Dealing with debt can have long-term consequences for not only our financial well-being but also our mental health. It can be incredibly stressful, especially when you aren’t sure of what options you have available. In this post, we outline some of the most common debt relief schemes on offer in the UK to help you start to feel more in control of your finances.
Bankruptcy
Bankruptcy is one option for clearing debts you can’t afford to pay. In this event, your bank accounts will be frozen. A trustee will take control of your assets. This could include your home if you’re the owner and there is no other way to generate funds. Credit agencies will also be made aware of your bankruptcy, which will remain on your credit reference file for six years.
In the UK, it costs £680 to apply for bankruptcy, and the majority of people will apply themselves. However, it’s also possible for creditors to petition to the court for your bankruptcy, providing you owe them at least £5,000.
Debt relief orders (DROs)
If you’re unable to pay off a debt below £30,000, you could be eligible to get a debt relief order (DRO). A DRO usually lasts for 12 months, with debts written off after this time if your financial situation doesn’t improve.
There are a list of eligibility criteria to meet – you can also speak with a debt adviser free of charge, who will be able to help determine your eligibility. If you are approved, payments towards any listed debts will stop. This can help to give you a fresh start. But, a DRO will stay on your credit file for six years, which means even if your finances start to improve, you may still find it difficult to be accepted for credit further down the line.
Individual voluntary arrangements (IVAs)
An IVA is a form of insolvency and is a legally binding agreement between you and your creditors. You’ll be able to mutually agree upon a repayment plan over a set period of time (usually five to six years). The key advantages to this solution are you will retain more control over your assets and home, and you’ll typically end up paying less than you owe by the end of the agreed timeframe. Plus, you’ll generally find more employment opportunities when on an IVA than you would if you filed for bankruptcy.
IVAs are a more suitable option for debts that exceed £10,000, due to the fees involved in the process. Most debts can be included in an IVA, but there are some that can’t be listed: student loans, TV licence arrears and child support arrears are just a few examples. Just as with DROs and bankruptcy, an IVA will stay on your credit file for six years after it starts.
Research your options
In this post, we’ve outlined just a handful of the many options available to help you manage your debt. Make sure you get professional advice before making any long-term decisions, and you can start to take back control of your money.
Conclusion: Navigating the Path to Debt Freedom
In conclusion, facing debt can be an overwhelming and daunting experience, but remember, you’re not alone. There are numerous debt relief schemes available designed to help you regain control of your finances. Each has its own set of benefits and drawbacks, so it’s crucial to find the one that best suits your unique circumstances.
Remember, seeking help is not a sign of failure but rather a step towards financial freedom. It’s about taking charge of your situation and making informed decisions to improve your financial health. Debt relief may seem like a long journey, but with patience, persistence, and the proper guidance, you can navigate your way out of debt. Also, remember, it’s not just about getting out of debt. It’s about building a sustainable financial future. Stay strong, stay informed, and keep moving forward. You have the strength and resilience to overcome this challenge. Here’s to your journey towards a debt-free life!
