A personal IVA or DMP comparison, free of charge
Both an IVA and a Debt Management Plan can bring your payments down to a level you can manage. The right choice depends on how much you owe, what you can afford and how quickly you could clear your debts. IndividualVoluntaryArrangements.net works through those numbers with you and explains which option would leave you better off.
If a DMP would clear your debts in a reasonable time, we'll tell you, along with where to find a free provider. If an IVA would give you a better result, we'll explain how it would work for you.
What we'll compare
- How long each option would take
- How much you'd repay in total
- The protection and flexibility each one gives
A DMP is informal and flexible, but you repay everything you owe. An IVA is formal and binding, and the remaining balance is written off at the end, but it's a five-year commitment and a form of insolvency.
IVA and DMP side by side
| IVA | Debt Management Plan | |
|---|---|---|
| Legally binding | Yes | No |
| Interest & charges | Frozen once approved | Requested but not guaranteed |
| Debt written off | Yes, remaining balance at the end | No |
| Length | Fixed, usually 5 years | Until debts are repaid |
| Cost | Fees from your payments | Free providers available; some charge fees |
| Insolvency Register | Yes | No |
| Credit file | 6 years from start | Defaults stay for 6 years |
| Flexibility | Changes need supervisor or creditor agreement | Can change or stop at any time |
| Homeowners | Equity may need releasing | Home not directly affected |
When a DMP may be better
- You could repay your debts in full within a reasonable time.
- Your financial difficulties are likely to be temporary.
- You want to avoid formal insolvency.
- You want flexibility to change your plan.
When an IVA may be better than a DMP
- Your debts would take many years, or decades, to repay through a DMP.
- Creditors are refusing to freeze interest or are taking action.
- You want legal protection and a fixed end date.
- You meet the typical IVA eligibility criteria.
A worked example: the same debt, two solutions
Take someone who owes £20,000 in unsecured debt and can afford £250 a month. The figures are simplified and for illustration only.
| IVA | Debt Management Plan | |
|---|---|---|
| Monthly payment | £250 | £250 |
| Length | 60 months | About 80 months, if interest is frozen |
| Total paid | £15,000, with fees taken from this | £20,000, plus any provider fees |
| At the end | Remaining balance written off | Debts repaid in full |
In this example, the IVA ends sooner and costs less in total. But it's a formal insolvency, recorded on the Insolvency Register, and homeowners may be asked to release equity. For someone with smaller debts, the gap narrows, and a DMP may be the better choice.
Which affects your credit rating more?
Both solutions affect your credit file. An IVA is recorded for six years from its start date and appears on the public Insolvency Register. A DMP isn't a form of insolvency, but creditors often register defaults when you start paying reduced amounts, and those defaults also stay on your file for six years. If your file already shows defaults, the difference between the two may be smaller than you expect.
Can creditors refuse a DMP?
Yes. Because a DMP is informal, creditors don't have to accept reduced payments, and some may continue chasing you or adding interest. An IVA works differently. Once creditors holding 75% of the debt by value of those voting agree, the IVA becomes binding on all the unsecured creditors included, even those who voted against it.
Which is better if your income might rise?
If you expect your income to rise significantly, for example after finishing training or returning from parental leave, a DMP can be a useful bridge. Payments can increase when your income does, and you may clear your debts faster than expected. In an IVA, a significant rise in income usually means a higher payment at your annual review, but it doesn't shorten the five-year term unless you settle early.
Which is better for homeowners?
A DMP doesn't involve your home, so you won't be asked to release equity. An IVA usually includes an equity review near the end. If you have substantial equity, a DMP or releasing equity with independent advice may be better than an IVA. If you have little equity and large debts, an IVA can protect your home while writing off what you can't repay.
How each option handles interest and charges
In an IVA, interest and charges on the included debts are frozen by law once it's approved. In a DMP, creditors are asked to freeze interest but don't have to. If some creditors keep adding interest, your DMP will take longer, and a formal solution may become the better choice.
Moving from a DMP to an IVA later
Starting with a DMP doesn't rule out an IVA later. Many people switch when a DMP is taking too long or creditors won't freeze interest. Any payments you've made under the DMP will have reduced your debts, which can make an IVA proposal more straightforward.
Get your personal comparison
If you'd like to see how an IVA and a DMP would compare for you, fill in the form at the top of the page. We'll work through your figures, explain the total cost and length of each and help you decide which leaves you better off.
To make the comparison as useful as possible, have a list of your debts, the interest rates where you know them and your monthly income and outgoings to hand. We'll use these to show how long a DMP would take, what an IVA would involve and which leaves you better off overall. You can also read our separate guide to Debt Management Plans before we speak, and use the IVA calculator for a rough illustration of your own figures.