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IVA Advice & Solutions

Why Consider an Informal Repayment Plan?

If you find that your debt is becoming out of control and you can no longer afford to meet the required monthly payments, you may be tempted to borrow more money (from credit cards or your bank overdraft) just to keep up the payments.

This process is known as “Robbing Peter to pay Paul”. You should avoid this at all costs. An alternative may be to contact all your creditors and negotiate reduced monthly payments to fit within a budget you can afford .

How Will an Informal Repayment Plan Help?
The Informal plan gives peace of mind as you know that you are starting to repay your debt rather than making it worse by “Robbing Peter to pay Paul”. Depending on how much you can repay each month, you may be able to repay your debt in full within a reasonable time. However, at the very least, this plan will give you a breathing space from your creditors while you concentrate your efforts on trying to increase your earnings

Who Can Use an Informal Repayment Plan?
This solution can be used by anyone who has a debt problem. However, they are generally suited to debts of less than £15,000 with less than 4 different creditors. Ideally you should be able to afford a total monthly payment of at least 1% of your total debt.

Advantages and Disadvantages of an Informal Repayment Plan:

INFORMAL DEBT REPAYMENT PLANS SUMMARY OF ADVANTAGES/DISADVANTAGES
Advantages	Disadvantages
It is unlikely your assets will need to be taken into account e.g. equity in your house, cars etc.	Creditors have no legal obligation to stop adding interest and late payment charges. Therefore, your debt may increase over time.
Monthly repayments are reduced to an affordable amount thus stopping the need to constantly “Rob Peter to pay Paul”.	You may have to continue paying until ALL the debt is paid in full, even if that takes you 10 years or more.
The solution is relatively quick to put in place.	Creditors can change their minds at anytime and ask for circumstances to be reviewed or take further action against you.
Using the services of a Debt Management company may mean that you can consolidate all debts into a single affordable monthly payment.