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What Options Do I Have When I’m In Debt?
If you have debts of over £5000, you may be able to write off your debt with an IVA

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When you’re in debt, life can be hard to enjoy. It feels as if you’re carrying around a weight on your shoulders that seems to get heavier every week, and there’s no way to lift the burden and catch your breath.

The majority of households in the UK have some form of debt, including their mortgage, credit cards, and some manage to meet their monthly payment obligations without an issue. But what about the people that can’t?

If you’re struggling with debt, then the first thing you should do is take a moment to tell yourself that there is a solution to your problems.

In this guide, we’ll reveal what to do if you owe money you can’t pay back and discuss the many options available to help you become debt-free.

Evaluate Your Situation

Before exploring your options, it’s essential to gain a complete perspective of how severe your debt is. For example, some people might think they’re in debt, but it’s more a matter of poor money management.

If you can afford your essential living costs and should have enough left over to pay your debts, you might be buying non-essential items that are impacting your finances.

Takeaways, nights out, expensive TV subscriptions and luxuries can add up, so look at your monthly outgoings and see if you can cut back on your spending to pay off your debts.

Are You in Debt Crisis?

Being in debt and it being an actual crisis are two very different things. If you’re unable to pay your essential living costs, including minimum credit card payments, mortgage/rent, utility bills and food, then it’s likely your debt has reached crisis level.

However, struggling to manage your debts and being short of money each month is a good sign that you’re not in a crisis while you have debt issues.

The good news is that anyone struggling with debts can find a way out; they just don’t know it. In the next section, we’ll look at ways you can get out of debt – depending on your circumstances.

What If I’m In Debt and Can’t Budget Properly?

If you find yourself struggling to make ends meet each month, going through your incomings and outgoings can make a big difference in managing money. With online payments and credit cards being so accessible, people often struggle to set and maintain spending limits.

By cutting out your unnecessary spending, you’ll be able to pay for essential items such as your household bills and credit card debts.

A debt advice service can help you create and maintain a monthly budget, and popular places to turn to include:

  • Your Local Citizens Advice Bureau

  • Money Advice Service

  • Stepchange Debt Charity

As it’s likely you only need help to manage your money, a free debt advice service should help you manage priority debts.

How Do I Get Out Of Debt With No Money?

While being in a debt crisis can seem like the end of the world, in most cases, there’s always a way to navigate your way out of financial issues. There are many options to explore, and even though bankruptcy is a last resort, it can still relieve you of debt.

Reduce Your Debt

The most effective way to reduce your debt is by transferring your credit card balance. This can be invaluable for people with good to excellent credit scores because it often means you can transfer your existing debt to a lower-interest card.

Some cards even offer 0% interest when you make the balance transfer, which gives you some breathing space to pay off all your debts and maintain a clean credit file.

Your current credit card agency might let you move debts to them, which might seem counter-intuitive, but it can make it easier to pay off your debts, and some companies will even offer you savings.

Speak to Utility Providers

Most energy providers have special schemes in place for people who are struggling to pay their household bills. If you’re a customer of the UK’s most recognised providers, including British Gas, E.on and Scottish Power, you might be able to apply for a grant.

In general, utility providers understand and accept small payments because they’re a sign of goodwill.

See If You’re Eligible For Government Support

The government has a couple of schemes to help people in debt, but there are some strict eligibility rules. Every council in the UK can help families with clothing and household essentials, but it’s all at the council’s discretion.

To put it simply, getting help depends on where you live, what your local council offers and whether they deem you in need.

Budgeting loans can also be helpful, but they’re only available for benefit recipients. They’re interest-free, and your repayments can be taken from your benefits, but you will have to pack back everything you borrowed.

JobCentre Plus deals with most budgeting loan applications and has to choose who is most in need, so you might not receive the money you’re asking for.

When Is Specialist Debt Advice The Best Option?

If you try the above options and still find that you cannot manage your debts, then seeking relief might be the only way to get back to normal. As bankruptcy should always be a last resort, let’s look at two other effective ways to help you become debt-free sooner.

Debt Relief Order

Debt relief orders are available if you have less than £30,000 in debt and under £2000 in savings. To obtain a debt relief order, you’ll also need to show you don’t own a property. The primary purpose of this money management solution is to protect people that cannot pay the money they owe.

Once the order comes into effect, you won’t have to make any payments for 12 months. After that time passes, your debts will be written off, but they will remain on your file for six years.

While debt relief orders seem like a good solution, you need to prove that you can’t pay back the money, and it will impact your credit score.

Creditors will also look unfavourably at a debt relief order because if you defaulted on your repayments before, it could happen again. This makes it difficult to secure mortgages, financing, credit cards and personal loans.

Individual Voluntary Arrangement (IVA)

Another option available to you is an Individual Voluntary Arrangement, which is ideal if you’re on a low income and need to find a debt solution that helps you pay back the money over a period of time. If you can afford to pay a minimum of £80 a month and have two or more separate debts, an IVA enables you to consolidate them.

When you make an appointment with your local free debt advice service, the debt advisers will look at which options could suit you. Then, you’ll be referred to an insolvency practitioner to discuss your financial situation and what your obligations might be when taking out an IVA.

Your practitioner will draft a proposal and put it forward to your creditors, who have the opportunity to decline. However, most will agree because their ultimate goal is to receive the money you owe them, and even if this takes longer, it’s better than using bailiffs.

You should be aware that an IVA is a legally binding agreement, which places restrictions on how much credit you apply for, and your payments will rise if your income increases. However, once six years pass, you can rebuild your credit and be debt-free.

Steps to Take

Hopefully, this guide gives you an idea of what you need to do. Following these steps will make managing your debt a lot easier.

Evaluate & Analyse

Looking at your incomings and outgoings might be a daunting process, but it lets you know how your household income covers essential bills such as council tax, energy bills, and groceries. Once you’re able to look at your spending habits, you can either learn how to budget more or seek some debt advice.

Get Free Debt Advice

As we mentioned previously, the Citizens Advice Bureau and Stepchange offer confidential advice about unsecured and secured debt. Your advisor will discuss your options and signpost you to a proper debt management plan provider.

Meet With an Insolvency Practitioner

Meeting with an insolvency practitioner or an intermediary enables you to access both forms of debt solutions. While the agreement is active, it’s also a good idea to seek money guidance to make sure you can manage your household income without borrowing money in the future.

Please don’t hesitate to contact us today for free advice. Our goal is to help you tackle debts head-on, and we’re confident that regardless of your personal circumstances, we can help you explore your options head-on.

We’ve put together and managed Individual Voluntary Arrangements for a range of clients from all walks of life and specialise in solving debt problems. Get in touch today, and we’ll help you get back on track.