Consumers are increasingly being pushed into Individual Voluntary Arrangements (IVAs) without understanding the long-term consequences it can have on their finances, a leading credit reference agency has warned.

Experian says IVAs, which are becoming a popular alternative to bankruptcy, can actually damage consumers' financial futures by having a negative impact on their credit rating.

Richard Fiddis, Experian's managing director for the UK, Ireland and Northern Europe, said the number of people taking out IVAs rose by more than 150 per cent in the second quarter of this year.

He said this is a very worrying trend and suggests that some consumers, particularly younger people who see an IVA as an easy way out of debt, are being encouraged to enter them even though there may be better options available to them.

"These people tend to be the least financially sophisticated and unfortunately often believe an apparently helpful 'adviser' who wrongly tells them that an IVA won't appear on their credit report or make it more difficult to obtain credit in future, that many of their debts will be wiped out and that they don't have to tell their employer," said Mr Fiddis.

"What they don't realise is that the IVA will appear on their credit report for six years and that it is just as likely that they will struggle to get credit in the future as if they had opted for bankruptcy."

A debt consolidation loan could prove a sensible alternative to an IVA, allowing consumers to pay off all their debts and replace them with one manageable, monthly repayment.

If consumers are able to pay off a debt consolidation loan and accrue no further debts, they can actually improve their credit rating, unlike IVAs and bankruptcy arrangements which have a negative impact.

Posted by: Peter Kudela
Date: 16th October 2006