Clearing your debts: what are the options?

According to financial advisors, if your debt repayments consume more than 20 percent of your net monthly income, it is time to consider a debt solution and to cut back on your spending. There are a number of options for those faced with unmanageable debts, that could reduce crippling monthly payments and offer a solution to insolvency.

You could look into options with your property, vehicles or other and think about a Gloucestershire Equity Release company for instance

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Be clear about your debts

It is a false comfort to remain in the dark about the exact amount you owe. A list of your debts will give you a clear picture of what you are dealing with and help you create a plan. The list should include your mortgage, loans, credit cards and overdrafts, as well as interest rates and the size of your monthly payments. Being able to reduce your interest rates on high interest store and credit cards could be the first step in the right direction.

A Debt Management Plan (DMP) for credit and store cards

For those who do not qualify for balance transfers, a DMP could allow you to pay off your unsecured credit debt at a rate you can afford.

A suitable solution for non-priority debts like credit cards, loans, and even money borrowed from friends and family, debt management plans are usually facilitated by a DMP provider who manages payments to your creditors on your behalf. The plan can be arranged by free debt advice organisations and fee-paying providers must be authorised by the Financial Conduct Authority (FCA).

Debt management plans cannot be used for priority debts like taxes and court fines.

Clearing priority debts

Like the DMP, an Individual Voluntary Agreement (IVA) allows you to pay back what you can afford and is a legally binding arrangement set up to last for a fixed period of time.

Suggested for priority debts like money owed to HMRC, this option freezes your debt and dispenses it into monthly repayments over 5 to 6 years. Whatever remains unpaid at the end of the period is usually written off.

Getting help

A first stop for help to manage your money and explore debt management solutions is the government’s Money Advice Service.