If you’re not eligible for a DRO, there are other debt solutions available, which may be more suitable for your situation – each comes with its own benefits and consequences. It’s good to get an understanding of all the different solutions and speak to an expert who will be able to advise which is the most suitable for you.
If you can’t afford to pay back your unsecured debts in a reasonable amount of time, bankruptcy could be an option.
You’ll only have to make payments towards your debts if you can afford to, and if you can, you will only pay back what you can afford once all of your essential living costs are accounted for – for example, your rent, mortgage, food bills, utilities and travel costs. These payments can continue for up to three years. You’ll usually be discharged from bankruptcy after 12 months and whatever you can’t afford to pay will be written off.
There are consequences to bankruptcy. For example, some of your assets, including your home if you own it, may be sold to repay your debts. As with any default registered on your credit report, it will stay on there for six years. This means that your credit rating will be affected during that time, and potentially beyond this period, as you may be asked if you have ever been bankrupt when you make applications for credit in the future. Your details will also be recorded on the Insolvency Register until three months after you’re discharged.
Find out more about bankruptcy in our detailed guide here.
Individual Voluntary Arrangement (IVA)
An Individual Voluntary Arrangement (IVA) lets you pay back as much of the unsecured debt you have as you can by making regular payments, usually over a five year period. Once successfully completed, it writes off any unsecured debt balances outstanding, that were included in the IVA.
The regular payments, which will be affordable and sustainable, will take into account your essential living costs, such as your rent, mortgage, food bills, utilities and travel costs.
An IVA does come with consequences – for example, if you own your own home, you may be asked to try and release some of the equity in your property in the last 12 months of the Arrangement to put towards your debts. If you’re unable to do this, the Arrangement may be extended for up to an extra 12 months. Your details will also appear on the Insolvency Register, which is available to the public, whilst the IVA is running and for three months after it’s finished.
IVAs are only available to residents of England, Wales and Northern Ireland.
Find out more about IVAs in our detailed guide here.
Debt Management Plan
A Debt Management Plan could help you repay all of the money you owe, but over a longer period of time and in more manageable and sustainable monthly amounts. These payments will take into consideration your essential living costs, such as your rent, mortgage, food, utility bills and travel costs.
You can speak to your lenders directly, or choose a Debt Management Plan provider to negotiate a new lower monthly payment, which is then distributed between your lenders. You or your provider can also ask your lenders to freeze charges and interest on your accounts too. Your lenders do not have to agree to do this, however if they can see that you are genuinely struggling with your finances, they often will do.
There are consequences associated with Debt Management Plans. As an example, your credit rating will be negatively affected, making it harder for you to obtain credit in the short to medium term, and could affect you in the longer term too.
Find out more about DMPs in our detailed guide here.
Debt consolidation loan
If you’re finding it difficult to manage your debt repayments, but think that you could get them under control if they were simplified, a debt consolidation loan could help as they allow you to repay your debts at a reduced rate over a longer period of time.
With a debt consolidation loan, you take out new credit to pay off your existing credit, and combine your existing debts into one monthly payment, which should be easier than having to make lots of smaller payments each month. As you’ll be paying the new loan off over a longer time period, the monthly payments may be smaller, but this could mean that you pay more overall.
It’s really important with a debt consolidation loan that you’re confident you can make the repayments each month, as otherwise you may end up owing even more than you started with. This is particularly important if the loan you take out is secured against your property, as missing payments could mean your home is repossessed.
Find out more about debt consolidation loans in our detailed guide here.