Other options for dealing with your debts

If you can’t pay back your non-priority debts in a reasonable time, you should speak to a free debt advice agency straight away. These include StepChange Debt Charity, Citizens Advice Bureau, PayPlan or National Debtline.

Your options might include:

  • Bankruptcy/sequestration – your creditors write off your unsecured debts.
  • Debt Relief Order (DRO) – your debts are put on hold for 12 months.
  • Minimal Asset Process (MAP) bankruptcy – only in Scotland.
  • Individual Voluntary Arrangement (IVA) – available in England, Wales and Northern Ireland. You make reduced payments over five or six years and then your debt is written off.
  • Protected Trust Deed – only in Scotland. You make reduced payments over four years and then your debt is written off.
  • Equity release – you might be able to access some of the money that your home is worth.
  • Consolidation loan – this is when you take out a loan to cover your existing debts. Then you just pay one monthly payment.
  • A balance transfer on your credit card.

It is important to speak to an adviser before deciding on any of these options.

Seek professional advice

If you’re unable to repay your non-priority debts in a reasonable amount of time, a repayment programme (as suggested in step 5) may not be the best option for you.

If this is the case, you should seek specialist advice from a free debt advice agency such as StepChange Debt Charity, Citizens Advice Bureau, PayPlan or National Debtline. All of the debt advice agencies offer telephone advice services and online information. Citizens Advice Bureau also offers face-to-face debt advice.


Other options for dealing with debt

The following are other options for dealing with debt that may be suitable for you. The organisations mentioned above can all give you advice about these options.

Bankruptcy (sequestration in Scotland)

If you go bankrupt, your creditors write off your unsecured debts. This gives you a fresh start.

Bankruptcy is available in England, Wales and Northern Ireland. In Scotland, the process is called sequestration. This is similar to bankruptcy, but the fees and processes are slightly different.

Bankruptcy is normally only suitable if you can’t pay back your debts in a reasonable time. Any assets you own, such as your house or car, will usually be sold to pay off your debts. Bankruptcy is unlikely to be the best option for you if:

  • your property and belongings are worth more than your debts,
  • OR all of your payments are up-to-date and you can afford to keep paying them.

Debt Relief Orders

A debt relief order (DRO) is only available in England, Wales and Northern Ireland. If you live in Scotland, you might be able to apply for a MAP bankruptcy (see below).

A DRO can help you to write off debt that you’re unable to repay in a reasonable amount of time. If your DRO is approved, your debts are put on hold for 12 months. Your creditors cannot pursue you for the outstanding debt during this time. If your financial situation hasn’t changed after the 12 months are over, all of your debts are written off.

To apply, you must:

  • owe less than £15,000 in unsecured debts (loans that aren’t backed by property such as your home or car, so your property can’t be repossessed for non-payment)
  • not own your home
  • have no more than £300 in assets
  • have less than £50 a month left over after you’ve paid all of your living costs.

DROs must be applied for by an approved DRO advisor such as StepChange Debt Charity or Citizens Advice Bureau.

Minimal Asset Process (MAP) bankruptcy

This is only available in Scotland. See debt relief order (DRO) if you live in England, Wales or Northern Ireland (see above).

MAP bankruptcy can help you to write off debt that you’re unable to repay in a reasonable amount of time.

To apply you must:

  • live in Scotland
  • be on a low income (either made up solely of income-related benefits or you have nothing left over after paying essential living costs)
  • have debts more than £1,500 but less than £17,000
  • have a car worth £3,000 or less
  • have other assets worth less than £2,000 in total, with no single item worth more than £1,000
  • not own your home
  • not have been bankrupt in the last five years.

Individual Voluntary Arrangement (IVA)

A Individual Voluntary Arrangement (IVA) is only available in England, Wales and Northern Ireland. If you live in Scotland, you may be able to apply for a protected trust deed (see below).

This is a legal arrangement where you make reduced payments over five or six years. At the end of this time, your debts are written off. These must be set up by an authorised debt specialist and there are costs involved. An IVA should be carefully considered as there may be restrictions made to your spending and employment. It will also affect your credit rating (see below).

Protected Trust Deed

This is only available in Scotland. See the information above about Individual Voluntary Arrangement if you live in England, Wales or Northern Ireland.

A trust deed is a legal arrangement where you make reduced payments over four years. At the end of this time, your unsecured debts are usually written off.

These must be set up by an authorised debt specialist and there are costs involved. A Protected Trust Deed should be carefully considered as there may be restrictions made to your spending and employment. It will also affect your credit rating (see below).

Equity release

If you're in or near retirement, you could consider using equity release to access some of the money that your home is worth. This is without needing to move. You may be able to release a tax-free cash lump sum or set up access to a flexible borrowing facility.

How much you can release varies between providers but usually depends on how old you are, the value of your home and sometimes your health.

There are different types of equity release available. They normally involve you borrowing against the value of your home while you still live there. You may make some payments for this or you may chose to have the mortgage and interest paid off when your home is sold after your death.

Equity release can affect your tax position and entitlement to means-tested benefits. It can also reduce the value of your estate, which will mean less would be left to your beneficiaries (people who receive your funds after you die). Your estate is what you leave when you die, including everything you own, your share of things you own jointly minus everything you owe. It may include money, property and belongings.

It is very important to speak to an advisor before deciding to release equity from your home. You can search the Financial Services Register for companies and individuals authorised by the Financial Conduct Authority (FCA) to lend money.

Consolidation loan

If you have a good credit rating, you may be able to take out a debt consolidation loan. This is a loan that you use to pay off your existing debts. You then end up with one monthly payment instead of lots of smaller ones.

There are illegal moneylenders who often charge very high interest rates. They are called loan sharks. Call the following numbers to report loan sharks: England 0300 555 2222, Scotland 0800 074 0878, Wales 0300 123 3311 and Northern Ireland 0300 123 6262.

Advantages of a consolidation loan:

  • You make one monthly payment, meaning it's easier to budget each month.
  • You may find it easier to keep track of how much you owe with only one creditor.
  • It can keep your credit rating ‘healthy’ – as long as you keep up payments.

Disadvantages of a consolidation loan:

  • It can be a risky option if you are unsure you can meet the payments.
  • The lender may ask for it to be secured against your home – you could lose your home if you can't keep up payments.
  • It could make your debt problem worse if you get into any further debt.

Credit cards

If you don’t pay off your credit card in full every month, you may be paying interest. You could transfer your balance to another card, some of which offer 0% interest deals for a limited period. If you do this, you’ll need to weigh up the savings against any balance transfer fee.

To find the best credit card deals, look at the tables published in the personal finance pages of newspapers, or use an online price comparison website.

A balance transfer may work in the short-term, but it isn’t a long term fix for an underlying debt or budgeting problem.


Effect on credit rating

If you pay less than your contractual monthly payment, your creditors will record a default on your credit file. This can stay on your file for up to six years, which means you may find it much harder to get further credit.

If you’re struggling to make payments to your creditors, borrowing more money may make your situation worse.

Back to Managing debt and borrowing

Debt and borrowing overview

Living with cancer can bring extra expenses. Learn how to manage your debts using a clear step-by-step process.

Step 1: Increase your income

Increasing your income is the first step to managing your debts. Check your entitlement to benefits and insurance payouts.

Step 2: Reduce your expenses

Once you have made sure you have as much money coming in as possible, there are ways you can reduce your expenses.

Debts you leave behind

If you have debts when you die, it reduces the value of your estate. This means your beneficiaries will receive less money.