The Scenario
Eddie has just finished university and has been let loose on the real world. While at university Eddie managed to rack up £12,000 on his credit cards and a further £16,000 in Student Loans. Eddie studied Fashion Design at Brighton University for three years. His course is notoriously expensive and he had to buy all the materials for his projects, which ran into thousands of pounds over the years.
Eddie is now working for Liberation Designs, a top London Fashion House and is just about to finish his first year of a two year graduate training course. At the moment he is only on £16,000 per year but at the end of his training course he will be on a guaranteed £28,000 per year. He has worked out that he can pay £180 a month at the moment but will easily be able to service all his debts when he gets a pay rise (at the moment he is below the earning threshold to pay Student Loans).
He has not missed any payments yet as he has been using credit cards to pay off other credit cards, so his credit rating is still good. However, Eddie is getting tired of juggling his debts and now that he has more responsibility in his job, he is having to dedicate more of his time at work. He can see that missing payments will only be a few months away and he needs help!
How we could help
This is a slightly unusual case as Eddie is guaranteed a large pay increase and he knows exactly when this will be. In Eddie's case we would probably advise the following:
- Contact Creditors – Eddie could contact his creditors and negotiate with them directly.
- Debt Management - This is possible but his credit rating would be affected.
- IVA – An IVA is a possibility but not recommended as it is not as flexible as the other two options.
We are here to provide the best advice for each situation. Eddie's situation is fairly unique in that he is guaranteed a substantial pay increase and he knows when this is going to happen. He has a good credit rating now so any debt solution options that we provide will destroy this. In his case, the advice would probably be to contact his creditors himself and explain the situation (he could even provide his contract of employment showing this increase). If he could negotiate with each creditor for reduced payments, he may get away with his credit rating in tact.
If he is unsuccessful negotiating with his creditors, then we could help him. As it is a very short term fix that Eddie is after then he could opt for a Debt Management until he gets his pay rise. If he is after complete security and some of his creditors were threatening court action, then he could go for an IVA and increase his payments to the IVA as his wage goes up. Eddie would end up paying more back than he owes with this option but he is guarded from the creditors.
Changes in Monthly Payments
At face value, it does not look like Eddie is eligible for an IVA as his monthly surplus is only £180 (usually has to be at least £200). However, the IVA 'pot' is worked out from the total contributions over the whole period of the IVA. This means that payments can go below the '£200' level (or the level that would give the minimum dividend requirements) as long as there is a period in the IVA where the payments make up this shortfall (i.e. the average monthly payment over the period of the IVA is large enough to give the minimum dividend).
* Please note that all characters and scenarios described are fictional, and are purely for illustration purposes
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