Facing up to your debt problem
Almost everyone owes money - bills are a fact of life - but sometimes you may find you're swamped with debts and can't see a way of paying them all. The worst thing you can do is to ignore the problem - it won't just go away.
Making the most of your money
If you're in debt, work out a realistic personal budget so you know where your money's going and how much you can afford to pay your creditors (people you owe money to).
If you don't have enough to pay off your debts, look at ways of cutting your costs and increasing your income.
Cutting your costs
You can look at your expenses to see where you can make savings. You could also try shopping around to reduce bills or think about selling non-essential items that you own, for example, a second car.
Increasing your income
You may be in debt because you're not receiving all the money you're entitled to, for example:
- make sure you're not paying too much tax
- check if you're entitled to tax credits
- make sure you're getting the benefits you're entitled to
- make sure any family and friends living with you are paying enough towards household expenses
- think about renting out a spare room to a lodger
- check whether your mortgage payments are covered by insurance
- how to find out if you qualify for benefits
- letting rooms in your home
Ways of repaying your debts
There are many ways to repay your debts. You can get free and independent debt advice online and face-to-face to help you find the best way to deal with your debt problem.
This includes advice on what restrictions and responsibilities you have to agree to and how different repayment options affect things like:
- your credit rating
- your home, for example, if it is still at risk of being sold to pay your debts
- what action your creditors can take to recover their money, for example, taking you to court to make you bankrupt
Informal arrangements
An informal arrangement is where you agree with your creditors to make regular payments towards your debts over a period of time.
Debt management companies
Debt management companies (DMCs) offer help if you're in debt. They usually only deal with non-priority debts.
They negotiate with your creditors on your behalf in order to reduce the payments you are making overall. You then make one payment to the DMC which distributes it to the creditors.
Most DMCs charge a fee, so you may have less money from your available income to pay your debts. However, organisations like the National Debtline and StepChange Debt Charity offer free debt management plans.
Individual Voluntary Arrangements
Individual Voluntary Arrangements are formal agreements with your creditors to pay all or part of your debts over a period of time. They have to be set up by an authorised debt specialist and there are certain costs you need to pay.
Administration Orders
An Administration Order can help you deal with your debts if they are £5,000 or less and you can can afford to make regular payments to your creditors.
You have to apply for an administration order through your local county court and there are certain costs and conditions you need to meet.
Debt Relief Orders
A Debt Relief Order (DRO) provides relief from debt (subject to some exceptions).
A DRO lasts for 12 months, during which creditors named in it cannot take any action to recover their money without permission from the court. At the end of the 12 months you will, provided your circumstances have not changed, be freed from all debts included in your DRO.
DROs do not involve the courts. They are made under a partnership between the Insolvency Service and skilled debt advisers, called approved intermediaries, who will help you apply to the Insolvency Service for a DRO.
To apply for a DRO, you must meet certain conditions:
- you must be unable to pay your debts
- you must not owe more than £20,000
- you can own a car to the value of £1,000 but the total value of other assets must not exceed £1,000 (items such as clothing, furniture and tools for use in employment or a business may be disregarded)
- after taking away tax, national insurance contributions and normal household expenses, your disposable income must be no more than £50 a month
- you must either be currently living in Northern Ireland, or have been living or carrying on business in Northern Ireland at some time within the last three years
- you must not have been subject to another DRO within the last six years
- you must not be involved in another formal insolvency procedure at the time you apply
Due to the restriction on the value of assets, the scheme is not suitable for homeowners.
For more information about the process, contact the Insolvency Service or visit its website.
Bankruptcy
When you are made bankrupt, a person called a ‘trustee’ is appointed to take control of your assets (belongings, home, spare income) and sell or use them to help pay your debts.
Your financial affairs will be investigated and you have to agree to certain restrictions, for example, you can’t borrow more than £500 without telling the lender you are bankrupt.
Fast-track Voluntary Arrangements
If you have been made bankrupt, a fast-track voluntary arrangement (FTVA) may be a way to annul (cancel) the bankruptcy and deal with your debts.
You have to apply for an FTVA through an officer of the bankruptcy court called the ‘Official Receiver’ and your creditors have to agree to it. There are costs involved and conditions you need to meet, for example, you must have assets (property, shares) that are easy to sell.
Consolidating your debts
Consolidating debt is when you take out a single new loan to pay off several existing debts. You should get independent advice before taking out a loan and make sure it's the right way to deal with your debt problem.
Help and advice
Many organisations offer free, independent advice, including Advice NI and StepChange Debt Charity.
Advice NI
Advice NI offers free, confidential and impartial debt and money advice services at a range of outlets across NI and via a helpline and website.
Its helps people manage their money and debt issues so they can take back control.
StepChange Debt Charity
StepChange Debt Charity has a helpline and website providing free and impartial debt help to people with debt problems.