How to Clear Your Debts – A Complete Guide
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Want to know how to clear your debts? You came to the right place. Here at MoneyNerd, we are all about helping people to clear their debts in the best way for them. Learn how to clear your debts without confusing jargon in this post.
There Is No Single Method
The first thing you need to know when aiming to clear your debts is that there is no one single method you should use.
How you clear your debts will depend on several factors, including the amount of debt you have and your finances. Thankfully, there is a debt solution for almost every situation.
So, Where Should I Start?
The fact that there are so many different ways to clear debt will probably cause confusion. How do you know which method to choose? Well, you need to choose a method that is most advantageous for you.
And to work out what that is you will need to do a little research (hooray – you’re already doing that here!). But the best method of all is to speak with a UK debt charity.
Charities like Step Change will assess your situation for free and recommend the best debt solution or technique to use.
To give you a taste of possible recommendations, here are some popular ways to clear debt…
How to Clear Your Debts (Common Solutions)
For ease of reading, we have divided the common ways to clear your debts into three categories.
- Early intervention is for people who have yet to enter debt but know they are going to if they don’t find a solution.
- Popular debt solutions are for most people with debt that they will eventually be able to get out of.
- And last resort options are for people who need an immediate escape but don’t have any other options.
Early Intervention Techniques
One of the most effective early intervention techniques is debt consolidation. This is when you consolidate debts into one debt with better terms or a repayment holiday to help you get through a difficult period.
You can do debt consolidation with loans, credit cards (known as a balance transfer) and even by remortgaging.
Another common early intervention is the snowball technique, which is based on trying to pay off one of your debts at a time. It is worth researching both of these methods to clear debt if you are yet to receive debt letters but anticipate not being able to repay lenders in the near future.
Popular Debt Solutions
If you have already started to receive notifications about your debt and requests to pay, it is likely you can obtain a debt solution to strike a deal with your lenders and make repayments affordable to you.
The most common debt solutions to eventually clear your debt are:
- Debt Management Plans
- Individual Voluntary Arrangements
- Debt Relief Orders
These solutions can help people in vastly different situations. For example, an Individual Voluntary Arrangement is only possible if you have big debts and can make significant monthly repayments. The advantage is that after six years you could wipe as much as 80% of your debt or more.
On the other hand, Debt Management Plans and Debt Relief Orders target low earners or people with smaller debts.
You might have to pay service fees to access some debt solutions. Yet, despite paying you can still benefit.
Last Resort Options
For some debtors, all of the options listed above are not suitable. Either they don’t qualify for them or they would not provide benefits over the long term.
The most well-known last resort option is bankruptcy, which typically comes with a stigma. However, if you simply have no way to clear your debts, bankruptcy is a smart move. There will be repercussions of declaring yourself bankrupt, but it can still be a good option in some circumstances.
You can learn more about bankruptcy with us at MoneyNerd!
How to Clear Your Debts without Paying
Most debtors won’t be able to clear their debts without paying. A Debt Relief Order may help some people do this but it also has repercussions.
But there is one way that you could remove your obligation to pay a debt. This only happens if your debt is at least six years old and you haven’t made any repayments on the debt in the last six years.
These older debts are not allowed to be discussed in court (they’re too busy with newer cases), and without a judge legally forcing you to pay, your creditor cannot make you hand over the money, and they can’t send bailiffs around.
For more info on this, speak with debt charities or search for Statute Barred debts online.
How to Clear Your Debts – Bonus Advice!
If you have received a debt letter, we have some bonus advice for you.
First of all, don’t ignore any payment requests even if you believe the company has made a mistake. Sometimes debtors don’t believe the letters because they don’t recognise the company asking for money.
Businesses sell debts to each other and could be why they aren’t familiar to you.
Moreover, when you do receive a debt letter, if they don’t provide evidence that you owe the debt, write back to them and ask them to prove the debt.
We have prove the debt letter templates you can use for free.
It is not good enough for them to say you owe money, they actually have to supply evidence such as a signed agreement. If they don’t provide this then you are not forced to pay. If they don’t provide it and take you to court, you should show the judge that you asked for proof which they did not supply.
Continually sending you letters and not providing proof is a criminal offence.
For more information, check out the MoneyNerd blog!