAS or an IVA will harm your credit score for at least six years. During this time, lenders will be able to see a DAS on your credit file and you’ll find it difficult to get approved for most credit products, including mortgages and payday loans.
They require a single monthly payment
The aim of a formal debt solution like a DAS or an IVA is to help you consolidate your problem debt into a single monthly payment that you can easily afford.
This can allow you to chip away at your debt at a pace you are comfortable with, making the debt repayment process much more manageable and attainable.
They can stop creditor contact and legal action
When you enter a DAS or an IVA, your creditors will be told to stop contacting you about the debt and will be prohibited from taking legal action against you.
This can give you some much-needed peace of mind that your balance won’t increase and you won’t be taken to court over the unpaid debt. Even if one of your creditors has already initiated court proceedings, a DAS or an IVA will stop it from continuing.
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What are the differences between a Debt Arrangement Scheme and an IVA?
Before you choose between a DAS and an IVA, it’s important to consider the differences as well as the similarities. We’ve covered them below:
They last different lengths
One of the biggest differences between a DAS and an IVA is how long they last.
For example, while a DAS has a set length of four years, a DAS lasts however long it takes for you to repay all of your debt, and this can be anything from four to 12 years.
They’re not available everywhere
Unlike some debt solutions that are available throughout the UK, a DAS is only available in Scotland and an IVA is only available in England, Wales, and Northern Ireland.
So even if both debt solutions would be suitable for your financial situation, the right one for you will depend on where you live.
They’re managed by separate third parties
Because they’re both legally binding agreements, both a DAS and an IVA must be managed by a third party.
However, while a DAS is managed by a money adviser, an IVA is overseen by an Insolvency Practitioner (IP).
Is a DAS or IVA better for joint debt?
Having joint debt can make it difficult to find a debt solution that caters to your financial situation, but some debt solutions cover joint debts – meaning both parties are equally responsible and can make contributions towards the debt.
Because IVA stands for Individual Voluntary Arrangement, it only covers individual debts. This means that, if you and a partner, spouse, or someone you lives with has debts, you’ll need to enter into separate IVAs.
However, IVAs can be ‘linked’ or ‘interlocked’, which means they’re administered together and you make one monthly payment to both plan. This can be a great way to ensure both parties can afford the IVA alongside any other joint financial obligations, such as mortgage or rent payments and utility bills.
A DAS, on the other hand, does cover joint debts, meaning you can apply with a partner, spouse, or someone you live with – even if you don’t have joint debts.
So, if you have joint debt with someone else, a DAS may be the best option if you want to be equally responsible for the debt and contribute to one repayment plan instead of making two separate payments.
What other debt solutions could I be eligible for?
Both a DAS and an IVA can help you deal with your unmanageable debt through a series of affordable monthly payments, but they’re not the only options available to you.
Here are some other debt solutions you may be eligible for aside from a DAS or an IVA:
Debt Management Plan (DMP)
A Debt Management Plan (DMP) is an informal agreement between you and your creditors to repay your unaffordable debt through a series of monthly payments based on what you can afford.
The money is sent directly to the debt management company before being divided among your creditors. This means you don’t need to deal with your creditors at all throughout your DMP.
Because a DMP isn’t legally binding, neither you or your creditors are tied in for a minimum period and you can cancel it at any time if it no longer suits you.
Debt Relief Order (DRO)
A Debt Relief Order (DRO) is a formal insolvency procedure designed to help you repay debts you don’t have the financial means to deal with.
Generally, a DRO will be suitable for you if you have little to no income to put towards your debt and don’t own any assets (e.g. a home or a car).
DROs are often considered a cheaper alternative to bankruptcy as your debts will be written off at the end of 12 months if your circumstances don’t change.
Conclusion
The more you know about different debt solutions, the easier it will be to make a decision on how best to deal with your debt.
There are various debt solutions out there – all with their own benefits and risks – and while a DAS and an IVA are both popular options, they may not be best suited to your financial situation.
By comparing a DAS and an IVA, you can be confident you’ve made the right decision to deal with your debt.
