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Life after debt

Life after a debt solution

Posted 23 April 2016

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Completing a debt solution can feel exciting and liberating – but what will life be like when it finishes? Find out more in our blog.

Entering a debt solution after months or even years of worrying about your debts can feel like you’ve finally caught sight of the light at the end of a very long tunnel. And coming to the end of that debt solution, it may feel like life has never looked brighter.

But what lies at the end of that tunnel? In this blog, we will look at what life’s like after a debt solution. 


The end is in sight

The debt solution you’re on will depend on your personal circumstances. Similarly, what happens at the end of that solution will depend on the one you’ve chosen.

For example, if you’re on a Debt Management Plan , successfully reaching the end means that you have paid back everything you owe that was included on the plan. The time this takes will depend on the level of debt you have.

If, on the other hand, you’re on an IVA, providing you have made all of your payments into it, any outstanding debts included in it will be written off at the end. If you’re a homeowner, you may need to release equity from your property six months before the end to pay towards the unsecured debts on your IVA. If you can’t raise the funds you need by remortgaging, you may need to make contributions towards your IVA for up to another 12 months before the balance is written off, unless you made a lump sum contribution at the start of it.

Completing bankruptcy, meanwhile, is known as being “discharged”. Usually one year after being declared bankrupt you will be discharged by the court from any remaining debts – providing you’ve kept to the terms of your bankruptcy. The exception to this rule is if you have a disposable income that isn’t made up solely of benefits. If this is the case you will still be discharged after a year but you’ll be expected to pay into the bankruptcy for up to three years.

Whichever debt solution you’re on, the provider will be able to guide you through the whole process. If you have any questions about what to expect at the end of a particular debt solution, you can get in touch with one of our financial advisors by using any of the options on the left of this page.


A fresh financial start

Completing a debt solution means you have a fresh financial start. The unsecured debts included in the solution will have either been paid off or written off and any spending restrictions are lifted.

This is a good time to sit down and write up a new household budget. While your unsecured debts will no longer be something you need to worry about, you’ll still need to keep on top of other regular expenses. As well as essentials like your utility bills and food shopping, you’ll need to keep paying any secured debts you have, like your mortgage or car finance. These are not included in debt solutions and if you don’t keep up with them, your home or car could be at risk of repossession.

When your unsecured debts are gone and any spending restrictions placed on you are over, it can feel as though you’re suddenly quite flush with cash. That’s why it’s so important to create a strict budget you can follow, so that you don’t start to fall behind with your most important outgoings. You could then save the spare money that previously went towards your unsecured debts to create an emergency fund by starting to save. This can be a real help when something unexpected happens, like your oven packs in or your car breaks down.


Your credit history will be affected

Missing repayments towards your debts shows up on your credit history, so before you even start a debt solution there may have been a negative impact on your record of borrowing. If there hasn’t, entering a debt solution will affect your credit history.

So, what does this mean in practice? Well, when you apply for credit a lender runs a credit check on you. They do this by accessing your credit history, which is a record of all your borrowing over the last six years. Not only does it show all the accounts you’ve had during this time – whether or not they’re active – but it also shows whether you have made your repayments on time or missed them entirely.

Lenders use this as a way of measuring how responsible a borrower they think you will be if they lend to you. So, if they can see that you always make your repayments on time each month, this should go in your favour, and if they can see that you’ve fallen behind with your repayments or regularly miss them, this probably won’t. And because all of this information remains on your credit history for six years, they will base their decision on how well you’ve managed your money over this period as well their own criteria

If you have entered a formal debt solution, this is a sign to lenders that you have struggled with borrowing in the past, and – just like if they can see that you regularly miss repayments – this may make them unwilling to lend to you. The fact that you have been on a debt solution (with the exception of a Debt Management Plan, in which case any defaults will show up instead) will show up on your credit history from the date it begins, so you may find borrowing is difficult during this time – even if your debt solution is over.


Recover and rebuild

When your debt solution finishes, you can start to focus on creating an emergency fund and letting your credit history recover. Because you no longer have to make payments towards your unsecured debts, you should find it is easier to make ends meet and stay on top of your expenses without borrowing more.

However, even though you may not need to borrow to get by, it can be a good idea to start using some credit responsibly to rebuild your credit history. There are lenders who specialise in customers who have struggled with borrowing in the past. Look at your budget and work out how much you can comfortably afford to repay each month once your other expenses are taken out – and remember it’s a good idea to still have some cash spare after this to save.

You should think carefully about what type of credit you take out. A credit card with a small limit might be one option, as you’ll have the peace of mind that you can’t borrow more than you can afford to repay. Try to pay back the full balance each month so that you avoid any interest, and if you feel as though you’re struggling let your lender know as soon as possible.

By showing you can repay what you owe on time each month, your credit history will start to improve. This should open you up to more lenders and better deals in the future. But again, you should think very carefully before taking out any new borrowing.

We hope this guide has provided you with an idea of what you can expect once your debt solution ends. If you would like to chat to one of our debt advisors about whether a debt solution might be right for you, get in touch through one of the options on the left.

by Kyri Levendi

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.