When faced with serious debt problems, people are often faced with two choices: taking out an individual voluntary arrangement (IVA) or a debt consolidation loan. Each has its pros and cons – but it is not an easy choice to make.

Up to a third of people declaring themselves bankrupt or taking out an IVA in the first three months of 2008 will do so because of Christmas overspending, according to figures reported in the Observer. But, the newspaper concedes, others will "listen to the January refrain of banks, building societies and other lenders to 'consolidate now!'"

Many preferred consolidation to IVA in the past

The idea behind taking out a debt consolidation loan is a tempting one. The idea is to either transfer high-interest debts – like credit and store card debts – to unsecured loans with a lower interest rate, or to extend the payment terms of a loan to bring down the monthly repayments to a manageable level. In previous years, many indebted people have taken out consolidation loans rather than apply for an IVA.

The Observer did publish the following warning, though: "However, while consolidation may help tens of thousands of families, it is not an ‘easy way out'. 'Our worry is that [with consolidation] people are trying to borrow their way out of debt – but it's not a one-size-fits-all solution,' warns Rosalind Pearson at Citizens Advice."

IVAs don't increase amount repaid

Furthermore, as the newspaper goes on to point out, to get a debt consolidation loan you need a good credit record – and this effectively rules them out for many people in the UK who have defaulted on debt repayments in the past. Others reject consolidation because it can increase the amount repaid overall – something that isn't necessarily the case with IVAs.

Sometimes, a debt consolidation loan – while superficially attractive – can be a short-term "fix" that doesn't really deal with the underlying debt problems. An IVA can often be the only option that is viable over the longer term. 

Talk to Varden Nuttall about an IVA

Varden Nuttall has been established for more than 15 years and is dedicated to helping people in financial difficulty find a debt management solution through an IVA. We employ 90 people, including trained and skilled IVA administrators, and are one of the largest IVA companies in the UK, where we handle more than three per cent of all individual voluntary arrangement applications. To find out more about the company, or to make an appointment to talk about putting an IVA in place, call us today on 0800 031 9802 or fill in our online enquiry form.