Ways to Clear Your Debt in The UK – Fact Sheet

Clear Your Debt

Ways to Clear Your Debt in the UK-Fact Sheet

Getting out of debt can be challenging especially when you have a low income. Many debt payers consider borrowing further money to repay the unpaid debts. But, that can increase the stress and anxiety level even more. Don’t use credit cards to repay the remaining debt amount. Instead, opt for applying a debt settlement plan to clear the debts from the UK-fact sheet.

The UK Government offers many debt solutions to write off the debts at an affordable rate. Choose the right one to become debt-free within a year or two. But, before getting any debt scheme, make sure to consult with financial advisors. Because there are certain risk factors associated with these UK-based debt reduction plans. 

Don’t make the ultimate decision without knowing the consequences of these debt payment models. It might affect your credit score and standard of living. You might end up selling the valuable possession for choosing the wrong debt plan. Contact Debt Advice UK to know about the debt scheme and how to clear your debt easily. Here are some of the government schemes which can write off the remaining debts:

Debt Respite Scheme/ Breathing Space

The Debt Respite Scheme provides the debtors’ legal protection from their creditors. This government scheme stops the creditors from applying interest for 60 days. Even if you miss the debt payment, they can’t take extra charges once you apply for this scheme. Moreover, there are two types of Debt Respite Scheme available for UK residents – Standard and Mental Health Crisis Breathing Space. 

Standard breathing space by which you can stop the creditors from contacting you. Mental Health Crisis Breathing Space is for the people who receive medical treatment. This breathing space scheme lasts for more than one to two years. It depends on the duration of medical treatment of the eligible debt payers. 

What are the Eligibility Criteria for Applying Breathing Space?

Breathing space is a government scheme that helps people find the right debt solution. Once you apply for this scheme, creditors can no longer claim the remaining money. Moreover, they can’t send bailiffs to recover the debts. 

But, once the breathing space ends, the creditors can force you to pay back the outstanding debt. So, during these 60-days, you need to decide which solution can clear your debt UK. The applicants need to meet the following criteria to be eligible for standard breathing space:

  • You need to be a resident of England or Wales
  • If you have a DRO or IVA or any other government scheme, don’t apply for the breathing space
  • If you have applied for standard breathing space in the last 12 months, you can’t further apply for it. 

To be eligible for Mental Health Crisis Breathing Space, provide the medical documents. An approved mental health professional (AHMP) will check the document. If the AHMP considers the paperwork legitimate, then you can proceed further. 

Informal Arrangement

If you are thinking about clearing your debt, apply for an Informal Arrangement. This scheme helps the debtors to reduce their unsecured debt amount. But, make sure to contact the creditors before getting this debt settlement plan. As this is not a legal agreement, the creditors can cancel it anytime. In certain circumstances, opt for applying another debt arrangement plan. Usually, an IA lasts for more than 24 months, but it might take longer if you miss the payments. 

Moreover, people struggling to pay their debts can apply for this scheme. But, you need to show evidence of what you can afford to the creditors. After that, they might agree or disagree with this debt scheme. Creditors reduce the monthly payment amount after acknowledging the debtor’s financial situation. But, they refuse to do so, get an IA to clear your debts from the UK-fact sheet. 

Advantages and Disadvantages of an Informal Arrangement

An IA makes it easier to repay the remaining secured or unsecured debts. Besides, the court takes less time to approve this debt settlement scheme. The debtors can cancel this agreement when their financial condition improves. Setting up an IA is comparatively easier than the other schemes. Furthermore, an Informal Arrangement is widely accepted by the creditors. 

But, there are certain downsides of the Informal Arrangement scheme. After getting into this debt plan, your ability to get further credit might be affected. Moreover, the creditors can reduce the time for repaying the unpaid money. They can also take legal action against you if you fail to make the payments. Even the creditors can refuse to freeze the interest or charges after applying for an IA. So, it would be better to look for an alternative option to an IVA to avoid these issues.

Debt Management Plan

A debt management plan helps clear your debts UK by reducing the payment amount. It is a legal agreement between the debtors and creditors. After applying for this scheme, you can make smaller monthly payments to the lenders. But, it might take five to ten years to clear your debts from the UK-fact sheet. If you want to write off the unsecured debts within 4-5 years, opt for another option. However, if your debt is between 15% and 39% of your annual income, DMP might be the right solution.

Moreover, the debtors who have a fixed income might consider a DMP. You can clear your debts UK with a DMP without further loans. But, if you do not keep up the repayments, the DMP can be cancelled. Thus, pay the required amount of money every month to the creditors. But, you can only pay off unsecured debts, like credit cards and personal loans, with a DMP. If you have a car or student loan, a DMP might not be the right option to repay those. 

Advantages and Disadvantages of a DMP

The creditors will stop bugging you with letters or calls after applying for a DMP. Moreover, you no longer have to deal with the creditors directly. Once this plan ends, the unsecured debts will be cleared off. The creditors might freeze the interest and charges after agreeing with a DMP. Even they can’t take any legal steps against the debt payers.

However, the debtors need to pay the full debt amount to write them off. This debt scheme does not cover mortgages or other secured debts. Alongside, you need to pay an initial setup and monthly fee to get the DMP. Once you get the DMP, it will be recorded in the credit report. So, think twice before getting this debt settlement plan. And, for further information, contact Debt Advice UK experienced debt advisor. 

Individual Voluntary Arrangement

IVA is one of the most effective schemes to clear your debt UK. This legal agreement helps the debtors to repay their debts within five to six years. If you don’t know how to clear your debts from the UK-fact sheet, consider getting an IVA. But before that, you should consult with a IVA debt help expert to know whether it is right for you or not. If you owe less than £10,000, opt for applying for an IVA. 

Moreover, the debt payer who needs to pay the debts to only 2 creditors should go with this option. But, you need to save a considerable amount of money every month. Or else, you won’t be able to settle the IVA’s monthly debt payments. Stop spending on luxurious items during the IVA period to save money. And, you should reduce the living expenses until you clear off all the debts. 

Advantages and Disadvantages of an IVA

The Individual Voluntary Arrangement offers a plethora of benefits to the debtors. It protects their valuable items like a car or house from creditors. The creditors can’t take any legal action against the debtors once they apply for an IVA. Besides, they can even agree to freeze the interest rates and late payment charges. 

But, an IVA can affect the debt payer’s job and credit ratings. You can’t take further credit for 6 years if you miss the IVA payments. Once an IVA is approved by the creditors, it will be listed in the Insolvency Register. You need to release equity from their property after signing up for this agreement. 

Other Debt Solutions that can Clear Your Debts from the UK-Fact Sheet

If you owe £30,000 and don’t know how to clear your debts from the UK-fact sheet, apply for a DRO. Most unsecured loans can be written off with this UK-based scheme, and DRO will be ideal for debtors with low income. Make smaller payments each month to clear off the student loans or court fines. 

Usually, a DRO lasts for 12 months, but the creditors can extend the period if requested. You can also apply for debt consolidation loans to repay the debts. But if you can’t afford the monthly debt payments, fill the bankruptcy form. But, only go for this option if you don’t have any other way to pay the debts. Connect with the National debt Advice team to know how to clear your debt in the best possible way.