Debt Solutions
Your most suitable debt solution depends on your own personal circumstances.
Three types of solution
Each works in a different way. Choose a type to see the options within it.
Formal solutions
Also known as statutory solutions, these use government legislation to reach a legally binding agreement with your creditors.
While you keep to the terms, you are legally protected from collection activity and legal action. Often part of the debt is written off.
Not available in Scotland, which has similar but separate insolvency law.
Informal solutions
Flexible arrangements between you and your creditors that are not legally binding.
They offer more flexibility, but no guarantees or protection from legal action. You will usually need to repay the full amount, although some creditors may agree to stop adding interest and charges.
Refinancing solutions
Rearranging your borrowing to free up more money for your unsecured debts.
Only open to people who can rearrange their credit. Generally you’d need a good credit record and some equity in your home.
Questions to ask about any option
- Are all my debts legally written off when it ends?
- Is it binding on all my creditors? Does it protect me from further recovery action or extra charges, or both?
- How long will it last?
- Will it affect my employment?
- Will it affect my credit rating?
- Will my home be at risk?
- Are fees taken from the money I pay to creditors, or paid separately?
- Are my finances stable enough to keep up payments until it ends?
Whichever option you choose
None of the options affect the rights of secured creditors, such as a bank or building society with a mortgage or legal charge over your home. They can still repossess your home if you don’t keep up payments. A charge on your home means that if you don’t repay the debt, the creditor has a claim on the proceeds if the property is sold.
Formal solutions affect your credit rating and appear on your credit record. It’s a good idea to get a copy of your credit record before you decide, to see how you may be affected.
Many people considering a debt solution find their credit rating has already been damaged by missed payments, arrears, defaults or court judgments.
With an informal solution such as debt management, you make reduced payments to creditors and so break the terms of your credit agreements. This can lead to defaults being recorded on your credit report.
If your home has been repossessed, or you choose to hand it back voluntarily, any mortgage or secured loan shortfall becomes an unsecured debt and can be included in these solutions.
Most credit and loan debts, such as credit cards and overdrafts, are unsecured. If you don’t pay, the creditor isn’t automatically entitled to take something of yours, such as your home.
However, if you fall behind they may go to court, and if they get a court judgment they may be able to have the debt secured on your home.
Using a formal option may occasionally affect your employment, and your employment terms may require you to tell your employer. Check with your employer or trade union whether your job may be affected.
What’s my best option?
It depends on your circumstances, how stable your finances are, and your own preferences.
It will also depend on how much you owe and how much you can repay from your income or assets.
Be ready to give full details of your debts and finances to whoever advises you, and to your creditors. It’s essential everyone has the complete picture.
Be accurate about your income and spending, and realistic about what you can pay into a solution.
Get trusted support
Check who you’re dealing with
Always make sure you’re dealing with a licensed Insolvency Practitioner, a solicitor, a firm regulated by the Financial Conduct Authority, or another reputable organisation.
MoneyHelper
An impartial service set up by the Government, offering free debt counselling, debt adjustment and credit information.
How to deal with debt (PDF)
A useful guide from National Debtline, the national charity for people with debt problems.
This guide is for residents of England and Wales. Options differ slightly in Scotland. The Scottish Government explains the options available in Scotland.