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Debt management tips

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Bankruptcy Debt tends to be one of those areas we just accept, but it can quickly get out of control. If your debt is starting to impact on other areas of your life and you’re struggling to meet repayments, you need to assess the situation quickly and see what the most effective solution is for your circumstances.

Seek advice

Having to deal with large amounts of debt can make you feel lonely and isolated, but there are people who can help. There are a number of places where you can receive free and impartial advice, such as through StepChange and the Citizen’s Advice Bureau. They will help you to put together a monthly budget, allocating enough to live on and pay the bills. This will then give you an indication of how much you have remaining to repay your debts.

Stop the credit

Some people who find themselves in financial difficulties, end up taking out more credit to cover existing repayments. It’s important to stop doing this straight away, as it’s not a means of effectively dealing with the situation. This includes increasing the balance on credit cards or asking for an overdraft increase. Debt consolidation loans and other secured loans are not a beneficial approach, as they can put your property at risk of repossession if you don’t maintain the repayments.

Find the right solution

Depending on the scale of your debt and your individual circumstances, there are a range of debt solutions that can help you make more affordable repayments.

Debt management plans (DMP)

If you go through one of the debt charities, setting up a DMP is free and can help you clear your debts at a more manageable rate. You’ll work with the organisation to put together a proposal for your creditors, which takes into account how much you need to live on. You will only need to make one repayment each month, which is then distributed to your creditors. Using a DMP will mean it takes longer to repay your total debt, but you can do so at a more achievable level.

Debt management tips

Individual Voluntary Agreement (IVA)

An IVA will last for between five and six years, at which point any remaining debt will be cleared. This enables you to put an affordable amount towards your unsecured debts. An IVA is managed by an Insolvency Practitioner and once it’s set up your creditors can’t take any further action against you. In some cases you might need to sell some of your assets or release equity in a property to put towards your debts.

Debt Relief Order (DRO)

This debt solution is aimed at those on low incomes who have a fairly low level of debt, but have no realistic way of repaying it. In order to be accepted for a DRO you have to have assets of less than £300 and not own a property. When a DRO is in place you won’t make any further repayments and your debts will be written off after a year if your circumstances don’t change.

For those consumers whose circumstances aren’t suitable for other forms of debt management, bankruptcy is probably the final option. If you have more unsecured debts than you own in assets and can’t meet your repayments, then bankruptcy enables you to clear everything. Those who have been declared bankrupt will face restrictions for a year and it can affect your employment in certain industries. Property owners may be required to release equity or sell their property to pay off some debts.



About Catherine Stern

About Catherine Stern

Catherine Stern is a freelance writer with a background in marketing and PR. She currently writes web content on a range of subjects, from finance and business to travel and home improvements. As a working single mum of two young boys she understands the pressures that today’s working parents face and the topics they want to read about.

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