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Paying off debt can often seem hopeless when you’re not well-informed about which schemes would be most appropriate for you.
However, if you take advantage of the government schemes available in the UK, you can definitely open up paths to becoming debt-free.
In this post, I’ll be looking at government debt help schemes and solutions and detailing how they work.
There are a number of debt help programs available to you by the government that you can opt for. You can look up details of these schemes on GOV.UK’s website.
As you can probably tell, the different debt solutions listed on the website are aimed at different individuals with different types of financial circumstances.
A debt solution that works very well for you may not work so well for someone else.
This is why it’s extremely important to seek proper debt advice and do your research so you make an informed decision to address your debt.
The different debt solutions available to you are:
IVAs are extremely popular debt solutions that many Brits opt for every year.
It’s a formal and legally binding agreement between you and your creditors which states that you will make reduced monthly payments towards your debts for a set period of time. This period is typically five years.
Once that period is over, any remaining debt that you have is written off by your creditors.
The amount of money you pay as part of your monthly payment is determined by how much you can afford to pay.
You cannot set up an IVA on your own, it has to be set up through a licensed insolvency practitioner. He/she helps you set up your IVA and ensures that it runs smoothly till the end.
The great thing about IVAs is that they’re flexible, they protect your assets and interest and charges on your debt payments are frozen when you enter into it.
A debt management plan works in fairly the same way an IVA does in that you make reduced monthly repayments to your creditors.
The difference is that typically in a DMP, you repay the entirety of your debt. No portion of it is written off. As a result of this, DMPs can go on for a much longer time than IVAs typically do.
Another thing about DMPs is that they’re an informal solution. This means that they are not legally binding to your creditors.
Your creditors can still take legal action against you even if they’ve agreed to enter into a DMP with you. Though, this rarely happens if you keep up with your monthly payments.
Bankruptcy involves all of your unsecured debts being written off. It’s opted for by individuals that have no way of repaying their debts within a reasonable time.
While bankruptcy may seem like a tempting option since it writes off all your debts, you have to be aware of its consequences as they are quite dire.
Firstly, bankruptcy does not protect your assets. This means that any valuable assets you have such as your home, car, etc. will be seized and sold off in order to raise funds for your debts.
Furthermore, if you have a job in the financial sector, you may be fired if you opt for bankruptcy.
A DRO is a debt solution that you can opt for if you have very low income and little to no assets.
When you opt for a DRO, your financial situation is assessed. If it’s found that you truly can’t afford to pay back your debts, then your DRO is put in place.
When this happens, all of your payments towards your debts are frozen for a year. During this year, you are obligated to seek debt advice and strive to improve your financial standing.
At the end of the year, your financial circumstances are reassessed. If it’s found that you can afford to pay back your debts now, then you’re obligated to pay them back.
However, if it’s found that you still can’t afford repayments, then the debt solution dictates that your debts are written off.
Choosing between debt solutions is a very difficult task since every financial situation is incredibly nuanced and unique.
I’d highly advise that you seek debt advice from any agency authorised and regulated by the Financial Conduct Authority (FCA).
If you think you’ll be able to pay off a portion of your debt and want your assets to be protected, then an IVA would definitely be the way to go.
If you feel you can afford regular payments and can pay back all your debt, then a debt management plan would definitely be right for you.
On the other hand, if you can’t afford to pay back your debt at all, then you may need to think about going for bankruptcy or a debt relief order.
When it comes to debt help, the government has provided all of these different debt relief solutions that you can opt for.
It’s important to note that for most of these solutions, your creditors have to be on board in order for them to be put into place (except bankruptcy and DRO).
In order for an IVA to be approved, 75% of the creditors need to agree to it. The case is similar with DMPs where a majority of the creditors need to agree to its terms in order for it to be passed.
Debts can only be written off through formal insolvency. This would be if you opt for a formal debt relief solution such as an IVA, bankruptcy or a DRO.
For more information on the government’s role in debt help and debt advice, click here.
If you’re struggling with debt or just your finances in general, looking up grants and government debt help schemes can be a good idea to help you improve your living situation.
Turn2Us is a great charity that can help you access grants and services. You can give them details of your situation and they’ll search appropriate support services for you.
For more information on grants and benefits, you can click here.
There are a number of government debt help schemes you can take advantage of if you’re in the UK.
Just be sure to seek debt advice and research properly so you can choose the appropriate scheme for your unique debt problems.