Nobody wants to fall into debt, but alas, it happens to us all at one point or another, especially at points in our lives when we have countless commitments (both personal and financial) stacked on top of one another. Indeed, we are a nation in debt that owes, in total, over £1 trillion! So you are definitely not alone, and just because you’ve allowed yourself to become overwhelmed once, doesn’t mean you should just give up and let it build and build until you’re out of hope or out on the street. Here, we’ll be answering a few of the most common questions those who fall into debt ask in hopes of climbing out of it, avoiding bankruptcy and getting on with their lives.
Where Can I Get Free Debt Advice?
There are many free debt advice services in the UK, most of which will be able to help you pay off what you owe and get back on your feet as long as you’re willing to listen.
These advisers will not judge you and will be happy to help no matter how large or small your debt problems are. Even if you think the well has run dry and things are completely hopeless, these are services that exist to ease your fears and help you manage your debts in a calm and confident manner.
Services we recommend includes Citizens Advice, PayPlan, the Debt Advice Foundation, the National Debtline and StepChange. These services will not only help you manage the debts you know about, but will help you with debts you might not know about, will check on your behalf if there are any benefits you are entitled to, and will even give you advice on managing your money so you don’t find yourself in this situation again!
What Debt Should I Pay Off First?
Prioritising your debts should be the very first thing you do, whether you’ve had advice (see above) or not. Of course, which debts you choose to pay off first will depend on your personal circumstances, but it is generally common sense to pay off the most pressing debts that carry the most severe consequences first.
These include debts such as mortgage arrears and court bills, which could lead to you being evicted from your home or landing yourself in legal trouble. Next on the list should be utility bills that you don’t wish to be disconnected such as gas and electricity, and governmental bills such as income tax, national insurance and VAT.
Honestly, prioritising your debts is largely down to common sense, but it will always help to make a list and go through it with an adviser. If all of your debts carry similar consequences, then your best best is probably to pay off the most expensive ones first, as these are the ones which will, over time, build up more hefty fines.
What’s The Best Way to Pay Off My Debts?
Again, planning how to pay off your debts is something you will want professional advice with and it will also depend on your personal circumstances, so any advice we can offer here will only be general. Before going any further, you should always attempt to reach an agreement directly with your creditors before you take any further action and get the courts involved, as getting the courts involved is often a long and painful process.
If you have mainly non-priority debts (such as credit or store cards, overdrafts and personal loans), we’d recommend setting up a Debt Management Plan (DMP) with a provider who will compile all of your debts into one, simple account that you will be able to pay back monthly in one payment. This is a plan you can arrange either with your creditors or through a DMP firm, though they will charge set up and handling fees. This allows you to pay back your debts at a reasonable rate and also palms off a lot of the most stressful work to a third party professional. Take note that more serious debts, such as mortgage arrears, council tax, income tac and household bills, will generally not be eligible for a DMP.
If you are on low income and/or own very few assets, then you might consider a Debt Relief Order (DRO) instead, which will freeze your debts for up to a year and write it off completely if your circumstances have not improved. You will, of course, need to fulfil certain criteria in order to qualify for this though. You will be able to apply for a DRO if your complete debts are less than £20,000, if you have less than £50 coming into your accounts every month after paying your household bills, and if you have less than £1,000 in savings.
If you don’t qualify for a DRO, meanwhile, you might be able to take out an Individual Voluntary Arrangement (IVA), which usually lasts for a set number of years (around 5 or 6 generally) and lets you pay back what you can afford when you can afford to pay it, with anything you haven’t paid off at the end of the agreement being written off. This is something you’d have to arrange with your creditors. An IVA will give you more control of your assets than bankruptcy (see below), and will be arranged though an “Insolvency Practitioner,” who will act on your behalf and negotiate the terms of the iVA with your creditors.
Another option could be to apply for an Administration Order from the county court (as such, this is also sometimes referred to as a County Court Order). This is an order that is generally agreed upon in court between you and your creditors, and will only be considered if you have at least two debts, one of which must be a County Court Judgement or higher court judgement against you, and owe under £5,000 in total. As with most of the other orders listed here, the agreement will depend on whether or not you can prove you’ll be able to make regular monthly payments towards your debts. A county court judgement is a court order that will be filed against you by the court in the event that you fail to reach an agreement with your creditors.
Whilst it might sound rather ‘final’ and scary, Bankruptcy is another option to consider. Whilst you might balk at the idea, many successful people have filed for an bankruptcy order in the past, so don’t let the title put you off. It effectively allows you to make a fresh start and writes the slate clean as far as your debts go and applying is as simple as filling in an online form and waiting 28 days for a decision. Please note, however, that any assets you own will be taken and used to pay off your debts in the case of bankruptcy.
What is Debt Consolidation and How Does It Work?
The clue is in the title here. This literally means consolidating your debts into one payment with the help of an additional loan that will help you pay off your debts in one monthly payment with the help of a third party. You will still have to pay back all that you owe, of course, but with loan consolidation you may be able to reduce your monthly outgoings, pay a lower rate of interest, or be able to spread the costs out over a longer period of time, whilst also improving your credit rating.
What is Debt Settlement and How Does It Work?
As mentioned earlier, this is definitely a best case scenario otherwise know as arbitration or negotiation, which essentially refers to you and your creditors coming to an agreement on a reduced overall balance, allowing you to pay your debt in full right here and now with no further action required. You can negotiate the terms of the settlement agreement yourself, or use an arbiter to act on your behalf. It works in much the same way as consolidation and management, only if you use a debt settlement company, you’ll pay less than the grand total of your debt, with the company generally keeping the difference.
Who is Responsible for Debt During a Divorce?
If there’s one thing that makes debt an even more uncomfortable thing to handle, it’s divorce. Frankly, however, divorce can often be a direct result of the stresses caused by debt. Generally, the debts will be split between you and your partner if the debts are in both of your names. If the debts are just in your name, however, you will be 100% responsible. There are exceptions, of course (there always are), but nine times out of ten, this is the case.
Who is Responsible for Debt When Someone Dies?
The only thing more stressful than divorce or debt is losing a loved one. If that loved one accrued a large amount of debt, however, it can make things even more stressful.
The first thing you should do, if you’ve been left in legal charge of the assets of the deceased in question, is to take stock of their assets, making a list of everything they owe that could be used to pay off the debt. Next, you should contact the creditors and inform them of the passing and that you are now dealing with the estate. They should then give you adequate time to sort out the debt and will stop taking out any regular payments they had agreed with the deceased. You should also try reaching out to see if the deceased had any undisclosed debts that need to be taken care of and make enquiries to see if they had any insurance you could use to help. Once this is all taken care of, dealing with the debt is no different than dealing with your own personal debt.
Hopefully we’ve managed to make this exceptionally stressful topic appear slightly less so. There is a lot to take in, granted, but it’s also very rarely completely hopeless. So take a deep breath and take it one step (and one day) at a time and you’ll be back on your feet before you know it!