Need Debt Help? Here’s a 7-step Action Plan
Did you know the average debt per UK household is £15,400?
Debt can be difficult for anyone to deal with – and it’s not just about huge credit card bills or loans from big banks. You could find yourself in over your head without understanding how much money you owe on various accounts and what penalties may apply when they’re overdue.
But do not fear; there are ways out of this mess!
We specialise in providing quick and easy advice relating specifically to debts, but more on that later.
There’s a lot of information out there, and we don’t want to overload you with financial jargon or leave you feeling more stressed than before by leaving anything unsaid. So we will try to be as concise and clear as possible when providing you with debt advice.
The aim of this guide is to give you a plan of action that can help solve your financial problems by reducing or eliminating debt, whether it’s a personal loan or even some outstanding invoices which are affecting your business.
That’s why we developed this simple 7-step action plan for debt help:
1) Collect Information About Your Debts
To make effective decisions, you first need to know exactly what you’re dealing with – so get the full picture.
The data may seem daunting when you see all your debts in one place but don’t despair!
This process will help no matter how worrying it feels at first glance. That’s because interest rates and late payment charges only pile on more costs over a long period of time.
If you put this off any longer, rather than facing up to the debt, there won’t be time for changes like debt consolidation or other repayment plans before legal action is taken against you.
Examples of debts you may have include:
- property rental arrears
- credit card debts
- council tax arrears
- utility bills
- loans from friends or family
Now go through your debts in turn and add specific details to each. Here’s what to include:
- the person or company you owe the money to (known as a creditor)
- how much do you currently owe
- the amount of time the payment has been overdue
- the interest or charge rate on this debt
- the collection action taken so far (e.g. have you received letters, gone to court, or been visited by bailiffs?)
2) Check If You Have to Pay The Debt (Contact Your Creditors)
In most cases, you will be legally obliged to pay the debts that are listed on your credit report. However, there are some circumstances where you may not be liable for paying a debt.
There are some cases where you might not have to pay a loan:
- If it has been more than 6 years since you last made a payment to the creditor or had any contact with them (although you may still be taken to court).
- There was an issue with the original agreement. For example, you signed a contract under duress
- You were an additional cardholder (e.g. the debt is in the name of your spouse)
- If you’re under 18
For each debt you have, it is essential to check the liability and plan for repayment accordingly. If your debts are not considered a high priority or if they require only a small payment amount as interest-only payments then it’s best to keep them separate from other liabilities so that repayments will be more manageable.
Too many people make the mistake of thinking that their debt will just go away on its own. They stop paying and then wait for something to happen. But this is not a good idea!
You need to speak with your creditors as soon as possible if there’s any chance they can still take action against you – which might be the case depending on what kind of debt we’re talking about.
You may be feeling a little discouraged if you are having trouble with debt, but the good news is that there are steps to take in order to make it better.
3) Create a Priority List for Paying Your Debts
The first step is to decide which debts are going to cause you the most problems. These will be your priority debts or urgent ones that need dealing with as soon as possible.
From this list of debts, pick out a few of them and focus on these for now so they’re dealt with before anything else comes up – like causing serious consequences you don’t want hanging over your head!
The following are all examples of priority debts:
- rent arrears
- mortgage arrears or secured loan arrears
- council tax arrears
- gas and electricity bills
- TV license payments
- court fines
If you’re in debt and have any of the above, those should be your top priority. Failure to repay this type of debt is likely to result in court action and bailiff visits – which can make life difficult for anyone who has them turn up at their house or work!
If you’ve got more than one from that list, it might not be so obvious what’s most important for you financially right now. Of course, we want all debts paid off as soon as possible but sometimes combining a few together into one payment may help meet some financial obligations quicker.
Get free debt advice about how best to do this by contacting us today.
When you have finished developing a list of your priority debts, it’s time to focus on those less serious but still important non-priority ones.
Examples of non-priority debts include:
- credit card debts
- store card debts
- unsecured loans
- water bills
- parking fines and tickets
- debts to family/friends
4) Consider Options to Increase your Income
A) Claiming Benefits & Welfare Assistance
You can use an online benefits calculator to get a quick idea of whether you may be legally entitled to benefits that you’re not claiming.
If you fall under one of these categories, it is more likely that this will be the case.
- Low income
- Currently looking for work
- Those who are disabled or sick
- A carer, parent, or guardian
You may be eligible for welfare assistance to help you pay some of your essential living expenses. Every local council is different and your eligibility will depend on where you live.
You can apply if you are eligible for Universal Credit or income-based work and support allowance. For more information, you can visit the website of your local council.
B) Checking Wage Deductions & Tax
Many people don’t pay enough attention to their wages slips. So long as the money comes in right?
But not so fast. Many people pay too much tax or suffer excessive wage deductions. If you are currently employed, it is a good idea to take the time and review your wages slips and tax code. Any information that is unclear or difficult to understand should be pointed out to your employer and HMRC.
You could also be eligible for tax relief or a tax refund on past payments. Check this out using the links below:
C) Discretionary Housing Payment (DHP)
If you qualify for housing benefits but still can’t afford your rent, you may be able to apply for a discretionary housing payment (DHP). To apply for this, you’ll need to contact your local council.
5) Reduce Your Living Costs
Reduce your daily living expenses can make a big difference in reducing your debt. Don’t underestimate its importance.
You may, for example:
- get a discount on your council tax
- Switch to a lower-priced deal on your electricity and gas
- get a water meter fitted (so you only pay for the water you use)
- Switching to a lower-priced broadband, TV or phone deal
- Apply for a railcard to get a cheaper ticket
- save money by buying a prepayment certificate for your health prescriptions
6) Know Your Debt Management Options
It’s time to take a step back and look at your debt. You may be in the process of trying to do everything yourself, but there are many ways you can reduce it – some that will even give you more control over when and how much money is paid back.
The below options are all popular debt management solutions for those looking for an answer:
- Individual Voluntary Arrangements– an IVA is a form of debt relief. If you have more than £5000 in unsecured debt, insolvency practitioners can help you consolidate all your debts and make one monthly payment. This is usually for five years.
- Debt Management Plans (DMPs) – A debt management company will help you deal with your debts. They will also look to stop interest and charges from your credit cards. This is often referred to as a “debt management plan” and is a temporary way to reduce debt, as there is no debt that can be written off.
- Trust Deed Scotland – If you live in Scotland and have more than £5000 of unsecured debt, you may be eligible for a Scottish Trust Deed. This may be the right choice for you.
- Bankruptcy – Bankruptcy is often considered as a last resort because it can have some unfavourable consequences in the long run.
- Debt Relief Order – A DRO is a good option if your total liabilities are less than £20,000 if you have a low income, and you don’t have any assets.
7) Seek Professional Help from a Debt Management Company – Free Debt Advice UK
It’s important to get the right help when it comes to debt management. We offer free advice (UK) so that you’re confident in your decision and can clear up any worries about what path is best for you.
Let us review your financial situation, give guidance on options available, and ensure that no matter which option we choose together – whether a lump sum payment or monthly instalments-we’ll be able to make progress towards freedom from money worries.
To do this, all we need is some general information about your bills and lifestyle. Don’t worry if you can’t get a hold of your liabilities, because our advisors will be able to run a search through your credit files for the info.
What are you waiting around for?
Our professionals have been trained in every aspect of finance so that they’re ready to help with any questions or concerns.
To give you an idea, here’s the kind of thing we’ll need:
- credit card balances
- loan balances
- overdraft balances
- any other types of debts (such as payday loans, catalogues, etc)
- 3 months payslips
- 3 months bank statements
- proof of ID (driving license or passport)
- gas and electricity outgoings
- rent or mortgage details
- childcare details
- travel expenses
- food costs
- housekeeping costs
- phone costs
- entertainment costs
Frequently Asked Questions
How do I get out of debt?
Your options depend on the amount of money and assets you have, but before we go any further let’s talk about why debt is so bad for your financial health.
Firstly, it takes a big chunk out of your earnings every month. Secondly, it can really affect what you do in retirement because many people use their savings to pay off debts they’ve accumulated over time when there are no more income sources coming in from work or investments such as rental property maintenance fees (or house payments).
The best way to deal with debt depends largely on how much money and other assets that person has available at their disposal, i.e. how much you can afford to pay.
Speak to an insolvency practitioner or qualified debt adviser at IVA Advice about your options and let them make a plan that suits your current situation.
Do debt management companies charge fees?
Debt management companies charge varying fees for their services but most likely in the realm of 2-10%.
Broadly speaking, debt management companies help individuals organise their debt and service payments. They work with creditors to set up a debt management plan that helps avoid delinquency or bankruptcy proceedings.
They also offer budgeting advice and provide account holders with support while they overcome financial problems on their own.
How do I choose between a debt management plan and an IVA?
When choosing between an IVA or a Debt Management Plan, it is important to realise that if your debts are substantial enough and/or long-standing enough, then creditors may refuse to accept partial payments – only full repayments will be accepted. In that case, the one possible choice left would be bankruptcy protection – and at that point, all assets are available to be sold to pay off all debts.
However, with this in mind, the first point that you need to consider is whether or not your income is sufficient for a Debt Management Plan or an IVA option.
How do I get out of debt with no money?
If you don’t want to go bankrupt, the only option is to stop spending. You’ll have to cancel everything that isn’t essential–such as your internet connection, phone service etc, and then start cutting down on your existing expenses.
This will probably mean eating out less or not at all because it won’t leave much for groceries. But once you’re done with cutting back on everything but essentials like electricity and gas, keep it up until you’ve whittled away what little discretionary income you had left–and then cut down as much as possible on recurring charges that are necessary such as rent/mortgage payments.
For example, people with department store cards would have to cut down or cancel store credit altogether because department stores might be convenient, but their prices are high compared to most other places. If you must buy from a department store then it’s best to use coupons and wait for sales before buying anything–even if it means making do with less until then.
To drive this point home, it’s also best to choose retail outlets that offer discounts and other incentives for regular customers. It might take more time but it is better than paying full price.
And if you have a car loan then you will need to cut back on your driving, or just sell the car outright–as this would save a lot more money than fuel costs.
Can Citizens Advice help with a debt management plan?
Citizens Advice provides free, impartial and confidential advice to help people solve their legal or money worries – whether they are living in Wembley (London) or Liverpool.
Citizens Advice provides a telephone advisory service and in-person offices in 146 locations across England, Wales and Scotland. The type of problems the charity helps with include Money Troubles; Crisis Loans; Employment Rights; Welfare Benefits; Bad Tenant Debts.
Problems that are new or acute can be dealt with immediately over the phone while less urgent problems can be solved quickly without any cost by visiting an in-person office.
Is StepChange a Debt Management Charity?
StepChange Debt Charity is one of the UK’s leading charities for problem debt.
Visit their website to see what services they offer and get in touch for free advice at https://www.stepchange.org/
StepChange Debt Charity and StepChange Debt Charity Scotland. A registered charity no.1016630 and SC046263. It is a limited company registered in England and Wales (company no:2757055). Authorised and regulated by the Financial Conduct Authority (Firm Registration Number 729047 )
What are the most popular debt solutions?
An Individual Voluntary Arrangement, or IVA, is an arrangement between you and your creditors where a debt management company sets up a schedule to pay off as much as you can afford over a period of time – usually five years.
During the agreement, any money owed will be reported to credit agencies so make sure that when you get them to sign anything they agree it won’t affect your ability to borrow money again at all in the future.
Where can I get free debt advice?
You can get free debt advice from IVA Advice. While many people may be wary of asking for help, it’s important to take responsibility for your situation.
We will offer you a plan that deals with all aspects of your financial situation, including debt advice on staggering payments in an affordable way until such time that you are dealing with only one interest rate instead of the high margin rates when there is more than one creditor against you.
Get Help with Debt Problems (UK) Today
That’s a lot of information to digest!
Just by reading this guide you already know more about debt management companies than most people ever will.
But if you need some extra help to solve your debt issues, it’s a great idea to seek professional guidance to make sure you choose the right option for your circumstances.
When you’re in debt, it can feel like there’s too much to manage.
After reading this guide on managing your debts and seeing how our team is here for you every step of the way, if any extra help with solving your financial problems will make a difference then we recommend consulting professional guidance from one of our experts before making an important decision about what steps to take next.