Tackling your debts

What different debt approaches are there?

Posted 11 July 2012

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Here are three debt solutions that could help you find a way out of debt problems - depending on your situation.

There is more than one type of debt problem. As a result, there is more than one type of debt approach available.

Depending on where you live, how much debt you have, your income and your overall financial situation, there could be a professional approach that will help you get your debt problems under control.

You can read about the Scotland-only ways of dealing with debt here. In the meantime, here are three of the most common debt solutions available.

Debt management plan

A debt management plan could be suitable if you:

• Have more than one unsecured debt

• Cannot afford to make your original repayments

• Can afford reduced monthly payments

• Can repay what you owe in full (if more slowly).

There's more debt management information on this page.


If your lenders agree to a debt management plan, you'd repay your debts in full, with single monthly payments you should be able to afford (as they'll be calculated to fit around your essentials, e.g. rent/mortgage, heating & lighting).

Making smaller payments will damage your credit rating for up to six years, and repaying your debts over a longer period could be more expensive overall (as interest will grow for longer too, unless your lenders agree to freeze it).

However, a major advantage of a debt management plan is that you'll be repaying your unsecured debts at a realistic pace - so you can get your debt problems under control.


You may qualify for an IVA (Individual Voluntary Arrangement) if you:

• Have more than one unsecured debt

• Cannot afford to repay your lenders in a reasonable timeframe

• Can commit to lower payments over an agreed period (usually 5 years)

• Live in England, Wales or Northern Ireland

If enough of your lenders agree to an IVA, you'll begin making new payments that will be reduced to a level you can afford around all your essential outgoings (e.g. rent/mortgage, food and Council Tax).

As long as you stick to your side of the arrangement - which could include releasing some equity if you're a homeowner - your unsecured lenders won't be able to take any further action against you, and they'll agree to write off any outstanding debt included in your IVA once it successfully ends.


However, releasing equity by remortgaging could be difficult, since lenders will see that you’re on an IVA. You might have to pay a higher interest rate, or you might not be able to remortgage at all … in which case your IVA might be extended by up to 12 months instead. If your IVA fails, be aware that this could lead to bankruptcy.

Finally, an IVA will affect your credit rating for six years. You could find out if you qualify for an IVA by clicking here.


Bankruptcy could be the best way for you to deal with serious debt problems if:

• You can't afford to repay your unsecured debts in any kind of reasonable period

• You've considered all other debt approaches and they're not suitable.

The basic idea of bankruptcy is that you'll make payments of what you can afford - accounting for all your essential costs (e.g. rent/mortgage, utilities and bills) - for up to three years.

Your unsecured lenders will be prevented from taking any further action against you once you're declared bankrupt. However, any assets and non-essential items you have - and, if you're a homeowner, your home - may be sold in order to repay what you owe.

You can read our bankruptcy FAQs here.

Bankruptcy will affect your credit rating for six years, but once you're successfully discharged (typically after 12 months), any remaining debts included in your bankruptcy will be written off.

Which approach is right for me?

These are just three of the debt solutions available that could help you. You should speak to a professional debt adviser to find the best option for you.



by Sarah Symons

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