Home Insights & Advice Learning to live without credit

Learning to live without credit

by Uday Tank
1st Jul 19 11:07 am

Once you’ve entered into an IVA, which is a government debt scheme, then the harsh reality is that you won’t be able to apply for credit for the duration of your arrangement, which typically lasts between 4 and 5 years.

For those who have got used to the idea of having credit (and hence the debt situation), this can be quite a daunting concept – however, it’s not always as drastic as people might believe.

I’ve always been encouraged to take out credit!  What will change?

Unfortunately, there are many lenders who encourage their customers to take out different forms of credit – whether that be an overdraft, credit card, bank loan or whatever.  However, whilst the initial offer might sound quite tempting (after all, it could well mean a luxury holiday in the sun!), the reality of credit can very quickly become a nightmare.  With increasing interest rates, late payment fees and administration charges (not to mention legal and court fees, should they become necessary), credit can all too quickly lead to serious debt problems.

How will an IVA affect my credit appetite?

Once you enter into an IVA then your monthly ‘budget’ will stop the regular cycle of ‘robbing Peter to pay Paul’.  In fact, once the IVA begins, you’ll still be able to retain a set amount of money each month so that you can make ends meet and this should effectively remove the need for you to need any further credit.  Most people find this quite a liberating experience since your insolvency practitioner should have budgeted very carefully for you although, of course, you won’t be able to enjoy certain ‘luxuries’ such as holidays and so on.

The fact that you seek out IVA, shows that you are looking for answers to the question: how do I get my debts written off. Then it perhaps goes without saying that you’re struggling with debt and once your insolvency practitioner has submitted your application, the attitude of your creditors will quite literally change overnight.  Whilst you might previously have been offered all types of tempting credit offers, an IVA will mean that you won’t be able to lend for the duration of your arrangement and even beyond that, could well struggle to have any credit extended to you.

How will my monthly repayment be determined?

In order to determine how much you can/should contribute each month, your insolvency practitioner will go through your existing income and outgoings to ensure you’re left with enough money each month to live on.  This amount will be reviewed every 12 months so if your financial position improves, you may be required to contribute more.

Will I be able to apply for credit after my IVA?

Absolutely.  However, details of your IVA will remain on your credit record for a period of 6 years so the information will be made available to potential lenders.  If you apply for credit shortly after your IVA has ended then you can expect to pay a much higher interest rate so as to reflect the additional risk your lender is taking on – and some lenders may refuse to extend credit at all.

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