There are many options you can take to reduce your debt. Let's explore these below.
Debt Management Plan (DMP)
A DMP is an informal agreement between you and your creditors for paying back your debts. A DMP can simplify repaying your debts:
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You’ll partner with a debt management company or advisor to assess your financial situation.
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Together, you’ll create a budget-friendly payment plan based on what you can afford each month.
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The debt management company negotiates with creditors to freeze interest and agree to new payment terms.
You pay back the debt by one set monthly payment, which is divided between your creditors. A DMP is not legally binding, meaning you’re not tied in for a minimum period and can cancel it at any time.
Debt Relief Order (DRO)
A Debt Relief Order (DRO) is one way for some to deal with relatively low levels of debt.
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To qualify for a DRO, you must owe £50,000 or less.
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Have savings or assets valued at £4,000 or less.
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Don’t own your own home.
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Don’t have a lot of spare income – no more than £75 a month after bills and necessities.
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You aren’t going through any other formal insolvency procedure, such as an IVA or Bankruptcy.
You don’t have to make payments towards most types of debt included in your DRO, and your creditors can’t force you to pay off the debts.
A DRO usually lasts a year unless your situation improves. When the DRO ends, most of your debts will be written off.
Bankruptcy
Bankruptcy is one way for individuals to deal with debts they cannot pay. It does not apply to companies or partnerships.
The bankruptcy process:
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Make sure your assets are shared among those you owe money to (creditors)
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Let's you make a fresh start free from debt (with some restrictions)
Involuntary Arrangement (IVA)
An IVA is a formal and legally binding agreement between you and your creditors to pay back your debts over a period of time. This means it’s approved by the court, and your creditors have to stick to it.
While you have an IVA, your creditors should stop:
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Charging interest on your debts.
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Chasing you to pay your debts.
While you’re in an IVA, you must:
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Make the agreed payments - this is usually a single monthly payment or a lump sum.
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Let your IVA provider know if your income increases or if you get any other money.
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Do not take out any new credit without permission, for example, loans.
You can include any amount of debt in your IVA. There are no minimum or maximum limits. The fees for an IVA are high, so if your total debt is less than £10,000, an IVA might not be the best option.
If you don’t have a lump sum of money or regular amounts to pay into an IVA, you should check other options for getting out of debt.
An IVA must be set up by a qualified person, called an insolvency practitioner. The insolvency practitioner will charge fees for the IVA.
Our partnership with MK Citizens Advice
Deciding which route to take can be stressful. That's why we've partnered with MK Citizens Advice to offer you support and advice when it's needed.
As a Commsave member, you can receive quicker referrals, shorter wait times, and speak to a dedicate adivsor who works directly with us.
If you're a Commsave member and could use some extra help or advice, just let us know. We'll connect you to our Citizens Advice specialist and help you move forward with confidence.
Click the blue button below to get in touch.
