Debt Free Direct review

Debt Free Direct offers a debt management solution to people who are unable to pay off their debt.

Debt Free Direct is a company that specialises in IVAs (individual voluntary arrangements). A good chunk of your debt will be written off, but you will also be deemed insolvent, so you should weigh your options carefully before taking this step.

If you do decide to proceed, Debt Free Direct can help you arrange your IVA. Let’s see how it works.

What is an IVA?

The government defines an IVA as “an agreement with your creditors to pay all or part of your debts. You agree to make regular payments to an insolvency practitioner, who will divide this money between your creditors”.

In practice, this means that an impartial third party, the insolvency practitioner, will calculate how much you can afford to repay each month, create an IVA plan accordingly (that usually lasts five or six years) and present it to your creditors. If at least 75% of them agree to it, the IVA can start. If you meet all your payments, by the end of the five years you’ll be debt-free.

The IVA is calculated based on how much you can afford to pay back and not just on how much you owe, thus the majority of your debt (Debt Free Direct says up to 80%) will be written off. That’s why an IVA, while not as problematic as a bankruptcy, is still an insolvency procedure that will heavily impact your credit score.

How does Debt Free Direct work?

If you decide to go through with it, your journey with Debt Free Direct should look more or less like this:

  • You enquire online. You will be asked a few questions about your debt, your monthly income and your regular expenses (rent, groceries, transport and so on).
  • You speak with an adviser. Debt Free Direct will get in touch with you to discuss your options. If you don’t meet the criteria for an IVA, you may be offered an alternative option.
  • Debt Free Direct drafts an IVA proposal. It should contain details of how much you’ll have to pay a month and how much you’ll be charged in fees.
  • If you accept it, Debt Free Direct gets in touch with your creditors. They don’t have to agree to the IVA, but in many cases they will, because if you go bankrupt instead, they may get even less money back.
  • If at least 75% of them accept it, the IVA can start. The IVA will involve all your creditors, even those who hadn’t agreed to it in the first place. Always do all you can to meet your monthly payments or the IVA may be withdrawn and you may go bankrupt.
  • At the end of the five years, you don’t owe money to your creditors anymore. And one year later, the IVA will also be gone from your credit report.

Debt Free Direct fees

IVAs are expensive procedures and you should expect pretty exorbitant fees. On the other hand, the fees will be included in your IVA, so it could be argued that for you it doesn’t really make a difference how much of that money goes to your creditors and how much to Debt Free Direct.

Debt Free Direct charges three types of fees:

  • A nominee’s fee. This covers the costs of arranging your IVA and is usually equivalent to 4-6 months of payments.
  • Supervisor’s fees. This covers the costs of running it. With Debt Free Direct, it’s 15-18% of your contributions.
  • Costs and expenses. Other costs related to the IVA, including insurance. Debt Free Direct says that on average these amount to £950.

As expensive as these may seem, they’re in line with the rest of the market.

Debt Free Direct doesn’t charge any fees upfront – you’ll only have to pay them if you effectively enter the IVA.

Factors to consider

An IVA can be a solution to avoid bankruptcy if you can’t pay back your debts, but you do need to be aware of its consequences.

  • Your credit rating will take a hit. The IVA will stay on your credit report for six years.
  • Borrowing money will become very difficult. Most traditional lenders won’t accept you, so you’ll only be able to apply for loans that have a very high interest rate (such as payday loans). Also, if you want to borrow more than £500, you’ll need the permission of your practitioner.
  • If your circumstances change, the IVA will take that into account. In most cases, if you start earning more or somehow get a lump sum (for example because you inherit it), you’ll have to tell your practitioner, and all or part of it will have to go in the IVA.
  • You may have to remortgage your home at the end of the IVA. That’s because the value of your home will have been taken into account in the IVA, and part of it will have to be paid into it. You won’t be asked to sell your home, but to remortgage it so that you get a lump sum that can go into the IVA.
  • If you don’t keep up with your payments, you may go bankrupt. Bankruptcy will impact your life more heavily than an IVA.

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