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Dealing with debt - where to start

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Facing your debts can be a disheartening task, and you may not know where to start. Our guide explains how to pay off your debts and take back control of your finances.

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Credit cards and personal loans can be a valuable way of spreading when you have to pay for something expensive and can be helpful if you’re in a financial tight spot. But it’s easy for debts to spiral. Find out how you can work out if your debts have become problematic and how you can tackle them with our guide.  

Are you in debt?

Like most things, credit is fine if you are in control - but it can cause significant damage if you end up owing more than you can afford to pay. So, if it’s starting to feel that your debt is controlling you, or you are reading articles on debt in your spare time, then it may be time to take action. 

If you aren’t sure if you have a debt problem, ask yourself the following questions. If you answer yes to one or more of them, it’s a sign that you need to regain control of your finances:  

  • Have you missed more than one repayment on a credit or loan?

  • Do you owe money to friends or relatives?

  • Are you paying off the interest on loans without ever reducing the loan itself?

  • Have you borrowed from one credit card or bank account to pay off another?

  • Are you putting regular expenses like food or bills on credit card

Dealing with debt

Mounting bills and final demands can seem like impossible problems if you don’t have any money in your current account and payday is still weeks away. As with most situations, there are good ways and bad ways to deal with debt. 

Dos and don'ts of dealing with debts

  • Prioritise your debts

  • Speak to your creditors

  • Write a budget

  • Bury your head in the sand

  • Keep borrowing

Do prioritise your debts

Some debts are more important than others. By making a list of all your creditors and the amounts you owe, you should be able to see which bills are most urgent. Deal with secured loans like mortgage payments or rent payments above unsecured loans such as credit cards or overdrafts.

Do speak to your creditors

You may think that staff at your bank or lender are the last people you want to talk to about your money worries, but their response may surprise you.

The Banking Code ensures that banks must deal with customers with financial problems sympathetically. If you have missed some payments, get in touch with your lenders to explain your situation. They may be able to come up with a repayment plan that enables you to pay what you owe in a more manageable way.

Do write a budget

Writing a budget that shows how much money you have coming in each month and how much is regularly going out is crucial to getting your finances back on track. In addition to showing how much you can realistically afford to spend on repaying your debts each month, it can also help identify where you might be overspending. 

Don't bury your head in the sand

Once you’ve realised that you have a problem, the worst thing you can do is ignore it. The longer you wait before you get your finances back under control, the bigger your debts will be and the more you will have to pay in interest.

Don't keep borrowing

If you’ve got a bill to pay, settling it with a credit card or loan is a short-term solution at best –over the long term, it’s likely to make matters worse. Fixing the root of the problem is challenging, but it’s the only way to nurse your finances back to health.

Get some independent, impartial advice

For some people, a workable budget and better money management will be enough to get their finances under control. However, sometimes people need more focused support.

If you are still struggling with money despite following the steps outlined above, you may need to seek professional help.

There are several free, independent services you can contact for advice. As well as helping you to manage your debts, these services can also ensure you are receiving all the benefits to which you are entitled, including tax credits. This could help top up your income.

StepChange (formerly the Consumer Credit Counselling Service)

StepChange is a charity providing advice and help on budget and debt management. They have a helpline that provides free and independent advice. 

www.stepchange.org 0800 138 1111

Citizens Advice Bureau (CAB)

You can find your local CAB in the phone book or through their website. The Citizens Advice Bureau can advise you on legal and financial issues. 


National Debtline

The National Debtline offers confidential, free advice to people facing debt problems in England, Wales and Scotland. 

www.nationaldebtline.org 0808 808 4000

These organisations can often liaise with your creditors on your behalf and negotiate revised repayment plans. In the worst cases, they can help with bankruptcy proceedings.

Alternatives to bankruptcy

Bankruptcy is not an appealing prospect for anyone. It can let you wipe out your debts, but it’s a very public process, and means losing control of your assets and possibly even your home.

Thankfully bankruptcy is a last resort. A good debt adviser can tell you about the alternatives and which option is the best for you.

Debt Management Plan 

A DMP gives you some breathing space with your debts. With the agreement of your lenders, you repay your debts over a more extended period. It is important to note that this is an informal arrangement with your creditors, who can change their minds about any time-scale agreement. This form of agreement also doesn’t guarantee interest rates will be frozen and may include an administration charge. Debt charities can often help you set up a debt management plan.

Debt Arrangement Scheme (DAS) (Scotland only)

This scheme helps if you owe money to several creditors but have some surplus income to make regular payments. With a DAS, a money adviser negotiates with your creditors and arranges a single regular payment to be made to an approved payments distributor. This scheme allows you to pay your debts at a lower rate over a longer time.

Individual Voluntary Arrangement (IVA) (England and Wales)

An IVA is a legal agreement between you and your creditors that commits you to a regular payment plan. It reduces the amount of money you pay and freezes any interest owed.

To begin IVA proceedings, you need to hire a licensed Insolvency Practitioner who will liaise between you and your creditors to make all the necessary arrangements. An IVA usually lasts up to five years. At the end of this time, the remaining debt is written off, even if you haven’t completely cleared your debts (which is unlikely if you have a lot of debt and are making smaller repayments).

For the IVA to go ahead, at least 75% of your creditors (in terms of how much you owe) will have to agree to the arrangement. It is usually in their interest to agree because it means they are recouping some of their money and don’t have to chase you for payments.

The scheme has been criticised in the past because of the large fees some companies have charged for administering IVAs. Opponents also object to these firms’ aggressive marketing that promises to wipe out large volumes of debt. However, a new voluntary code of conduct has been drawn up, and some charities, including Step Change, now offer an IVA service.

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