Whatever the reason for the problem, you need to understand what help is available if you are financially strapped.
We have detailed below the six options available to you when debt problems arise as well as our very own easy to read debt solutions table.
This chart illustrates a summary of possible debt solutions, you can easily compare and discover the best one for you to get out of debt.
We detail which options freezes interest, the ones that give debt relief and those that stop the creditors chasing you for the debts!
Not all will apply, it depends on your level of debt, your assets and how much spare money you have after paying essential bills.
1. Informal Arrangement
If you are struggling with debt, your first port of call should be your creditors; explain your circumstances, request that they freeze interest and charges and try to negotiate reduced payments.
However, there is no guarantee that a lender will oblige you.
See more at Essential do's and don'ts when dealing with lenders
2. Debt Management Company (DMC)
You could employ a debt management company to do the negotiating with the creditors for you. The firm will act as a go-between for you and the lenders to whom you owe money.
The debt management company will contact the lenders on your behalf and draw up a debt plan between you and your lenders. Once the debt plan is ready you pay the debt management company monthly payments and it, in turn, will distribute payments to your lenders.
> More on Debt Management Companies
3. Debt Consolidation
Debt consolidation is where you obtain a new loan, either from the bank or through a secured loan on the house, in order to pay off your existing debts such as credit or store cards.
This can be useful if you can get a new loan at a far lower interest rate than credit agreements you are currently paying.
However, the downside is that, if you opt for a secured loan, you will be securing any debts on your house – putting this at risk should you default.
You also need to consider the period of repayment; if your new loan has a longer term that your previous debts, then you will end up paying more in interest over the long run.
> More on Debt Consolidation Loans
4. Individual Voluntary Arrangement (IVA)
Simply put, an IVA is a contract between you and your lenders whereby you put forward a proposal outlining your current financial position and make the best offer you can afford, either from current income or from a third party contribution in settlement of all your unsecured liabilities.
Contributions are normally paid monthly, typically over a period of 3 to 5 years. However a one off lump sum payment can also be made without the need to make the monthly payments.
If the IVA is accepted by lenders, then the arrangement is legally binding on both you and your lenders and no further interest is added from the date the arrangement begins.
Once you have completed your part of the contract (providing the terms of the IVA are complied with) then the lenders have no recourse over that debt and it is deemed to have been legally discharged, any outstanding debt is written off.
> More on What is an IVA? IVA Pros and Cons IVA Information (most popular questions and answers)
5. Debt Relief Orders
Debt relief orders became available on the 6 April 2009, and is a form of insolvency for people that have a certain amount of debt, little disposable income and few assets.
A debt relief order will help to place the least complicated debt discharge cases on a fasttrack through the court system with no personal appearance at court required.
> More on Debt Relief Orders
6. Bankruptcy
But be warned – going bankrupt is not a ‘get out of jail free card’.
Every bankruptcy case is decided upon its merits and you will be assessed to see if you can make a payment under an Income Payments Agreement (IPA) for a period of 36 months from the date of your bankruptcy order. Your conduct prior to going bankrupt will also be scrutinised to see if you were culpable by taking on credit knowing you could not pay it back, such as gambling or paying back family and friends ahead of normal lenders.
The official receiver could make you subject to a bankruptcy restriction order and not release you from bankruptcy for a number of years.
That said, bankruptcy is a lawful way of discharging your unsecured debts and it works for many individuals
> More on Bankruptcy
All these options, except for No.3 where you pay creditors in full, will affect your credit rating.
Debt Solutions Comparison Table
This chart illustrates a summary of possible debt solutions, you can easily compare and discover the best one for you to get out of debt.
We detail which options freezes interest, the ones that give debt relief and those that stop the creditors chasing you for the debts!
We also have more helpful links at the bottom of this page.
| Your questions |
IVA |
Bankruptcy |
Debt Relief Orders |
Debt Management |
Debt Consolidation |
| Is the interest guaranteed to be stopped? |
Yes |
Yes |
Yes |
No |
No |
| Are charges guaranteed to be stopped? |
Yes |
Yes |
Yes |
No |
No |
| Will part of my debt be written off? |
Yes |
Yes |
Yes |
No |
No |
| Will my debts be cleared over an agreed period? |
Yes |
Yes |
Yes |
No |
No |
| Will my creditors stop chasing me for payment? |
Yes |
Yes |
Yes |
No |
No |
| Will I keep in control of the situation? |
Yes |
Yes |
Yes |
No |
No |
| Will I avoid the stigma of bankruptcy? |
Yes |
No |
No |
Yes |
Yes |
| Will I be able to keep my house? |
Yes1 |
No1 |
N/A |
Yes |
Yes |
| Is the procedure confidential? |
No2 |
No2 |
No2 |
Yes |
Yes |
| Is my name and address kept out of the local newspaper? |
Yes |
Yes2 |
Yes2 |
Yes |
Yes |
| Is the service provider professionally qualified and licensed? |
Yes |
Yes |
Yes4 |
Yes3 |
Yes3 |
| Number of Yes's |
10 |
8 |
8 |
5 |
5 |
No1 - This depends on your circumstances as in some instances you may still be able to keep your home. If for example you have no equity or if the equity amount is on the low side then your partner, family member or friend may be able to purchase your share of the equity from the Official Receiver or Trustee that is appointed to oversee your affairs.
No2 - There is a public register that holds details of all current bankrupts including DROs and IVAs.
Yes1 - You usually do in an IVA, however the lenders may ask that you remortgage your home on year 4 of the arrangement and inject some equity, if this is not possible then sometimes you extend the IVA payments by 12 months to allow for this.
Yes2 - Is my name and address kept out of the local newspaper?
As from the 6th April 2009 most honest and cooperative consumer bankrupts will not be advertised in the local paper this will include sole traders. Only those cases that the Official Receiver warrants public interest will still be advertised. More on this can be found here; Massive unreported change in bankruptcy policy.
Yes3 - How do you find out if a firm holds a Consumer Credit Licence to operate?
The OFT has recently formed a 'Consumer Credit Public Register' that lists everyone with an OFT licence. This will also include anyone that has previously applied for one or has had one taken away or suspended. The register will also detail trading names and the activities for which a business is licensed.
You will not be charged to gain access to this information, it's free.
To search click on 'Consumer Credit Public Register' then click on CCA SEARCH or telephone 020 7211 8608, between 9.30am and 4pm, Monday to Friday.
If you find that the firm is not licensed then be very careful about proceeding with their services.
Yes4 - DROs are usually handled by the Citizens Advice Bureau.
Debtwizard guide to Bankruptcy , Debt Relief Orders (DROs), Debt Management Plans, Debt Consolidation Loans, What is an IVA?, IVA Pros and Cons, IVA Information (most popular questions and answers) Budget wizard free!! and Debt Survival Kit.
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REMEMBER, it is not a crime to be in debt - always insist that you are treated with respect
