Getting Out of Debt - Where to Start
When struggling to deal with debts it can be difficult to know what to do or who to turn to for help and advice. Companies advertising on daytime television, in the newspapers and all over the internet, each claim to offer "independent" and "best" advice - but do they really have only your best interests at heart, and are they giving you value for money?
The purpose of this site is very simple, to remove the uncertainty surrounding how, and where, to seek debt help. By following our "5 Steps to Resolving a Debt Problem" you can be sure that you have utilised every available form of debt advice and have approached the problem in the most cost effective way.
5 Steps to Resolving a Debt Problem
- Carry out a Personal Financial Assessment
- Discuss your situation with your creditors
- Research which debt solutions may be suitable
- Speak to a charity / not-for-profit debt advice organisation
- Get help from a company with FCA authorisation for debt counselling
Step 1. Carry out a Personal Financial Assessment
Confirm what debts you actually have
Before you do anything it is important you understand exactly what your situation is. It is not uncommon for people suffering debt worries to bury their head in the sand, and if this applies to you then you may not even be aware of exactly what debts you have.
The first thing to do is make a list of all your debts. This should be available from your regular statements but, if necessary, contact all of your creditors and get the following information from each:
- Full outstanding balance
- Current monthly payment amount
- Minimum monthly payment amount
- Current interest rate (APR)
Putting together this information is the starting point for any action and will be required whether you attempt to deal with your debts yourself, or via a 3rd party advice service.
A quick change you might make, having put this information together, is to reduce any low interest rate creditors to the minimum payments so that the difference can be paid to higher interest rate creditors. Remember it is always in your best interests to pay your highest interest rate debts fastest
Put together your Personal Financial Statement
The next step is to sort out your income and expenditure, i.e. how much money you have coming in and how much you are spending. The aim here is to maximise your income whilst at the same time reducing your expenditure, giving you more 'disposable income' - the amount you can afford to pay each month towards your debts.
Putting together a Personal Financial Statement can be complicated so, to make things simpler, we’ve put together an easy-to-use online tool to help you:
Once you have completed your income and expenditure it is always worth spending a bit of time looking at the figures and seeing where you might be able to make savings or increase your income in order to maximize your monthly disposable income.
Step 2. Discuss your situation with your creditors
Now is the time to contact each of your creditors and let them know that you are having difficulty maintaining the payments towards your debts.
Using the income and expenditure document you put together in the first section you should be able to demonstrate that you are genuinely struggling, and present a proposal for reduced payments and the freezing or lowering of interest.
When speaking to your creditors make sure you are realistic about what you can afford to repay and don't assume you'll be able to pay back more in the future. If you do reach any agreement to lower payments, freeze interest etc then it's important you follow up the call with a letter to the creditor confirming what has been agreed, and asking for written confirmation of the same.
If a creditor only agrees to a temporary change to your repayments (for example for 6 months) then make sure you mark down the date it ends, and remember to be proactive and contact them to reassess the situation before they do.
Step 3. Research which debt solutions may be suitable
You should now have a clear picture of how much debt you have and how much you can afford to pay towards it each month, so it is time to do some research to get a basic idea of which solutions may be appropriate in your situation.
In most situations there will be a number of options available and each option will have its own advantages and disadvantages, so doing some research before speaking to your creditors or seeking any 3rd party debt advice will help you to avoid being "sold" a solution that isn't right for you.
|Self Help||Debt Consolidation||Debt Management||Administration Order||IVA||Debt Relief Order||Bankruptcy|
|Suitable unsecured debt levels||Any||Any||Generally £3k+||Upto £5k||Generally £10k+||Upto £20k||Any|
|Length of time||No fixed period||No fixed period||No fixed period||Variable, until last payment made.||Usually 5 years||Usually 1 year||Usually 1 year, but you may need to make payments for up to 3 years|
|Clears debt||No||No||No||Only if the court makes an order for this||Yes, when the terms of the IVA are completed||Yes, after 12 months debts included in the DRO are discharged.||Yes, once discharged for all debts included in the Bankruptcy|
|Legally binding||No||Only on debts repaid in full||Only on debts repaid in full||Yes||Yes||Yes for all creditors included in the DRO application||Yes|
|Protection from action
by unsecured creditors
|No||Only on debts repaid in full||No||Yes||Yes||Yes||Yes|
|Protection from action
by secured creditors
|Probably none||Probably none||Probably none||Probably none||Probably none||Possibly||Possibly|
|Affects credit rating||Yes||Probably||Yes||Yes||Yes||Yes||Yes|
|Home at risk?||Not if mortgage payments are maintained||Not if mortgage payments are maintained||
Not if mortgage payments are maintained
|Not if mortgage payments are maintained||Possibly. You may be required to remortgage in the final year of an IVA to release equity.||No, homeowners do not qualify for a DRO.||Yes|
Once you have researched your debt problem, the potential solutions available and asked any questions you may have, you are ready to move on to the next step in our process
Step 4. Speak to a charity organisation
If, having already approached your creditors yourself, you find you are still struggling with your debts then now is the time to seek third party advice. There are a number of Government funded or charitable advice centres and these should be your first port of call.
When you contact these organisations be sure to have your list of creditors and your income and expenditure document to hand as it is likely you'll need to provide this information to them in order for them to give you advice on your options
Step Change Debt Charity
Step Change Debt Charity is a registered UK charity providing assistance to people in financial difficulty. It offers a free national telephone service as well as ten regional centres allowing it to service people throughout the UK.
Tel: 0800 138 1111
Available: Mon - Fri 08.00 - 20.00
More Information: www.stepchange.org
Citizens Advice Bureau (CAB)
The Citizens Advice service helps people resolve their legal, money and other problems by providing advice and information via 394 Bureaux across England and Wales, all of which are are registered charities.
The National Debtline (Money Advice Trust) is a registered charity providing free confidential and independent advice on how to deal with debt problems to people in England, Scotland and Wales.
Tel: 0808 808 4000
Available: Mon - Fri 09.00 - 21.00, Sat 09.30 - 13.00
More Information: www.mymoneysteps.org
Step 5. Get help from a company with FCA authorisation for debt counselling
If, having exhausted all the steps above, you are still struggling with your debts you may decide it is worth contacting a company with FCA authorisation for debt counselling.
Although not charities, these are companies that have been through a rigorous authorisation process and are held to a strict code of conduct. This ensures that any advice you receive is fair and has your best interests at heart.
DIY Debt Help is operated by Bridgewood Financial Management, a company that holds FCA authorisation for debt counselling and are passionate about providing good quality, ethical debt advice.
If you would like to speak to us we would be delighted to help you resolve your debt problem. You can call us on freephone 0800 987 1010, available Monday - Friday, 9am - 6pm or visit our website for more information by clicking here.