Debt problems could leave a strain on your mental and emotional health. In case you owe debts to your creditors, you may be able to make arrangements to pay off your debts easily.
I have compiled this complete guide to help you understand which debt solution could be the best for you.
It is important to understand that your debt solution could depend on the amount of money that you have.
Read the guidelines carefully in order to be well informed.
What does debt reduction refer to?
Debt reduction refers to the process of gradually reducing the amount of loan you have.
The process involves balancing consumers expenditures, which falls under the category of debt relief. This is mainly available for people living in the UK and Wales.
The main strategies of a debt reduction include:
- Consumer debts are reorganized
- Changing the amount of liabilities through contractual monthly payments
- Getting new funds, loans, or agreements to pay off previous debts
Moreover, the concept refers to the idea of allowing debtors to pay off their debts conveniently.
What is a DRO?
A Debt Relief Order (DRO) is a process that allows debtors to pay off their debts. This is strictly for individuals who are struggling to pay off their loans without help.
It gives you a freedom of not paying off some type of debts for a specified period of time.
After your agreement has ended, you will be discharged and your remaining debts will be written off.
How long does a DRO last?
Normally, a Debt Relief Order lasts up to 12 months.
After it has been granted the receiver will be informed about the process, restriction, and duties you are obliged to follow.
Moreover, your creditors will be listed in the DRO. This will prevent them from asking you to make your debt payments earlier.
How do I reduce my debt amount?
There are several debt solutions that could help you reduce your debt amount.
I will list down the most significant one’s for you.
- A Debt Management Plan (DMP)
- Applying for a sequestration (Bankruptcy)
- Debt Relief Order (DRO)
- Individual Voluntary Agreement (IVA)
- Administration Order
- Writing off your debts
- Get an offer in full or a final settlement
Debt solutions could vary based on your financial situation and the amount of assets you have. I would suggest you speak to a debt advisor to understand which debt solution could be the best option for you.
What is the eligibility criteria for a debt reduction scheme?
It is not difficult to fit the eligibility criteria. This includes:
- Your total debt amount should be under £20,000.
- You should be able to make monthly payments to your creditors.
- You are unable to pay off your debt amount on your own.
- Your estimated amount of spare income is less than £50 for a month.
- Your total worth of assets is less than £1,000.
- You have resided in England or Wales within the last 3 years.
- You have not applied for a Debt Relief Order for an estimated period of 6 years.
What are the restrictions of a debt reduction scheme?
It is crucial you understand and follow the restrictions.
- You are expected not to borrow more than £500 without informing your lender about your Debt Relief Agreement.
- You can not pay less than the minimum payments you are assigned.
- You can not act as the director of a company.
- Without the court’s permission, you can not initiate, manage, or promote a company.
- You can not manage a business without informing your employees about your DRO.
- In case you decide to open a new bank account, you have to inform your bank about your DRO.
How can I make my own debt reduction spreadsheet?
Follow the step by step instructions to construct your own debt reduction spreadsheets.
- Start with identifying your individual amount of debt and interest and list them on your spreadsheet.
- Identify your passwords and logins. Then collect all your information and write them down in your created spreadsheet. You could either use Microsoft Excel or Google Sheet.
- Enter the name of your type of loan and interest rate. Moreover, add the minimum payment you have to make for each loan.
- After entering all your debt information, add dates in the first column. This will help you track the time of your payments.
- Calculate the amount of payments you can easily make for a month. Keep a track record of how much you actually pay off each month as well.
- Use the formula:
(total amount owed x Interest rates) / the total monthly interest you pay
Drag down the formula and apply to all the cells. Do this until your remaining balance equals to 0.
- If you want you could calculate the snowball effect as well.
Making your own debt reduction spreadsheets are not as difficult as you think. I would advise you give it at least a try. It will help you keep a complete track record.
Frequently Asked Questions (FAQs)
How long will a DRO last in my credit file?
Your Debt Relief Order can stay in your credit file for up to six years. The time begins from the date your DRO was issued.
This could prevent you from taking credit in the future for some time. Moreover, it could be difficult for you to start a new bank account.
Furthermore, your credit score could be significantly impacted.
What will happen after 12 months of a Debt Relief Order?
In case your financial situation has not improved after 12 months, your remaining debts will be written off.
How long does it take to process a debt relief order?
A Debt Relief Order could take up to 10 days to process. However, it could take 2 weeks depending on your case.
Your case will be reviewed and assessed by an Official Receiver. This is someone who is an Officer from the court of bankruptcy. They usually work for the Insolvency Service.
What debts can I include in my debt relief order?
You could include a number of debts such as:
- Student loans
- Criminal fines
- Child Maintenance Service (CSA)
- TV licence arrears
- Social Fund Loans
- Personal Injury Damages ordered by a court
Not being able to pay off your unwanted debt could be stressful. However, you would be relieved to know there are a number of debt solutions to pick from.
This guide helps you understand how you could benefit from debt reduction services.
Follow the instructions and follow the step by step guide.