How can I combine my debts into one?

In the UK, you might combine your debts into one payment in a few ways. This is determined by a number of factors, including your debt level, your income, and whether or not you own any assets.

One of the main solutions is an Individual Voluntary Arrangement (IVA). This is a formal agreement designed for people in England and Wales to consolidate unsecured into one single monthly payment – typically over a fixed period of five to six years. Here’s how the process works:

Individual Voluntary Arrangement (IVA)

Assess Your Eligibility

You should always seek professional support when considering a debt solution. To enter an IVA, you must have unsecured debts of at least £6,000, owe money to at least two creditors, and have a reliable source of income to make regular payments. We offer more guidance on our website regarding IVA Eligibility.

Create the IVA Proposal

If you decide to pursue an IVA, an established debt solution provider can help you create a proposal outlining how much you can afford to pay each month toward your debts. This proposal is sent to your creditors for their approval. To estimate how much you might repay a month, look at our IVA Calculator.

Meeting of Creditors

Once your application is submitted, a ‘meeting of creditors’ takes place, meaning your creditors will vote on whether to accept or reject your IVA proposal. For the IVA to be approved, it must receive approval from creditors representing at least 75% of your total debt value.

IVA Payments

If your IVA is approved, you will start making regular payments as outlined in the proposal to an Insolvency Practitioner. The funds will be distributed among your creditors and include any relevant costs and fees associated with the IVA.

Protect Your Assets

An IVA is designed to help you retain valuable assets, such as your home, as long as you continue to make the agreed-upon payments. However, you may be required to release equity from your property if you have significant equity. If you don’t own any assets, you may qualify for other solutions, such as a DRO.

Regular Reviews

Your IVA progress will be reviewed annually, and adjustments might be made based on changes in your financial situation, for example, if your wages decrease.

Completing the IVA

Once you have completed all the agreed-upon payments, your remaining unsecured debts included in the IVA will be written off and considered debt-free. It’s important to note that an IVA is a legally binding agreement with advantages and disadvantages. While it can provide relief from debt, it also has implications for your credit score and may affect your ability to obtain credit during the IVA and some time afterwards. Additionally, an IVA is a public record, so it becomes part of the Insolvency Register.

There are other ways to combine your debts into one payment, such as Debt Management Plans (DMPs) and debt consolidation. These are informal solutions, but their process are as follows:

DMP (Debt Management Plan):

A financial assessment would be advised if you’re considering a DMP, to help determine if this is a viable solution. A DMP consolidates your unsecured debts into a single, affordable monthly payment, and you will pay this to your creditors with the help of your DMP provider, who may also try to help have your interest rates and extra fees reduced – although this is not a guarantee.

DMPs are informal agreements and do not involve the legal processes of an IVA. They can be more flexible and are typically used for individuals with smaller debts or those who want to avoid formal insolvency procedures.

Debt Consolidation

Debt consolidation involves taking out a new loan or using a credit card with a lower interest rate to pay off existing high-interest debts. This leaves you with one consolidated debt to repay. With a consolidation loan or credit card, you’ll have structured monthly payments over a fixed term, making it easier to manage your debt.

Debt consolidation does come with risk, however, as taking out more credit may damage your credit file. Some lenders may not offer the card, depending on the current debt level. In addition, you must commit to only using the new credit to repay your existing debt – otherwise, you may end up in an even worse financial situation.

Before proceeding with any debt solution, it’s essential to get help from experienced debt assessors. If you’re considering an IVA, then we at Money Advice can help. Not only will we be able to evaluate your financial situation, but if you decide to pursue an IVA we’ll be able to put you in touch with licensed Insolvency Practitioners who would oversee your IVA from start to finish.