How Can I Tackle My Debts?

It is probably safe to presume that if you have landed on this page, you’ve acknowledged you may have a few money problems, and may be worried about interest and creditors? You’re hopefully now ready to tackle these issues head-on, start managing your debt and get your life back on track.

A personal approach

As with most things, there isn’t a one-size-fits-all approach to dealing with debts, it will all depend on what best works with your situation and circumstances. Everyone will be different, so make sure the path you take works for you, not your next door neighbour or best mate.

We have compiled a really brief overview of the major options available to help you take control of your debt. However, as with everything there is no perfect answer and quite often there are serious pros and cons of each to be aware of. Before you decide on the right route for you, ensure you are fully informed. There is lots of free and independent advice out there – make sure you are taking full advantage of it. One of the best places to start is probably the debt charity, Step Change.

Everyone will be different, so make sure the path you take works for you

Debt Management Plan:

A Debt Management Plan is an agreement between you and your creditors to pay off your debts. It offers you the help you need to manage your debts and pay them off at a more affordable rate, but you have to treat all your creditors equally and therefore everyone you owe money to must be included in the plan. The arrangement tends to run over a long period of time, whereby you make a single, regular (often monthly) payment to a licensed debt management company and they then distribute the money to creditors on your behalf.

Some organisations offer a great FREE Debt Management Plan, such as StepChange and National Debtline. Why not talk to them first?

However, be aware, most non-free Debt Management Companies will charge you up-front fees and a monthly administration fee. If you do decide to get in touch with a debt management company, always make sure they are licensed by the Office of Fair Trading.

Debt Relief Orders (DRO)

If you can’t afford to pay off your debts, you can apply for a Debt Relief Order. Essentially, the order offers an alternative, cheaper option to bankruptcy, however, some of the stipulations include having: unsecured debts of less than £20,000, assets or savings of no more than £1,000 (e.g. you don’t own your own house) and a low disposable income. The DRO customarily lasts a year, and at the end of that period all your debts will be written off – but bear in mind you may find it difficult to open a bank account.

The Citizens Advice Bureau and StepChange can give you further free, independent and confidential advice.

Individual Voluntary Arrangement (IVA)

Individual Voluntary Arrangement (IVA) is a legally binding agreement with your creditors to pay, all or part of, your debts. The IVA is based on a detailed assessment of your financial circumstances and has to be accepted by the majority of your creditors. It typically offers three different ways of repayment, including a monthly instalment plan over a fixed term (normally five years); or a short- term arrangement if you have an initial lump sum to put down; or a mixture of both.

IVAs can only be arranged through licensed insolvency practitioners (IP). Each IP is likely to vary in the amount of fees it charges and what circumstances they will accept etc, so make sure you do shop around first, to ensure you are getting the best rates. There is no point paying any more than you already have to!


Bankruptcy is a court order you can apply for if you’re not eligible for a DRO and your debts cannot be reasonably managed by another route. If you own your home, this is rarely the right choice as the property will usually be sold as part of the process. Once you have been declared bankrupt, you no longer have to deal with creditors. An Official Receiver is brought on board to take control of your money and property, and make contact with creditors.

People tend to consider bankruptcy if they are in a situation where they feel they have no money to pay off debts, or have so little that it would take them years to repay. Alternatively, someone you owe money to can apply to make you bankrupt. There is no denying that going down this route is an incredibly difficult decision to make, however there are numerous people and organisations out there that are ready to help.

If you decide to go bankrupt, you will need to apply for a court order – before you do this, try to make sure you have enough cash for day-to-day expenses as once a bankruptcy order is made, your accounts will be frozen.

It is also worth noting that bankruptcy works differently, depending on where you live in the UK, so make sure you are receiving the correct information for you.

Debt Consolidation

Sometimes the most challenging thing with unsecured debt (from personal loans to credit cards and overdrafts) is juggling numerous monthly repayments, together with different interest rates and charges. For that reason people who would prefer to deal with one monthly payment and one monthly interest rate, may decide to consolidate all their smaller debts into one large repayment. This is normally done via a Debt Consolidation Loan.

This is not for everyone and is important to be aware that debt consolidation may run the real risk of leaving you in a worse financial situation; particularly if you don’t cut up those credit cards, because you could soon end up with the loan, as well as more debt on the cards! A consolidation loan will help to preserve your credit history, but it will usually be much more expensive than a Debt Management Plan.

TIP If you are considering debt consolidation, you’ll need to budget enough to cover all your monthly household costs and work out how much you can reasonably afford to pay each month; Consolidation Calculator.

What if none of the above work for me?

As mentioned above, there isn’t one correct route for everyone; all of these options have pros and cons, and there is a possibility that only some or none of the above will be applicable to you. To know for sure what your best option is, speak to any of the free debt advice services available.

Even if you have large debts, you may find that technically you can actually afford the minimum repayments on your debts. Therefore if you feel you can cope with your debts, or after you are told by a debt advisor that you are in a position to meet your minimum repayments, you need to think about how you can restructure (or cut the costs) of your existing debts. Money Saving Expert offers some really helpful ways for you to start doing that. This includes handy hints and tips to reduce the interest on your debts – so take the time to read it over and figure out how you can make the most of the situation.