Debt Solutions: Your options

An overview of the most popular debt solutions

When you’re in a difficult financial situation it is often hard to know which way to turn. In the UK there are many debt solutions available to help you get back on top of your debts.

Debt solutions are either formal or informal arrangements made between you and your creditors (the people you owe money to).  You will typically repay your debts at an affordable amount each month until the debt is repaid as agreed with your creditors.

Formal debt solutions, such as an Individual Voluntary Arrangement (IVA), creditors will freeze interest and charges with a large proportion of the total debt is written off at the end of the agreement.

With informal solutions it is not guaranteed interest and charges will be frozen, however they might be the most appropriate solution based your individual circumstances.

Debt solutions explained

Here is an overview of the most popular debt solutions available in England, Wales and Northern Ireland.

Still unsure about your options? Call our expert team today on 0800 047 8680.

Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangement (IVA) could be a way to avoid bankruptcy, keep your home and become debt free – usually after five years.

Debt Solution Type
  • Formal Insolvency
Advantages
  • Write off up to 85% of unsecured debt
  • One low monthly payment as little as £85
  • All interest and charges frozen
Points to consider
  • IVAs typically last up to five years to complete
  • An IVA will remain on your credit file for six years
  • Creditors will vote to either accept or reject an IVA proposal
Criteria
  • Minimum monthly payment of £85 per month
  • Minimum debt level of £6,000 and two creditors

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Bankruptcy

Bankruptcy is a formal insolvency route for individuals with debts that they cannot pay.

Debt Solution Type
  • Formal Insolvency
Advantages
  • All unsecured debts will be written off
  • You will receive no further contact from your creditors
  • You will become debt free in 12 months
Points to consider
  • Fee of £680 to apply for bankruptcy
  • Bankruptcy will remain on your credit file for six years
  • Any income you have in excess of that needed for your basic needs will have to be paid to your creditors for a three-year period as part of an Income Payments Agreement
Criteria
  • Pay upfront fee of £680 to apply for bankruptcy, although a saving scheme is available you will need to save up the full amount before you can apply.
  • Minimum debt level of £5,000 and one creditor

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Debt Relief Order (DRO)

A Debt Relief Order (DRO) is a formal insolvency process that can help you deal with your debts if you owe less than £20,000, don’t own your home, have savings or own things of a value less than £1,000 and have little spare income.

Debt Solution Type
  • Formal Insolvency
Advantages
  • All unsecured debts will be written off
  • You will receive no further contact from your creditors
  • You will become debt free in 12 months
Points to consider
  • Upfront fee of £90 to apply for a DRO, which can be paid in full or by instalments
  • A DRO will remain on public record 15 months and your credit file for six years
  • If any of your debts are for goods bought on hire purchase, you may need to give the goods back
Criteria
  • Owe less than £20,000 in unsecured debts
  • Disposable income of no more than £50 per month
  • Not a homeowner, have savings or own things of a value less than £1,000 and have a vehicle worth more than £1,000

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Debt Management

A Debt Management Plan (DMP) is an informal arrangement made with your creditors to pay a monthly amount that you can afford.

Debt Solution Type
  • Informal debt solution
Advantages
  • An informal arrangement with your creditors
  • No upfront fees for debt management
  • One monthly payment towards your debts
Points to consider
  • Interest and charges may not be frozen by your creditors
  • Lower repayments mean it can take much longer to become debt free
  • Creditors are not obliged to accept your offer or change their minds at any time
Criteria
  • That you can afford to pay something towards your debts

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Debt Consolidation

Debt consolidation involves transferring debts with higher interest rates into one loan with a lower interest rate.

Debt Solution Type
  • Consolidation loan
Advantages
  • Consolidates your debts into one monthly payment
  • It could lower your monthly repayments
  • It could help repay your debts sooner
Points to consider
  • If your credit rating is low you may not be approved for a loan
  • It could carry a higher interest rate and increase your total debt owed
  • You may have to take out a longer term to make the loan affordable
Criteria
  • Criteria dependent on the loan provider

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