If you’re struggling with unmanageable debt and can’t see a way of ever paying it back, one option is an IVA (Individual Voluntary Arrangement). It’s a legally-binding debt solution in which you’ll repay as much of your unsecured debt as you can afford over an agreed period of time, after which the rest of your debt will be written off.

How an IVA works

Step 1: talking to your IP

Before you can enter into an IVA, you’ll need to discuss your situation with an Insolvency Practitioner, or IP. This is the person who arranges and manages your IVA, and as such they’ll need to take some details from you, such as how much debt you’re in, how much you owe to each lender and how much you can afford to pay.

Based on this information, your IP can tell you whether an IVA is likely to be right for your circumstances. If it’s not, they may refer you to another debt adviser who can talk you through more appropriate debt solutions. If it looks like an IVA is the best solution to your debt problems, they’ll work with you to draw up an IVA proposal.

Step 2: the IVA proposal

The IVA proposal is a document that ’sets out your case’ for entering into an IVA. It will include details about you, your debts and your income, demonstrating why you can’t afford to repay your debts. It will then tell your lenders how much you can afford to pay, and over what period of time you plan to pay (this is usually five years, but it can vary if you have a reason for a different repayment period).

Step 3: the creditors’ meeting

Your lenders will be given a minimum of 14 days to consider the IVA proposal, and will have the opportunity to vote for or against the terms. At the end of this period, the ‘creditors’ meeting’ will take place: in reality, not so much a meeting as a period of time in which you and your IP will make yourselves available – over the phone – to discuss any questions or suggestions your lenders have regarding the proposal.

In all, 75% of voting lenders (by debt value) must approve the proposal for the IVA to go ahead. If this happens, your other unsecured lenders will be automatically bound by the terms, and your IVA will begin.

Step 4: the IVA begins

Once your IVA starts, you’ll make regular monthly payments to your IP (unless you’ve agreed a different repayment plan). Your IP will distribute the agreed amounts between your lenders.

There will often be other terms involved: for example, you’ll be required to declare any increase in income during the IVA, and in most cases you’ll put a portion of this towards your debts. If you’re a homeowner, you may be expected to release some of the equity in your home in the final year of the IVA.

Step 5: the IVA completes

On successful completion of the agreed terms, your IVA will complete and you’ll be legally debt free.

However, remember that your IVA will remain on your credit history for six years from the time it began, and you’ll find it more difficult to borrow more money in this time.

If you cannot pay the minimum on your debts, it’s time for you to settle your debts. Debt settlement is a way by which you can negotiate with creditors/collection agencies and reduce your debt amount by 40-60%.

This article will give you a step-by-step analysis of how to settle your debts yourself.

1. Calculate your total debt amount.
2. Analyze the type and age of your debt accounts.
3. Get a copy of your credit report from the credit bureaus and analyze it. Check out Sample Credit Reports from the 3 bureaus.
4. Look through your credit report and find out if your account is still with the creditor or turned over to a collection agency.

How to settle your debts yourself if the debt is with the creditor

1. Take a note of the following first:
   • Know how to contact creditors.
   • Follow the debt negotiation tips.
   • Know when creditors can say “Yes” or “No” to your offer.
2. You can look into the Creditors Database for the address and other relevant information about creditors. Also check out the mailing instructions for further help.
3. Before deciding upon the monthly installment, check how much you should offer to your creditor.
4. Contact your creditors and explain your plan. Tell them how they can benefit from it.
5. Inform your creditors that you are sending this offer to all other creditors and the ones who accept the offer first will be paid off first.
6. Keep records of acceptance letters and send in the amounts agreed upon ASAP, requesting a receipt stating “Paid in full”.
7. Repeat this process each month and go on adjusting your debt settlement offers upwards.
8. When you have fewer debts to pay off, send in offers of paying back higher percentage of the outstanding balance to your creditors.
9. Repetition of this process each month will make you debt free soon.
10. Don’t forget to obtain a fresh credit report once a year to keep yourself updated on your account status.
11. After you pay off debts, negotiate with creditors such that they update the account status on your credit report as “Paid in full” or “Paid as agreed”.

How to settle your debts yourself if the debt is with collection agency

1. Contact the collection agency (CA) by letters & not phone as they may behave badly over the phone.
2. Keep the name and direct phone number of the collection agency representative whom you are talking to.
3. Send a debt validation letter in order to verify that you owe the money. Accept a reply only when it contains the following:
   • Proof that the CA is assigned to collect the debt by a creditor.
   • Detailed payment history starting with the original creditor.
   • Copy of the original signed debt agreement or credit card application.
4. If the reply is not satisfactory, inform the CA that they are violating the FDCPA and they need to remove collection listing from your credit report. Otherwise you have the right to sue them.
5. If the CA validates the debt and it turns out that you owe the money, then you need to contact the creditors. Request them to pull your account back from the collection agencies.
6. If you have enough money offer lump sum payment to the creditors.
7. If you don’t have enough money, make your creditors aware of your inability to pay off the total debt and offer them an alternative payment plan.
8. If your creditor doesn’t pull back the account from the CA, negotiate with the collection agency with a cool brain.
9. Avoid sending cash and make the payment in such a way that you get a receipt. Don’t forget to mark your envelope as “Payment enclosed”.
10. Don’t miss payments and make sure that your check doesn’t bounce while paying the collection agency.
11. Try to clear the debt account in time so that you don’t have to deal with the CA again.

In case you aren’t comfortable dealing with creditors/CAs, you can take help of a debt settlement company/law firm who’ll negotiate on your behalf and help you to settle your debts. You need to go for a no-obligation free debt counseling with the company so that they can assess your financial situation and then decide how much they’ll negotiate for.

For you to completely understand the terms behind credit debt consolidation, it is best that you know first the difference between the types of loans that are being offered under this. The two most common ones are the secured and unsecured loans.

The first one which is the secured loan is being given to individuals who choose to have a collateral that will serve as a back up to the loan. The collateral can be in various forms such as equity from the home, any property or other assets. In general, secured loans have much lower interest rates making it possible for you to save some money. Moreover, you will feel more obligated to make immediate and timely payments in order to protect your collateral. Most people find secured loans quite risky. However, it is an option worth taking if you want to settle all your debts and get yourself out of financial crisis without having to pay huge interests.

The second type of loan which is the unsecured loan does not require collateral which makes it less risky as compared to secured loan. However, if you choose to apply for this loan, you should expect a higher interest rate so it does not exactly lessen your burden since you have to pay more. Failure to make timely payments can cause piling up of the interest. If you will go for this option, you should settle your obligation regularly otherwise; you will end up having a bigger debt.

Credit debt consolidation offers a good solution to you debt problems. However, the only way to solve such financial crisis is to cut down on your expenses and to start paying off your debt on a regular basis until your slate is clean once again. After that, avoid falling on the same pit again. Maintain only one credit card and opt for a smaller credit limit. By doing so, the chances of you overspending will be much lesser. Responsible use of your credit card can keep you out of credit trouble.