Life can be expensive, and salaries often struggle to keep up with the ever-increasing cost of living today. Even if we exclude mortgage payments, financial experts Money Advice Service claim that the average household in the UK is currently running a debt level of over £13,000 with the trend on an upward curve, having increased by over 20% in just five years.
Worries about debt repayments are among the most stressful concerns for most adults, with money concerns often referred to as the cause of most disagreements in relationships and causing sleepless nights for countless people. Thankfully, help is at hand. There are many options available to anybody looking to decrease their level of debt once that difficult first step – acknowledging the problem, and preparing to resolve it – has been taken.
Debt Management Plans
A Debt Management Plan is an arrangement between consumer and creditor that may see interest rates frozen, minimum payments reduced, or in some cases, the debt being wiped out completely by the creditor, usually mediated by a third party such as a debt management charity.
The Money Advice Service will offer free, impartial and non-judgmental advice over the telephone, online or face-to-face.
- StepChange are a charity that specialise in debt relief, arranging affordable monthly repayments based on your incomings and outgoings.
- The Government can also offer advice, including a list of debt management companies approved by the Financial Conduct Authority.
Debt Relief Order
A Debt Relief Order is an alternative to bankruptcy for individuals with no assets and a relatively low debt. To qualify for a Debt Relief Order, you will need to owe less than £20,000 in total, have less than £50 disposable income monthly after household bills, and possess assets (such as vehicles) worth less than £1,000 in total – homeowners do not qualify for a DRO. There is a £90 fee involved with setting up a DRO.
- The Citizens Advice Bureau can offer further advice as to whether you qualify for a DRO, and if it is the best choice for you.
- National Debtline offers a simple fact sheet that provides the criteria for applying for a DRO.
- The Government again offers a list of approved debt advisers who will act as an intermediary in your DRO application.
- StepChange also break down the process of applying for a DRO.
An IVA (Individual Voluntary Arrangement) is a process by which your debt can be restructured to affordable payments over the course of five to six years. If you apply for an IVA, an Insolvency Practitioner will contact your creditors with an offer of reduced payments, with any debt remaining at the end of the agreement is written off.
IVAs are designed to protect homeowners, as creditors are not permitted to lobby a consumer to release funds from their property to finance their debt, and an IVA stops creditors from chasing you for payment. However, you will be unable to take out any form of credit for the duration of the agreement, including payday loans or mobile phone contracts, unless your Insolvency Practitioner grants permission.
- The Debt Advice Foundation offers a helpful and lengthy article on IVAs.
- Debt Support Trust will be able to advise if an IVA is the best option for you.
- StepChange, as always, also offer a range of advice.
An Administration Order is something that anybody facing an unpaid CCJ (County Court Junction) should look into. The AO will forge a legally binding agreement between consumer and creditor to pay back the amount over a period of time.
- The Citizens Advice Bureau offer more detailed information on whether you are eligible for an AO, and whether it’s something you should pursue.
- The Government website has the necessary paperwork to apply; you can expect to incur a fee of up to 10% of the total debt.
Bankruptcy is something of an apocalypse scenario for those struggling with personal debt, and something that should only be investigated if no other option is available. Though it will release the obligation of any unsecured debt and only last for one year, you will be expected to release all assets, including your home. As a result, a DRO or IVA should always be considered as a more palatable alternative – not least because bankruptcy incurs a fee of £680, and may prevent you from working in certain industries.
- The Citizens Advice Bureau, as always, will help you understand the implications of filing for bankruptcy.
- StepChange offer advice on five alternatives to explore before you take such a measure.
- The Money Advice Service offers a step-by-step guide to how to proceed if you do decide to take this action.
Other Financial Help
If you are struggling with debt, there are further options available to you. The first thing you should do is speak to your creditors directly. You may be surprised at how sympathetic they can be, and most would rather receive some repayments from you that you can afford than be forced to issue credit default notices and take further action because they have not heard from you. Most creditors have steps in place to deal with consumers struggling with repayments thanks to regulations imposed by the Financial Conduct Authority.
You may also find that you are contacted by companies cold-calling and offering debt relief services – never accept these offers, and always ensure that any company you do decide to work with are approved by the FCA.
- Generalised advice can be found from any of the sources discussed above:
- Turn2Us are a registered charity that can offer advice on debt, in particular –
- My Money Steps, an offshoot of National Debtline, provides an online survey that will give advice based on your individual circumstances.
- Grants for Individuals may be able to provide help, especially if you have a disability.
- SSAFA will be able to offer support to former or current military personnel struggling with debt.
Summary of Useful Links
There are a plethora of options out there for those struggling to manage their debt, as much as I may feel like you are battling through this difficult time alone. See below for a summary of just some of the resources you can use to aid your attempts at turning your financial circumstances around.
- Citizens Advice Bureau – https://www.citizensadvice.org.uk
- Debt Support Trust – http://www.debtsupporttrust.org.uk/
- The Debt Advice Foundation – http://www.debtadvicefoundation.org
- Financial Conduct Authority – https://www.fca.org.uk
- Money Advice Service – https://www.moneyadviceservice.org.uk/en
- My Money Steps – https://www.mymoneysteps.org
- National Debtline – https://www.nationaldebtline.org
- StepChange – https://www.stepchange.org
- Turn2Us – https://www.turn2us.org.uk/Other-help/Debt
- UK Government – gov.uk