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Options for dealing with debt

This information applies to England and Wales

Options for dealing with debt

This page tells you about the options you may have for dealing with your debts.

Your options will depend on whether you've got any money to pay off your debts.

For information on how to work out if you have enough money to pay off your debts, see How to sort out your debts.

If you've got money to pay off your debts

If you've got money to pay off your debts, you must make sure you deal with any urgent debts first. Some debts are more urgent than others because the consequences of not paying them can be more serious. These debts are called priority debts. They include things like mortgage, rent and council tax debts.

To find out if you have any priority debts, see How to sort out your debts.

To find out how you should deal with priority debts, see How to deal with your creditors.

As well as priority debts, you may have other types of debt called non-priority debts. Non-priority debts include:

  • benefits overpayments
  • credit debts such as overdrafts, loans, hire purchase, credit card accounts and catalogues
  • student loans
  • money borrowed from friends or family
  • parking penalties issued by local authorities.

These types of debt are less urgent than priority debts. You can't be sent to prison or have your home repossessed for not paying them – although you can have property you've bought under a hire purchase agreement taken away.

However, you must still make arrangements to pay off non-priority debts if you have  money left over after paying off any priority debts. If you don't make arrangements to pay off non-priority debts, your creditors may take you to court and could take further action such as using bailiffs to take your possessions away.  

Non-priority debts don't include secured loans. These are loans which have been secured against a house or other property which you own. You can lose this property if you don't pay a secured loan.

For more information about secured loans, see Mortgages and secured loans.

If you have any money to pay off non-priority debts, you will need to work out the best way of doing this. You may have several options, including:

You should weigh up the advantages and disadvantages of each of these options carefully. Get as much information as you can before making a decision and don’t sign anything until you are sure it is the best option for you. If you have any questions, get advice.

Your local Citizens Advice Bureau can help you with advice about your options. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

If you've got no money left to pay off your debts

If you've got no money left to pay off your debts and you think your circumstances are unlikely to get better soon, you will have limited options for dealing with your debts. The options you might have are:

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Debt management plans

If you have enough money left over after paying your priority creditors and essential expenses, you may be able to arrange a debt management plan.

To find out more about priority creditors and how to work out if you've got money to pay off your debts, see How to sort out your debts.

A debt management plan is an arrangement with your creditors to pay back the debt by regular instalments. Instead of you speaking to your creditors yourself to arrange the plan, a Debt Management Company (DMC) does it for you. Usually you have to pay for this service although there are some DMCs who will do this for free, such as the Consumer Credit Counselling Service (CCCS) and Payplan.

The advantages of using a DMC are that:

  • you make only one payment direct to the DMC. They divide the payment fairly between all your creditors
  • you don’t have to contact your creditors yourself, the DMC will do this for you.

However there are also disadvantages to using a DMC:

  • most DMCs charge an upfront fee which can be quite high. This leaves you with less money to pay off your debts
  • most DMCs also charge an administration fee to the customer each month. This leaves you with less money to pay off your debts
  • some DMCs take all of the first month's payment as a fee. This puts your account into arrears by a month or more. These arrears will be recorded on your credit file (see under heading How debt affects your credit record)
  • DMCs only deal with non-priority debts and you will have to deal with the more important priority debts yourself
  • most DMCs do not give benefits advice or financial advice so you may lose out on important information about your finances.

If you do use a DMC, check the agreement carefully before signing anything. Check:

  • whether you can cancel at any time if you are not happy with the service
  • what the fees are
  • whether you will get your fee back if you cancel
  • which creditors the DMC will deal with and which creditors you still need to deal with.

If you are thinking about using a DMC, you might want to get advice from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

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Administration Orders

You may be able to apply to the county court to have all your non-priority debts put together into one affordable monthly payment. This is called an Administration Order.

You will need to have enough money left over after paying your priority creditors and all your essential expenses.

To find out more about priority creditors and how to work out if you've got money to pay off your debts, see How to sort out your debts.

You can apply for an Administration Order if your total debts are less than £5,000 and you have a county court judgment (CCJ) against you. The court decides what is a fair amount depending on your income. The court can agree that you only pay part of the total debt. This is called a composition order.

Once the order is agreed by the court, you make one regular payment to the court and your creditors can't take any further action to get the money back, as long as you keep to the payments.

You can get an Administration Order application form from your local county court. You can find details of your local county court on HM Courts and Tribunals Service website at: www.hmcourts-service.gov.uk. You can also download a copy of the application form at: www.hmcourts-service.gov.uk.

If you are thinking about applying for an Administration Order, you might want to get advice from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

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Individual Voluntary Arrangements (IVAs)

If you have enough money left over after paying your priority creditors and essential expenses, you may be able to arrange an Individual Voluntary Arrangement (IVA).

To find out more about priority creditors and how to work out if you've got money to pay off your debts, see How to sort out your debts.

An IVA is a legal agreement with creditors (usually non-priority creditors) to repay your debts. This could either be in part or in full. The arrangement is negotiated, written up and checked regularly by an independent solicitor or accountant called an Insolvency Practitioner. Not all the creditors have to agree to an IVA as long as the creditors to whom you owe 75% of your debt agree.

Example:

You have a total of £100,000 debt. You have three creditors:

Creditor A (£6,000)

Creditor B (£70,000)

Creditor C (£20,000)

Creditor C doesn't agree to an IVA but it doesn't matter because Creditors A and B do agree and between them, they have more than 75% of the debt. Creditor C still has to keep to the terms of the IVA.

The costs of setting up an IVA can be high and you may have to pay an upfront fee. If you don't keep to the payments, you can be made bankrupt.

If you are thinking that an IVA may be an option for you, you should get advice from an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

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Putting all your debts into one loan – consolidation

If you have enough money left over after paying your priority creditors and your essential expenses, you could think about taking out a loan to pay off your non-priority debts. This is called a consolidation loan.

To find out more about priority creditors and how to work out if you've got money to pay off your debts, see How to sort out your debts.

You can use a consolidation loan to pay off things like credit card debts and loans.

It’s usually not a good idea to borrow more money to repay your existing debts as this can make things worse and cost more in the long-run. Many creditors ask for the new loan to be secured against your home. This means you could lose your home if you don't keep up the payments.

However, if you can afford the repayments, have stable finances and are good at controlling your spending, this could be an option for you.

If you are thinking of borrowing to pay off your debts:

  • make sure you have enough money left in your budget to afford the repayments
  • check you can afford the repayments for the whole life of the loan
  • shop around for the best deals
  • don’t borrow more than you need
  • if you get a consolidation loan to pay off your credit card loan, make sure you close the credit card account and don't use your card anymore.

If you do take out a consolidation loan, be careful you don't end up with more debt than you started with. Make sure you don't borrow from a loan shark (someone who lends money without a licence. This is illegal). You can report loan sharks on a confidential helpline at: 0300 555 2222.

Always get advice from an independent financial adviser before signing a new loan agreement. Make sure that the financial adviser is regulated by the Financial Services Authority (FSA). You can check this by looking on the FSA website at www.fsa.gov.uk.

For more information about finding a financial adviser, see Increasing your income.

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Asking to write off your debt

If you have no money to spare to pay off your debts, your creditors may agree to write off your debt. They may even agree to stop action against you altogether.

To find out how to work out if you've got money to pay off your debts, see How to sort out your debts.

Your creditors will only agree to write off your debt in exceptional circumstances. It's most likely to happen if you have a low income and your situation is particularly difficult and unlikely to get better. For example, you may have long-term serious health problems or be very elderly.

You will usually need to show proof of your situation, for example, medical evidence, before creditors will agree. If creditors do agree, ask them to put this in writing.

Some creditors may want an adviser to make this request on your behalf. Your local Citizens Advice Bureau can make the request on your behalf. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

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Debt relief orders

Debt Relief Orders are only available in England and Wales.

A debt relief order (DRO) is an order that you may be able to apply for if you can't afford to pay off your debts. It's granted by the Insolvency Service and is a cheaper option than going bankrupt.

It usually lasts for a year and during that time, none of your creditors can take action against you to get their money back. At the end of the year, you are free of all the debts listed in the order.

Who qualifies for a DRO

You qualify for a DRO if you meet the following conditions:

  • you have debts of £15,000 or less
  • you have spare available monthly income of £50 or less after paying your normal household bills
  • the things of value you own (your assets) and your savings are worth £300 or less. This does not include your car as long as it is worth less than £1,000
  • you have not recently been made bankrupt or gone through another sort of insolvency procedure such as an Individual Voluntary Arrangement

You can only apply for a DRO through an authorised adviser.

Your local Citizens Advice Bureau can put you in touch with an authorised adviser. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

In England and Wales, for more information about DROs, see Debt Relief Orders.

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Bankruptcy

If you have no money left over to pay your debts, or you have so little that it will take many years for you to re-pay your debts, you may want to look at bankruptcy as an option.

To find out how to work out if you've got money to pay off your debts, see How to sort out your debts.

Going bankrupt can take the pressure of creditors away from you. You are allowed to keep certain things, like household goods and a reasonable amount to live on.

When the bankruptcy order is over, you can make a fresh start and the money you owe is usually written off. In many cases, this can be after only one year. Creditors have to stop most types of court action to get their money back following a bankruptcy order (but in some cases the bailiffs may still be able to take your belongings away).

For more information about bankruptcy in England and Wales, see Bankruptcy.

If you are thinking about going bankrupt, you should get advice from an experienced adviser. Your local Citizens Advice Bureau can give advice about bankruptcy. To search for details of your nearest CAB, including those that can give advice by e-mail, click on nearest CAB.

If your debts and income are below a certain amount, you may want to think about applying for a debt relief order instead of bankruptcy. This is a cheaper option.

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Further help and information about debt

On Adviceguide

You can get more information about how to deal with debt on the following Adviceguide pages:

Podcast on options for dealing with debt

Listen to information about options for dealing with your debts. Click on the button below and the spoken information will play straight away and last about 3 minutes.

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Money advice centres and law centres

Help with debt problems is available through Money Advice Centres or Law Centres.

The addresses and telephone numbers of Money Advice Centres and Law Centres can be found in the telephone directory.  Or you can look on  the Community Legal Advice website at: www.communitylegaladvice.org.uk.

The website of the Law Centres Federation can also help you to find your nearest law centre.  Go to www.lawcentres.org.uk.

National Debtline

The National Debtline can give free information to people living in England and Wales.  It also provides an information pack on dealing with debt.  The line is available on Monday to Friday 9.00 to 9.00 and on Saturday 9.30. to 1.00.  The National Debtline telephone number is 0808 808 4000 and the website is www.nationaldebtline.co.uk.

Community Legal Advice

Community Legal Advice has a telephone helpline which offers advice to people in debt who are on a low income or on benefits. Help is also available on a number of other topics including employment, benefits, tax credits and housing.

The helpline number is 0845 345 4 345. It's open from 9am-8:00pm Monday to Friday and 9am-12.30pm Saturday. Outside of these hours, you can leave a message and they will call you back the next working day. Calls cost no more than 4p per minute from a BT landline but calls from mobiles are usually more.

Consumer Credit Counselling Service (CCCS)

CCCS is a registered charity offering free, confidential advice and support to anyone who is worried about debt. CCCS has:

  • a freephone helpline on 0800 138 1111 where you can speak to a Debt Counsellor
  • a website where you can get information on how to deal with your debt problems at: www.cccs.co.uk
  • an online Debt Remedy tool. This asks you a series of questions about your household, income and expenditure and then provides you with a Debt Remedy tailored to your personal circumstances. Go to www.cccs.co.uk.

Payplan

Payplan is an independent company offering free debt advice and solutions to clients, such as debt management plans (DMPs). When you contact Payplan, an adviser will look at your financial situation and help you decide the best option to sort out your debts. If a repayment option is appropriate, they can help you approach your creditors with a repayment plan and distribute repayments on your behalf until the debts are repaid.

You can contact Payplan on freephone: 0800 716 239 or at: www.payplan.com.

Business Debtline

In England and Wales, Business Debtline is a dedicated advice service for small businesses.  You can get their contact details from their website at www.bdl.org.uk or phone them on 0800 197 6026.

Adviceni

Adviceni is a network of advice-giving agencies in Northern Ireland.  You can get their contact details on their website www.adviceni.net or phone them on 028 9064 5919.

Leaflets

In England and Wales, for leaflets which give information about debt and help with your finances, see:

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