How do I get out of debt?

When people ask ‘how do I get out of debt’, the first thing we tell them is that the solution to their debt problem depends on a number of important factors:

  • How much you owe (some debt solutions are only available for if specific levels of debt, for example, a debt relief order is only available to people with unsecured debts under £20,000).

  • What type of debt is it (secured and priority debts, such as court fines must be paid first as not doing so has much more serious consequences).

  • How much you can reasonably afford to offer to your creditors each month (the length of time it will take you to pay back your debts has a significant bearing on which solution is best for you).

  • Whether you own your own property or other assets that you wish to protect (if you own your own home then you will probably want to avoid Bankruptcy).

  • What you do for a living (some solutions, such as Bankruptcy, have legal and professional implications that you need to be aware of – for example, you cannot enlist in the Armed Forces as an undischarged Bankrupt and some professional bodies, such as chartered accountants and solicitors, prohibit membership).

As a general rule, the more you owe and the longer it will take to repay your debts in full, the more serious (or more formal) the solution is likely to be.

It’s important to remember that your creditors and the courts will have a large say in which solutions are made available to you. For example, if you own your own home and you can afford to remortgage then your creditors will expect you to release any available equity. If you have no equity or you can’t afford to remortgage but you can repay your debts in full in less than seven years (this figure fluctuates periodically and assumes interest is frozen) then your creditors will expect you to enter an informal managed payment plan to get out of debt (Debt Management).

If you owe less than £5,000 and have a CCJ against you then you also have the option of an Administration Order.

If you owe less than £20,000 and have less than £50 available at the end of the month to give to your creditors (after your essential expenditure has been taken into account) then a Debt Relief Order is likely to be the most appropriate solution for you. Of course, you also have the option of petitioning for your own Bankruptcy.

Debt Advice Foundation is a registered UK charity offering free, confidential debt advice. If you're asking yourself 'how do I get out of debt', please call the charity’s helpline to speak with a Advisor on 0800 043 40 50.