How can I get out of debt?
Being in debt can be a stressful time but there are lots of ways to get out of debt. Once you take control of your finances you will be able to relax, sleep better and enjoy life.
Step One – Work out your total debt amount
Work out your total debt amount. Different debt options are suited to different amounts of debt. Write down a list of all of your unsecured debts. Unsecured debts include credit cards, loans, payday loans, store cards and overdrafts. Write a separate list of your secured debts. Secured debts are debts which are secured by your home or car, such as mortgages and logbook loans.
Step Two – Make a list of your income and expenditure
Write down a list of all of your income. This could be made up of your wages, pension and any benefits you may receive. Your expenditure may be a little bit complicated, this will include all of the things you pay for on a regular basis such as rent, mobile phone bills for example. When you total your income and total your expenditure, work out the difference. If your different is a positive number, then you have a positive income and expenditure. If this is a negative number, then your income and expenditure will be negative. If it is a positive number, this is called your disposable income.
Step Three – Speak to the experts
Debt options can be a bit of a minefield. There is no magic way to get rid of all of your debts without putting money towards them. Even bankruptcy comes at a fee.
Your advisor will be able to look through your situation and recommend the best debt solution for you. These will include:
Individual Voluntary Arrangement (IVA) – Generally speaking, an IVA will be suitable for yourself if you have a total debt amount of over £5000 and you owe money to two or more people. You will need an expert to look into this option with you, as specific lenders will approve your IVA proposal and other lenders will reject it.
Debt Management Plan – This is an informal solution and involves making a plan directly with your creditors to reduce the payments and freeze interest on your debts. This is often not successful and should be looked at as a last resort as the lenders will have no formal agreement to stick to the agreed plan.
Scottish Trust Deed – There is no such thing as a Scottish IVA, if you are in Scotland you will need to look into a formal solution called a Scottish Trust Deed. These are similar to the IVA offered in England and Wales.
Bankruptcy – Often seen as a last resort, bankruptcy will write off 100% of your debts although it will not allow you to keep assets such as your mortgaged house, in normal circumstances.
Step Four – Relax
Relax knowing that your situation is now resolved. Being out of debt is an amazing feeling and this freedom should bring great happiness. Enjoy it!
If you have debts under £4000 and would like free help, we would advise you to contact Step Change Debt Charity.