Tackling Debt - Your Options

‘Write off your debts’, ‘become debt free in months’, ‘little known government legislation’ – these are all phrases you may have picked up from advertisements for debt management or debt resolution services, but what lies behind them?  There are a number of different options available if you find yourself in debt and, depending on your circumstances, some may be more suitable than others.

Here is a quick rundown of some of the most common.

Debt Management Plans

A debt management plan (DMP) is the name we give to an agreement between you and your creditors to pay off your debts in instalments, usually making payments every month.  It’s an informal arrangement and the idea is that you pay your creditors on a pro-rata basis from the money you have left over after you have taken out your living costs.  This means that you can carry on making payments without having to use the money you put aside for essential spending like food and heating.

Creditors will usually agree to a plan if you can present them with a financial statement that shows your offer of payment is reasonable and sustainable. 

There are commercial companies which offer to provide this service for you.  They will negotiate with your creditors and take a single payment from you which they should divide up between your creditors.  However, they will also charge their own fees, which means less money is passed on to creditors and it takes longer to become debt free.  The good news is that there are charities such as Stepchange and Payplan who will provide this service for free.  Alternatively, you can set up a DMP yourself, perhaps with help and advice from someone like the CAB.

Individual Voluntary Arrangement

An Individual Voluntary Arrangement (IVA) is a formal agreement between you and your creditors to pay off your debts over a period of time.  Most types of debt can be included, but there are exceptions such as court fines and student loans.  You will usually need at least £100 spare income per month in order to qualify, and although there are no maximum or minimum levels of debt, in reality creditors are unlikely to agree to an IVA unless your total debt is at least £10,000.

You will need the services of an insolvency practitioner to set up an IVA and there are fees involved.  Again, there are plenty of companies who can offer this service, but you’d be wise to speak to your local CAB first to find out whether this is the right option for you and whether you can get any help.


This may be an option for you if you have a large amount of debt – particularly if your total debt exceeds the value of your assets.  At the end of the bankruptcy period your outstanding debt will be written off, but it can be an extreme measure because you are likely to use to lose your assets, including your home. 

There are also certain restrictions that will apply to you during the bankruptcy period.  For instance you will not be able to set up and run a company.  And if you apply for credit of more than £500 you will have to tell the lender about the bankruptcy.

There are other possible repercussions as well.  For instance, it may affect your employment and it could impact your ability to get credit long after the bankruptcy period is over.

You will need to find money to pay the court fee and deposit, and there will be additional fees if you use a solicitor. 

Debt Relief Order

If your debts total £15,000 or less, if you don’t own your own home and your spare income each month is no more than £50, then a Debt Relief Order (DRO) could be the right option for you.  To be eligible your assets will need to total less than £300 and your car must not be worth more than £1000.

There is a fee of £90 for a DRO (you may be able to get help with this) and you will need to use an approved intermediary, which you can find at your local CAB.  But at the end of the DRO period most of your debts will be written off (there are some debts that are not eligible, such as child support and social fund loans).

Like a bankruptcy, there may also be other implications for you, and these are factors that you will have to consider when deciding whether to go down this route.

These are the most commonly used options, but there are others.  For example, you may be able to negotiate a full and final settlement.  This is where a creditor will agree to accept a single, reduced lump sum in settlement of the debt.  They may prefer to do this rather than recover it in instalments over a longer period.  You may even be able to challenge all or part of the debt – for example, if a product has been miss-sold or a bill has been calculated wrongly.  And if the debt has not been acknowledged for a certain period (six years in England and Wales, five in Scotland) your creditors may not be able to take court action to recover it.

You can find more information about these and other options at www.adviceguide.org.uk and your local CAB is there to help you make the right decision and take the most appropriate action.