If your finances are at breaking point, you may need a little extra help with debts. This is where a specialist debt management service can point you in the right direction. One option that is available to you is to take out an IVA (Individual Voluntary Arrangement) or in Scotland, a Trust Deed.

Both of these debt solutions allow you to pay smaller payments, which will help you to get through to your next pay day. But, is there a difference between an IVA and Trust Deed?

Is an IVA the Same Thing as a Trust Deed?

IVA and Trust Deeds are similar. There are differences between the two, but essentially the biggest difference between an IVA and Trust Deeds is simply a matter of where you live.

While an IVA is used by residents of England, Wales and Northern Ireland; a Trust Deed is used by residents of Scotland. You should check all the details of each solution before committing to one.

Who are IVAs and Trust Deeds for?

If you have significant debts to three or more creditors and you are struggling to pay them back, then you may be eligible for an IVA or a Trust Deed.

It is a less severe step to take than bankruptcy, which is great news for homeowners. However, there is a possibility that you will be required to raise a small portion of equity from your home. If you cannot raise this money, your agreement is likely to carry on for up to a year longer instead.

If you were looking into bankruptcy, it may be worth considering an IVA or Trust Deed instead.

Before entering into any legally binding form of debt management you should seek professional debt advice.

How do these agreements work?

They are both legal agreements between your creditors and you. The company who is helping you set up your debt solution will take care of all the negotiations with your creditors; this means limited contact from your creditors. They technically reserve the right to still contact you just for account statement purposes, but we find that generally they respect our relationship with the client and re-route all contact to us. Customers receive contact from each creditor less than once a quarter.

Set out in the agreement is a repayment schedule that takes into account your circumstances. This means lower monthly payments and more financial space to operate in. All the IVA provider needs is a list of all your monthly income and outgoings. They may ask that this is updated from time to time, but it is easy to do. Besides, itemising what you spend is a great help to anybody who is struggling to manage their money.

A manageable monthly payment is negotiated between all parties. Once the payments are finished, any remaining debts are written off; this can reserve some people thousands of pounds.

Will an IVA improve my credit rating?

Typically, an IVA or Trust Deed will affect your credit rating for up to six years, so it is not a decision to be taken lightly. An IVA may affect your credit rating for up to 6 years and a fee may be applicable depending on suitability and qualification. However, the last thing you need would be to enlarge the debt, so that is not always a bad thing.

Find out more by contacting professional debt advisers to discuss your situation. They will let you know about the options that are available to you and can help you to fully understand an IVA or Trust Deed agreement.