IVA help the solution to a £175 million-a-day problem?

New data has shown that the cost of servicing debt interest in Britain is £175 million per day.

This figure is one of a number produced in finance charity Credit Action's latest monthly statistics digest, which showed that this is how much it costs people to be in debt each day before any of the capital is paid off.

Of course, this will be much higher for some than others, with people who have no debts at one end of the scale and those buried under an avalanche of loans, mortgages, credit cards and other forms of borrowing at the other.

For people in the latter category, managing such payments will be hard if not impossible, with all the attendant dangers of red letters, bailiffs, repossessions and bankruptcy petitions.

But individual voluntary arrangements (IVAs) may offer an alternative to that.

They work through an agreement between the party owing the money and their creditors to accept reduced repayments, with interest frozen and the new figure to be paid back not only being less, but having a time limit of not more than five years. After this, anything left owing is written off.

Although this is a form of insolvency and will affect future credit scoring, it is also a way to ultimately get debt free and avoid the stigma of bankruptcy.

Insolvency Service figures have shown that in the year to June 2011, 48,406 people in England and Wales took out IVAs for this reason.

Credit Action's data also showed that £22.54 million of loan debt is being written off by banks and building societies each day. Such a figure may owe much to the capacity of IVAs to reduce the burden faced by those deepest in debt.

Posted by Paul Thacker