Debt is a common part of life in the UK. According to The Money Charity, people in the UK owed £1.5955 trillion at the end of July 2018 – that works out at roughly £84,412 per household. However, recent figures have revealed that there are millions of people in the UK who are struggling with their debts. A recent survey by Nationwide Building Society found that 57% of people who were in debt were experiencing problems with that debt and felt they were struggling. Many reported significantly increased levels of stress and anxiety as a result of problems with debt. So, what can you do if you’re just not coping with the debt that you have?
The Debt Relief Order (DRO)
One option is to look into whether you might be able to benefit from a DRO. This is a type of insolvency, so should be a last resort. It is an appropriate choice if you get to a point at which you’re really struggling with your debt repayments and can see no way to get clear of them. A DRO could provide a way to get back on top of your finances without having to pay significant fees to anyone else to help you manage the process. Would you qualify for a DRO?
In order to qualify, your unsecured debts must amount to less than £20,000
You will need to be living in England, Wales or Northern Ireland to be eligible for a DRO
DROs are designed for people who have few, if any, assets. So, if you’re a homeowner, the DRO will not be the right option for you
The DRO is specifically aimed at those who are on a low income and are unable to repay unsecured debts they have signed up for
The way that the DRO operates means that you will not have to make any payments towards your debts for 12 months and, after that, they will be written off
What’s the process of obtaining a DRO?
If you want to go down this insolvency route there are 12 organisations in the UK that are able to submit the DRO application on your behalf, including the charity Step Change. There is a one off fee of £90 that is due to the Insolvency Service when you make the application for a DRO. One of the major benefits of a DRO is that it provides a formal insolvency resolution to your debt problems but you don’t have to appear in court during the process. It will also prevent your creditors from pursuing you for your debts during the 12 month period of the DRO.
Are there any downsides to obtaining a DRO?
Yes. The major downside is that this is an insolvency process and so it will appear on your credit history, just as a bankruptcy would. The presence of a DRO on your credit history will be a large negative influencing factor when it comes to your credit score.
What are the other options?
A Debt Management Plan (DMP). The idea behind a DMP is to ask creditors to reduce interest or stop charges and give you the option to only pay what is affordable to your creditors. However, a DMP is voluntary and creditors don’t have to comply with your request.
Opting for bankruptcy means that your debts are effectively wiped and creditors can’t pursue you for them. This is a legal process and your bankruptcy will appear on a public register. It will also stay in your credit file and any assets you have (e.g. a car) may be incorporated into the bankruptcy process and lost as a result.
Individual Voluntary Arrangement (IVA). This is a proposal to creditors to restructure your debt repayments over a period of five or six years so that those debts become more affordable. There are usually fees to pay with an IVA and your IVA will be on public record. IVAs will also show up in your credit history and have a negative impact on your credit score.
Equity release. If you have built up a significant volume of equity in your property then you may be able to release a proportion of it to help with debt repayment. This is an option only available to the over 55s and interest rates and fees can be high, especially if you try to repay the equity you have released.
Depending on your situation, there are always options for anyone who is struggling to cope with the impact of debt. From a DRO, to bankruptcy or simply releasing equity from your home, there is always a solution.
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read more about Amanda Gillam