If you find yourself with unmanageable levels of debt, it can be hard to know which way to turn. However, here in the UK, there are several options available if you are struggling to keep up with your repayments. They may take some time and need some sacrifices, but there is always a solution to suit your circumstances.
Debt counselling services
First things first, if you find yourself in need of help with debt problems, then one of the best places to turn is to a non-profit debt counselling service. While you may see firms advertising debt advice, even if they say it is free, they will still be looking to make money out of your situation. So it’s best to look for a non-profit organisation.
In this country, we have three main non-profit debt counselling services: Citizens Advice, the StepChange Debt Charity and the National Debtline. These services all offer free one-to-one advice on what debt solution could fit your needs.
If you arrange a meeting with a debt counselling service, it is best to be prepared. Try to have all information regarding your income and outgoings – including costs such as utility bills, food and housekeeping, and living expenses – to hand before your meeting. Also try to make sure details of your debts are available. If you know who you owe money to, you can contact your creditors for up-to-date balances. However, if you are unsure, then the best place to check would be your credit report. You can request a free copy of this from any of the three main credit reference agencies: TransUnion, Experian and Equifax.
5 debt solutions
Everyone’s personal circumstances are different, which is why having a one-to-one session with an adviser who understands your financial situation is usually the best way to approach a debt problem. If you are at a point where action needs to be taken in order to tackle your levels of debt, here are five debt solutions that you may want to consider:
1. Debt management plan (DMP) – This type of solution is suitable for things like credit card debts, store card debts, overdrafts or personal loans. It allows you to make one affordable repayment a month to your DMP provider.
2. Debt relief order (DRO) – This is largely suited to those who are on a low income and have few assets. A DRO freezes your debts for a year and then writes them off completely if your financial circumstances have not changed in that time.
3. Administration order (AO) – This solution is suited to those who owe under £5,000, who can afford to make regular repayments and who have at least two debts (one of which must be a County Court Judgement). With an administration order, you are required to make regular payments to the County Court. These payments will then be distributed to your creditors.
4. Individual voluntary agreement (IVA) – This is a legally binding insolvency solution. It is best suited for those who need protection from their creditors but who do not want to declare bankruptcy because they have assets of value (like a car or a house) which they don’t want to lose. It is also a solution that works well for those who have a little spare income a month that they can use to make regular repayments to their creditors.
An IVA allows you to pay back what you can afford over a set period of time, typically five to six years. At the end of the IVA term, anything that hasn’t been repaid will be written off.
5. Bankruptcy – This solution is typically the last resort. It is there for those who have no other way to pay off their debts, who do not have many belongings of value and whose situation is unlikely to improve. Once again, it is a legally binding insolvency solution.
When you are declared bankrupt, everything you owe will be written off. However, any assets that you own (house, car, leisure equipment, jewellery, etc.) will be used to pay back your debts.
