Debt Management Plans (DMPs)

A Debt Management Plan is a formal agreement between you and your creditors managed by a third-party. It allows you to pay off your debts at a more manageable rate. This solution is suitable for those with non-priority debts like credit cards, overdrafts, or personal loans.

Pros: Reduces the number of individual payments you need to keep track of each month, possibly reducing interest rates and charges.

Cons: Your credit score may be affected, and it’s not legally binding, so creditors can still contact you.

For more information on DMPs, check out StepChange.

Individual Voluntary Arrangements (IVAs)

An Individual Voluntary Arrangement is a legally binding agreement between you and your creditors where debt is paid over a set period (usually around five years). At the end of the IVA, remaining debts are written off.

Pros: Protects you from legal action from creditors and writes off a portion of your debts at the end of the term.

Cons: It can have a significant impact on your credit score and public records.

Read more about IVA services from Citizens Advice.

Debt Relief Orders (DROs)

A Debt Relief Order is an option for those with a lower income and few assets, allowing you to freeze debt repayments and interest for a year. If your financial situation hasn’t improved by then, your debts may be written off.

Pros: Low-cost alternative to bankruptcy, suitable for smaller amounts of debt.

Cons: Strict eligibility criteria, including a maximum debt limit and low disposable income.

For eligibility and application, see National Debtline.

Bankruptcy

Bankruptcy is a court-based procedure for those who cannot repay their debts. It involves selling assets to cover your debts. This option may be considered a last resort due to its severe impact on your financial status.

Pros: Debts are mostly written off, releasing you from further repayment obligations.

Cons: Serious implications for your credit rating and asset ownership.

Understand more about bankruptcy at GOV.UK.

Actionable Tips to Start Tackling Your Debt

• Evaluate Your Debts: List all your debts, including amounts owed, interest rates, and due dates. Prioritize debts according to the interest rates or the snowball method.
• Create a Budget: Keep track of your income and expenses. Identify areas where you can cut back to allocate more towards your debt repayment.
• Seek Professional Advice: Consulting with a financial advisor or a debt counselling service can provide customized guidance based on your circumstances.
• Stay Informed: Laws and solutions regarding debt can change; hence, staying informed through credible resources is crucial.