For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.
If you’re searching for ways to clear your debt, you’ve come to the right place. This easy-to-follow guide is here to help answer your questions and ease your worries about the impact of debt on your financial health.
Every month, over 170,000 people visit our website looking for guidance on debt solutions. You’re not alone.
In this guide, we’ll show you:
- What happens if you can’t pay a debt
- Steps to get out of debt
- How to write off some debt
- Ways to clear debt quickly
- How to manage debt with little or no money
We know that being in debt can be tough; some of our team have been in the same boat. We’re here to help you understand your options and make an informed decision.
What happens if you can’t pay a debt?
The consequences of not paying a debt will depend on the type of debt you haven’t repaid.
For example, if you fail to repay a debt secured against an asset like a property, the lender can force the sale of the property to recover the money owed. On the other hand, not paying an unsecured debt can lead to being chased by debt collection agencies or even court action.
If a court order is made for you to pay a debt, you will need to repay or the court could give the claimant permission to enforce repayment through different methods, including the use of bailiffs or taking money from your employment income. There are even some types of debt that can skip straight to bailiffs if you don’t repay.
More detail on the stages of the debt collection process can be found on dedicated guides via our debt information page.
How can I get out of debt?
You can get out of debt by using get-out-of-debt strategies and debt mitigation techniques that you can implement yourself without having to negotiate with creditors or companies.
Alternatively, if you have already gotten into arrears on your debt, you might be able to use one of many debt solutions. Some debt solutions are informal agreements with creditors, whereas others are legally-binding debt solutions that must be set up and overseen by an insolvency practitioner.
When trying to get out of arrears, some debts need to be paid off before others. These are known as priority debts and include things like mortgage payments, council tax and court fines.
There is also a way you might be able to get out of debt without paying by using the law. We’ll return to this towards the end of this guide.
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Use a get-out-of-debt strategy
A “get-out-of-debt strategy” refers to different strategies you can use to make debt repayments more affordable or to help pay off your debts faster.
These strategies are usually beneficial to people who have debts but aren’t in arrears. They just want to pay off their debts more effectively or efficiently.
Three of the most common debt mitigation strategies are debt consolidation, the snowball method and the debt avalanche method. We explain each of these below.
- Debt consolidation (ideal for personal loans and credit card debt!)
Debt consolidation is when you take out new credit and use the money to pay off multiple existing debts. This creates one bigger debt instead of having multiple other debts. This should make debt repayments easier to manage, but there is an additional benefit.
Debt consolidation is most beneficial when you pay lower interest on the new credit compared to the cumulative interest paid on your previous multiple debts. Thus, debt consolidation can save you money.
There are some credit options that are exclusively used for debt consolidation, including different debt consolidation loan options and balance transfer credit cards.
The debt avalanche method and snowball method are for people with multiple debts, typically payday loan debts.
Both methods require the debtor to make the minimum monthly repayment required on all debts to assure they don’t get into arrears on any debt. Your monthly disposable income is then used to overpay on one of the debts only – and this is where the two methods differ.
The snowball method focuses on reducing the number of debts you have, and therefore disposable income is put towards the smallest debt so this can be cleared quicker. On the other hand, the debt avalanche method focuses on reducing as much interest payable as possible, so disposable income goes towards the debt with the highest interest rate.
Use a debt solution
Debt solutions are for people who are struggling to repay their debts and have already fallen into arrears – or expect to do so in the near future. There are scores of informal and formal debt solutions designed to help debtors in different situations.
Three of the most popular debt solutions in England, Wales and Northern Ireland are Debt Management Plans, Debt Relief Orders and Individual Voluntary Arrangements. We have explained how these debt solutions work below.
- Debt Management Plan (DMP)
A Debt Management Plan is used when your debt repayments have become unaffordable. It requires the debtor to agree with multiple creditors to a lower monthly repayment. It’s common to also ask for fees and interest rates to be frozen.
A single monthly payment is made based on what the debtor can realistically afford, which is split between all creditors proportional to the debt owed to each of them. These can be set up independently, or you could ask a debt charity to negotiate with creditors on your behalf.
- Debt Relief Order (DRO)
A Debt Relief Order is used when you have multiple unsecured debts you simply cannot afford. The DRO stops all creditors from contacting you and asking for payments for a full year. If your personal finances haven’t improved during the year, all debt will be completely written off after the 12 months.
It can only be used if you have £75 or less disposable income (£50 or less in Northern Ireland) each month. This is the money you have leftover after you pay essential living costs. You must also have no assets of significant value.
Note: if you sell assets for less than their real value so you qualify for a DRO, you can be given a Debt Relief Restrictions Order, which extends the time limit before debts become wiped.
An Individual Voluntary Arrangement is similar to a Debt Management Plan in that you’ll make one monthly payment that gets split between all your debts. But this time the debt solution is a legally binding agreement for both parties and must be set up by an insolvency practitioner.
An IVA usually lasts five or six years and may require you to release equity in your home to pay as much of the debt off as possible before the IVA ends. However, any debt that hasn’t been repaid at the end of the IVA gets written off.
How a debt solution could help
Some debt solutions can:
- Stop nasty calls from creditors
- Freeze interest and charges
- Reduce your monthly payments
A few debt solutions can even result in writing off some of your debt.
Here’s an example:
Situation
| Monthly income | £2,504 |
| Monthly expenses | £2,345 |
| Total debt | £32,049 |
Monthly debt repayments
| Before | £587 |
| After | £158 |
£429 reduction in monthly payments
If you want to learn what debt solutions are available to you, click the button below to get started.
How do I clear debt quickly?
Debt consolidation, the snowball method and the debt avalanche method can all be used to clear your debts more efficiently. Simply making overpayments on the debt will also clear debt quicker, but be aware of overpayment or early repayment charges.
What’s the best way to get out of debt?
The best way to get out of debt is entirely dependent on your situation, including your disposable monthly income and the nature of your debts.
You can get help figuring out what debt mitigation strategy or debt solution is most advantageous for you by speaking with a debt charity. Debt charities offer free personalised debt advice and can even help organise some of the solutions listed above.
How to clear your debts (step by step)
There are four main steps to clearing your debts after recognising that you need to take action. We have outlined these four key steps below.
#1: Work out your budget
Work out your monthly finances first. Your monthly budget should contain all essential expenses, such as rent, mortgage payments, groceries, household bills, transport costs and debt repayments.
If you’re unsure how much something costs, such as groceries, check back over your bank statements for a better estimate. Take the overall cost away from your total monthly income to uncover how much disposable income you have each month.
#2: Speak to a debt charity
Now is the best time to get free debt advice from a debt charity. A debt charity will help you pick the right debt strategy or solution, but to do this they need to have a clear picture of your finances. This is why it’s important to work out your monthly budget before speaking with the charity’s debt advisor.
#3: Choose a debt strategy or debt solution
The debt charity will assess your situation and recommend one or multiple debt strategies or solutions. They should provide all information on how each of them works, including their pros and cons.
Debt charities can usually help you negotiate and set up debt solutions with creditors, or you may need to consider commercial services from a debt management company.
#4: Stick to your plan or solution
Once you have chosen a debt strategy or solution, it’s important to stick to it and see it through to get out of debt. There can be serious consequences if you don’t stick to formal debt solutions as these are legally binding. You could even be made bankrupt in some cases.
How can I get out of debt with no money?
Yes, it’s possible to get out of debt with no money. The most common method of getting out of debt without any disposable income is by using a Debt Relief Order.
With this debt solution, you’ll stop all creditor communications and the threat of further action for 12 months. After the year is up, all your unsecured debt is written off if your finances haven’t improved.
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Is it better to pay off debt or save money?
It’s usually better to pay off your debts faster through overpayments rather than put the money into a savings account. This is because the interest added to debts is usually higher than the interest rates on savings accounts.
Additionally, clearing your debts can improve your credit score and reduce the risk of getting into arrears later, which could lead to a court order and enforcement action.
Does being in debt affect my credit score?
Debt can have a positive or negative effect on your credit rating depending on how you’re handling your debt. If you’ve taken out credit and are repaying as agreed, you’re showing responsible borrowing and this could improve your score.
On the contrary, if you’re failing to repay debts as agreed or have a high credit utilisation ratio on your credit card, you could be worsening your credit file.
How can I clear my debt without paying?
Aside from a Debt Relief Order, there is another way to clear your debts without paying by writing them off.
Some debts become too old to be enforced in court. Without a court order, the claimant can never force you to pay. The debt doesn’t disappear, but at the same time, you’ll never be made to pay.
For many types of debt to become too old to be enforced, you must not pay towards the debt or acknowledge the debt in writing for six years (five years in Scotland). However, if the debt is ever subject to a court order previously, the time limit to enforce the debt doesn’t ever expire.
What does it really mean to be debt-free?
Being free from debt means you don’t owe any money to a creditor or organisation, this includes any overdrafts you have with your bank.
Even people who don’t use payday loans and credit cards usually have debt through their mortgage or student loans.
