Debt & How To Cope
- BetterAskAdam.com
- Sep 21, 2024
- 5 min read
Updated: Sep 23, 2024
5.2m people are behind on consumer credit payments. That’s a big number but more striking is that it is a rise of 40% in over 12 months, according to research by the charity, set-up by Martin Lewis, the Money & Mental Health Institiute.
100,000 people in problem debt attempt suicide each year in England, and those with
two or more debts were five times as likely to have attempted suicide.
Around a quarter of people who have missed payments are contacted by their creditors every 1-2 days — and some people with multiple debts say they are receiving several letters, emails or calls each day.
Q: Where can I go to for free advice?
There are lots of people offering help but they can charge you. So I would start by getting free advice which might mean you never have to pay.
The useful places are
Rules do differ between England, Scotland, Wales and Northern Ireland and I have concentrated on England here - but do check out if they aply to where you live.
Q: I've heard that a Debt Management Plan can get the creditors off your back - what are they and how do they work?
A: If you're struggling to keep up with debt payments a debt management plan, otherwise known as a DMP may be right for you.
A DMP is an informal agreement between for paying back your debts by a series of monthly payment, which is then divided between the companies you owe money to. The payment is managed by a DMP provider.
This means you don't need to deal with your creditors yourself and may remove the emotional stress involved in dealing with lots of people all chasing you for money.
If this sounds appealing, please consider the following:
It may take longer to pay back your debt because you'll be paying less each month
The organisations you owe money nay not freeze the interest on your debt, so the debt may be getting bigger, the longer you take to pay it off.
The DMP provider, the organisation which manages paying beackthe individual creditors, might charge you a fee, although there are several free providers you can use so there’s no need to pay them a fee. StepChange is a debt charity that can organise your DMP and don't currently make any charges. You can see details here
Your creditors might not agree to a DMP deal but organisations like StepChange can advise and help you free of charge.
The DMP will show on your credit reference in all cases that I know of.
Q: What is the difference between a Debt Management Plan and an Individual Voluntary Arrangement (IVA)?
A: An IVA is a Debt Managment Plan with knobs on and there are important diffrerences and some advantages and disadvantages of an IVA compared with a DMP (apologies for the acronyms)
One of the biggest differences is that an IVA is a legally binding agreement between you and your creditors to pay back your debts over a period of time. This means it’s approved by the court and your creditors have to stick to it.
One of the huge advantages of an IVA is that your creditors should stop charging interest on your debts and chasing you to pay your debts
You will make a a single monthly payment or a lump sum and the money gets sent to the various organisations to which you owe money,
That all may sound great so far but one of the big drawbacks of an IVA is that the fees for arranging it can be high. The Citizens Advice Bureau say that "if your total debt is less than £10,000 an IVA might not be the best option."
It can also be a little more complex to sort out. Everycase I know of has had to use an Insolvency Practitioner to organise it, and they cost money.
Be careful because you might see adverts for debt management companies who may help you through the process, but they might charge you as well and then you would also have to pay for the Insolvency Practitioner - so you may get 2 sets of charges. Check all the charges before you sign anything.
You can get an IVA without a debt management company. It’s usually cheaper and you can find an insolvency practitioner yourself
To start an IVA without a debt management company - you can find an insolvency practitioner yourself on the link here GOV.UK.
The debt charity StepChange can help you with an IVA, although they also charge. But I have always found them a useful source of information. Their guide to IVAs can be found by clicking here
Q: I've heard of something called a Debt Relief Order which seems to wipe out my debt, shouldn't I just get one of those?
A: You can apply for a Debt Relief Order if:
you have qualifying debts of less than £50,000 if you live in England and Wales, and you will be able to keep any motor vehicles worth up to £4,000.
you don’t own things of value or have savings over £2,000
you have £75 or less spare each month after paying your household bills
you’ve lived or worked in England and Wales within the last 3 years.
There are lots of restrictions on who can apply and a fuller list of the details can be found by clicking here
Q: Does going bankrupt just wipe things out and enable you to start again?
A: You might be able to declare yourself bankrupt if you can't pay your debts and the amount you owe is more than the value of the things you own.
The bankruptcy period usually lasts 12 months. If you go bankrupt, most of your creditors won’t be able to contact you about your debts or take you to court.
You are likely to lose almost all your possessions if you become bankrupt.
This advice applies to England. See advice for See advice for Northern Ireland, See advice for Scotland, See advice for Wales
When you go bankrupt, you can usually keep the things you need to live - for example your clothes, furniture and cooking equipment. The rest of the belongings you own become the property of the person who deals with your bankruptcy. This person is called the ‘official receiver’.
To go bankrupt, you need to apply online through the Insolvency Service website. Your bankruptcy will be administered by an officer from the Insolvency Service called an official receiver.
The fee to go bankrupt is £680 in England and Wales, and £659 in Northern Ireland. You won’t be able to submit your bankruptcy application until you’ve paid it in full. However, you can pay in instalments if you’re unable to pay it all at once. You may also be able to get a grant to help cover the fee.
