Debt help

Debt problems & help available
What to do & where to get support

The ongoing cost-of-living crisis is causing an increasing number of individuals to grapple with debt. However, despite the difficulty in managing finances, your debt situation is not beyond resolution. Although resolving debt issues may be challenging and time-consuming, there is always a solution. Addressing your debts sooner rather than later makes them more manageable. Our comprehensive four-step guide provides a starting point and explains how to access free, personalized assistance.

Step 1: Assess how serious your situation is

Debt, in its simplest form, occurs when your expenditures exceed your income.

It often begins on a small scale, such as dipping into your overdraft or exceeding your credit card limit, but if not managed properly, it can quickly escalate. Ignoring the issue is not advisable. Addressing debt early on makes it easier to resolve and reduces the likelihood of needing formal debt assistance.

The fact that you’re seeking information is a positive step towards managing your debt. The initial step in tackling debt is to assess the severity of your situation…

Are You in a Debt Crisis?

The first thing to determine is whether you are in a debt crisis. The definition of a debt crisis can vary, but answering ‘yes’ to either (or both) of these questions is a strong indicator:

1. Are you struggling to meet all basic expenses, such as your mortgage or rent, energy bills, and minimum credit card payments?
2. Are your debts (excluding your mortgage) greater than your annual net income (the amount you take home after taxes)?

If you answered ‘no’ to both questions but find yourself sinking further into debt each month, you might be in a debt spiral (read more about what that means).

However, if you answered ‘yes’, don’t panic. There has never been a case so severe that it couldn’t be resolved. Taking steps to address your debts will improve your situation and expedite the resolution process. Even in severe cases, bankruptcy is rare, and there is always hope.

If you’re in a crisis, acknowledging the problem is a crucial first step. Many people choose to ignore the issue, which is the worst course of action. Recognizing the problem might initially feel overwhelming, but you’re already on the path to solving it.

• First, review the debt help checklist. Steps 2 and 3 below are mainly aimed at preventing debt crises rather than addressing them directly. While much of the information may not apply, it’s worth scanning for relevant tips. It might help you meet minimum payments and prevent your crisis from worsening.
• Next, seek out the free one-on-one help available. This guide doesn’t delve into crisis solutions in detail because several excellent, free, non-profit debt counseling agencies offer personalized assistance. No online guide can match the value of personalized service. Refer to the free debt counseling section for more information.

Are You in a Debt Spiral?

If you’re not currently in a debt crisis but consistently spend more than you earn, you might be in a debt spiral.

Signs of a debt spiral include being perpetually overdrawn or seeing your credit card balance grow each month. It’s crucial to act immediately to avoid sliding into a debt crisis.

While a debt spiral is serious, there is a good chance you can become debt-free without professional assistance if you take action now.

DOs and DON’Ts if You’re in a Debt Spiral

• DO Make Savings a Priority

Steps 2 and 3 below provide various strategies to manage and repay your debts by reducing expenses and making savings. Start with “pain-free” savings (step 2), which don’t require lifestyle changes.

Next, consider the “painful” savings (step 3), which might involve lifestyle compromises. This may sound daunting, but staying focused on your ultimate goal of controlling your debt can make these sacrifices more manageable.

• DON’T Visit a Debt-Counseling Agency

The methods used by debt-counseling agencies may not be suitable for you. These agencies negotiate with creditors and can involve serious measures like bankruptcy, individual voluntary arrangements (IVAs), or debt relief orders (DROs).

These solutions are intended for those with few other options and can negatively impact your credit score and access to financial products. While essential for those in a debt crisis, these measures may be too extreme for someone in a debt spiral.

• DO Seek Support from Peers

Become a Debt-Free Wannabe

You’re not alone in dealing with debt. The ExEconomics community, especially the Debt-Free Wannabe forum, is full of people supporting each other to achieve their “debt-free day.” Members range from those with minor credit card overspending to individuals dealing with bankruptcy.

This community can provide invaluable support and encouragement. By sharing your situation, others with similar experiences can offer useful advice and insights. You can also ask questions to debt advisers.

It’s Completely Free and Can Be Anonymous

You’ll need to register and choose a username, but only ExEconomics.com will have access to your email address to prevent spam. Your email will never be sold or used for marketing, ensuring your privacy is protected.

Step 2: Make pain-free savings

Achieving “pain-free” savings doesn’t mean you need to cut back drastically; instead, it’s about reducing costs without altering your lifestyle. Here are some steps to consider:

Sort your spending

Building a budget and beginning to save so that you have a bit of extra money each month to pay off debt are the fundamental steps. Here’s how to get started, along with some useful planners and calculators to guide you…

• Create a Budget: If you’re facing debt issues, establishing a budget is crucial. Use our free Budget Planner to help you gain control over your finances, accounting for unexpected expenses that can disrupt even the best-laid plans.
• Cut Down Expenses: Once you have a clear understanding of your spending habits, it’s time to make some painless savings and achieve quick wins.

One simple method to save money is by reviewing all your regular outgoing payments, such as monthly direct debits and standing orders. Cancel any unnecessary subscriptions—these could be for apps, magazines, or beauty services that you no longer use.

You might even be eligible for a refund for the unused time. Learn more about this in our Cancel Direct Debits guide. For more tips and strategies, check out our Money Makeover—it’s definitely worth investing some time in this.

Claim everything you’re entitled to

With a clearer picture of your expenses and streamlined bills, it’s time to explore ways to increase your income…

Check Your Benefits: You might be eligible for state benefits without realizing it. Families earning £50,000 or more can still qualify for assistance. Use our Benefits Calculator to spend 10 minutes checking your eligibility.

Reclaim Fees and Charges: If you’re in debt, part of it might be due to fees and charges. Here’s how to reclaim:

• Working-from-Home Tax Rebate: If you worked from home during the pandemic, even for just one day a week, you could claim a tax rebate for the 2020/21 and 2021/22 tax years, potentially up to £140 annually. Although the criteria changed for the 2022/23 tax year, making fewer people eligible, retrospective claims are still possible.
• Mis-sold Loans: Reclaim interest and charges on payday loans or guarantor loans that were mis-sold.
• Bank Charges: If you’ve incurred charges for exceeding your bank or credit card limits, you might be able to get this money back.
• Council Tax Band: You could be in one of the many homes in the UK overpaying council tax. Alternatively, you might qualify for a council tax discount.
• Uniform Tax Rebates: If your job requires a uniform, you might be eligible for a uniform tax rebate.

Mortgage Assistance: If you’re having trouble with mortgage repayments, contact your lender before missing a payment. They may offer options like switching to interest-only payments. Additionally, if you’ve been on Universal Credit for nine months or more, you might be eligible for a Support for Mortgage Interest loan through the government. This is a loan, not a grant, but it’s a low-cost option that can help reduce your mortgage payments.

Utility Bill Support: With energy costs soaring, many are struggling to keep up with bills. Our guide on Struggling to pay your energy bills lists all the available help.

Government Debt Assistance: There are options for interest-free borrowing through the government, rather than commercial debt. If these don’t work, explore other grants in our Grant grabbing guide.

• Council Support Schemes: Since April 2013, local authorities have provided emergency support. This can include help with food, health risks, staying in your home, or transitioning out of care, hospital, or prison. The support varies by council, so contact yours to find out what’s available.
• Budgeting Loans: These interest-free loans from the government are available to those on certain income-based benefits, like income-based jobseeker’s allowance. They can help with essential items or other necessities that are difficult to pay for in a lump sum. Apply through Jobcentre Plus or the form on Gov.uk. The maximum loan amount is £812 if you receive Child Benefit, and repayments depend on your affordability.

Due to high demand and limited funds, not everyone will qualify. However, if you meet the criteria and need the assistance, it’s worth applying.

Cut the costs of your debt

The goal is straightforward: repay your debt as quickly as possible while incurring the lowest interest charges.

These simple strategies won’t significantly impact your lifestyle but can dramatically reduce your debt. Some methods require more time and effort than others, involving a bit of research and administration. However, our comprehensive guides simplify the process for you…

• Check credit reference files for free. Before embarking on this journey, ensure that your ability to secure affordable credit isn’t hindered by incorrect data on your credit files. Faulty information can lead to rejections, and repeated applications can harm your credit score even after errors are corrected. Fortunately, you can check your credit report at no cost.
• Switch to a More Affordable Mortgage Deal. Investigate whether you can find a mortgage deal that lowers your monthly payments. This is particularly feasible if you have substantial equity in your home. It’s worthwhile to invest the time to find the most advantageous deal for your situation.
• Shifts debts to a cheaper credit card. For individuals with mid to high credit scores, transferring debt to a new credit card with a ‘balance transfer’ offer can be highly cost-effective. Some cards offer 0% interest on balance transfers for an extended period. Even those with less-than-perfect credit scores can find reasonable deals. If you’re facing higher payment demands from your credit card issuer, refer to our Persistent Debt guide for detailed assistance.
• Reduce Credit Card Costs Without New Credit. This method suits individuals across the credit score spectrum. You don’t always need new credit to lower your credit card expenses. Many credit cards allow existing customers to transfer other debts at special rates. Organizing these transfers correctly can lead to significant savings. One person reported reducing their annual interest from £1,400 to £400 using this technique. For comprehensive details, see our Credit Card Shuffle guide.
• Use Savings to Pay Off Debt. Typically, the interest earned on savings is much lower than the interest charged on debts. Thus, using savings to pay off debt can be highly beneficial. This strategy should follow initial efforts to lower your debt costs. Focus on eliminating high-interest-rate debts first. If you’re concerned about depleting your emergency fund, consider our explanation in the linked guide.
• Danger: credit card minimum repayments. The repayment amount on your credit cards is crucial. Minimum repayments are structured to keep you in debt for years. For instance, only making the minimum payment on a £3,000 credit card balance could take 27 years to repay and cost nearly £4,000 in interest. However, it’s possible to improve this situation even if you can’t pay more. For specific advice, see our Persistent Debt guide.

Step 3: Make painful savings

If you’ve completed step 2 but still find yourself spending more than your income, it might be necessary to consider more drastic – or ‘painful’ – savings.

These painful savings involve making significant changes to your lifestyle, which can be challenging, especially with the current cost of living crisis making it difficult to identify areas to cut back. Refer to our Cost of Living Survival Guide for ideas and tips to navigate this challenging period.

For motivation to cut down on non-essential expenses, consult our guide on how to stop spending. Can you manage without your Netflix or Sky subscription? Is your gym membership an expense you can forgo for now? Could switching from premium to budget brands reduce your weekly shopping costs? What about opting for cheaper cosmetics and bathroom products? Do you really need a car, or could you sell it? You’ll find many more suggestions in the guide…

Step 4: If you’re still struggling, get help from a debt charity

If you’re facing a debt crisis or your self-help efforts have fallen short, it’s time to seek assistance from a debt help charity. The goal is to find non-profit debt counseling assistance – essentially, a one-on-one session with someone who is compensated to assist you, not to profit from your situation.

Obtaining help in this manner allows you to access the ‘breathing space’ scheme – a two-month period where all interest and charges on your debt are paused, and you won’t face any enforcement actions from creditors. Consulting with a professional is also advisable before considering more formal debt solutions, such as bankruptcy.

The main debt help charities include…

Citizens Advice

Full debt and consumer advice service in England and Wales (similar local services exist in Scotland and Northern Ireland, see below). Many bureaux have specialist case workers to deal with any type of debt, including repossessions and negotiation with creditors. If you live in England or Wales, get in touch by:

• Tel: 0800 240 4420 (debt helpline)
• Opening times: Different for each bureau, so check your local branch for its hours, though they’re all closed on bank holidays. The debt helpline is available 9am to 5pm, Monday to Friday (excluding bank holidays).
• Web chat: The web chat service is open Monday to Friday, 8am – 7pm and Saturday 9.30am – 1pm (except bank holidays).

Live in Scotland or Northern Ireland? Citizens Advice Scotland and Advice NI have local bureaux that offer a similar service.c

StepChange Debt Charity

A full debt help service is available across the UK. Online support is also available via its debt advice tool where you can create a budget and get a personal action plan with practical next steps. You can also ask a StepChange adviser a question on our dedicated ExEconomics Forum page.

• Tel: 0800 138 1111
• Opening times: Monday to Friday, 8am to 8pm, Saturday, 8am to 2pm (closed on Sundays and bank holidays).

National Debtline

National Debtline provides free advice and resources to help people deal with their debts. Advice is available over the phone, online and via webchat.

• Tel: 0808 808 4000
• Opening times: Monday to Friday, 9am to 8pm, Saturday, 9.30am to 1pm.

The WRONG people to go to…

Avoid any debt help or loan consolidation companies that advertise on TV or in some newspapers. Their job is to make money out of you, plain and simple.

While in the short term their plans will make your payments lower, in the long run it’ll cost you dear. Avoid them. Don’t touch them. Don’t go near them.

Should I declare bankruptcy or get an IVA?

There are several types of formal debt solutions available in the UK. We’ve provided a brief overview here, but we intentionally haven’t gone into detail.

It’s crucial to seek advice from one of the debt management charities listed above before considering any of these solutions. They can guide you on which option, if any, is appropriate and direct you to further assistance for the application process.

The formal debt solutions in the UK include:

• Debt Management Plans: This involves making regular payments to a licensed debt management company, which then distributes the money among your creditors. Court involvement is not required for this solution.
• Administration Orders: Arranged by your local county court for debts under £5,000. You’ll make a single monthly payment to the court, which then allocates the funds to your creditors, provided you have at least two creditors.
• Debt Relief Orders (or Minimal Asset Process in Scotland): These are intended for individuals on low incomes with debts under £30,000. Granted by the Insolvency Service, a debt relief order freezes debt repayments and interest for 12 months. If your financial situation remains unchanged after this period, the debts are written off.
• Bankruptcy (or Sequestration in Scotland): A form of insolvency typically lasting a year, after which your debts are cleared. To declare bankruptcy, you must apply online to the Insolvency Service, sell any assets like your home, and use any surplus income to repay creditors.
• Individual Voluntary Arrangements (or Protected Trust Deeds in Scotland): This is a legally binding agreement that generally lasts five or six years, managed by an Insolvency Practitioner. You must pay for setting up and supervising the IVA. Any remaining debts at the end of the IVA term are written off, allowing you to start anew.

Warning – beware harmful IVA ads that could leave you worse off.
These ads are reportedly targeting people on social media with misleading promises, leaving a growing number of people unable to keep up with repayments. If in doubt, don’t do ANYTHING until you’ve spoken to one of the debt management charities listed above.

Already have an IVA?
If you have an IVA (or protected trust deed, or PTD, in Scotland) and are either unhappy with it, or are struggling to keep up with repayments in light of the cost of living crisis, get in touch with your Insolvency Practitioner. If you’re still unhappy, you can complain to the Insolvency Service.

If you were advised to get an IVA or PTD by a Financial Conduct Authority-regulated debt adviser and feel you were wrongly advised or mis-led, you could also complain to the firm that advised you, escalating to the Financial Ombudsman Service if necessary.

Debt help FAQ

Q – Should I ever borrow more to try to get out of debt?

A – Traditional debt advice often suggests: “Never borrow to solve a debt issue.” However, this advice overlooks the differing costs associated with various debts.

The ExEconomics philosophy modifies this to: “Never borrow additional funds to escape a debt issue.”

If you can secure a loan with a lower interest rate to pay off an existing higher-interest debt, this can be highly beneficial. Lower interest rates allow more of your money to go towards reducing the principal debt rather than just paying interest.

People with significant debt can potentially save £1,000 annually in interest by being smarter about their borrowing choices.

Q – Is it worth shifting my debt to my mortgage?

A – A common strategy is to transfer credit card and other loan debts onto your mortgage if it proves to be more economical. At first glance, this seems like an obvious choice. The debt has a lower interest rate, and the extended repayment period means lower monthly payments.

However, the situation is more complex. By doing this, you are converting unsecured debt into secured debt, which increases the risk of losing your home if you fail to make payments. This is explained in detail in our guide on Shifting debts to your mortgage?

Moreover, it could raise your life assurance and other related mortgage expenses, and it may not actually be cheaper. Extending the repayment period means you’ll pay more in interest overall – for example, 5% over 20 years is significantly more costly than 10% over five years. Additionally, stricter affordability checks have made it harder to increase mortgage debt, so this option might not be available to you.

However, don’t dismiss this option entirely. If other methods haven’t been successful, it is still worth considering. Crunch the numbers – particularly if you have a flexible mortgage that allows you to pay off the debts faster.

Q – What do I do if my partner/family don’t know about my debt?

A – Many individuals conceal their debts from friends, family, and even from themselves by ignoring statements or not tallying their liabilities. If this sounds like you, it’s crucial to face the reality. You can only address your debts if you understand their full extent. While ignorance may feel comforting, it ultimately exacerbates the situation.

If you’re hiding debts from a partner, spouse, family, or loved ones…

Consider seeking help or devising an action plan first, so you can present solutions alongside the problems. Breaking the news is easier when you can demonstrate a commitment to improvement.

Approaching it this way simplifies the process. Keep in mind, if you’re ready to take action, the question isn’t “will I ever get through this?” but rather “when will I be through this?”

Q – My debts are affecting me mentally – help!

A – Debt isn’t purely a financial issue. It can be a cause or consequence of external factors such as health, employment, family or housing problems.

Money worries can cause untold amounts of upset and stress, and can even lead some people to think about ending their own lives. If you’re feeling distressed or in emotional turmoil, then the Samaritans charity is always there to listen, either through its website or by calling 116 123 (UK and Republic of Ireland).

For a comprehensive guide on managing debt under stress, dealing with banks, accessing free personalized debt counseling, and specific advice for individuals with bipolar disorder or depression, refer to our free Mental Health & Debt Help PDF booklet.

If you’re worried about your relationship, Relate has lots of useful info. For specific help if you or a friend or family member have been diagnosed with cancer, try the Macmillan support line.

Q – I’m being chased for an old debt or a debt that’s not mine – what do I do?

A – There are numerous debt collection agencies whose role is to pursue unpaid debts on behalf of other companies.

If you receive a call or letter requesting payment, it is their responsibility to prove that you indeed owe the money and that the debt is legitimate. Therefore, if the debts are not yours, don’t worry – you can send a letter stating you are not liable. National Debtline provides a template letter for this purpose (link downloads a Word document).

For older debts, the law states that you cannot be taken to court for civil issues six years after the occurrence (five years in Scotland).

Thus, for a personal loan, credit card, store card, or bank account with no contact for six years or more, a lender typically cannot initiate court action against you. This period extends to 12 years for mortgages or secured loans, and for most tax debts, there is no time limit.

Keep in mind that any form of contact, including making a payment, resets the clock. Courts may also extend the timeframe if, for example, lenders have made reasonable efforts to contact you. Some lenders may still attempt to collect the debt after this period, but only a court can compel you to pay.

If it’s happening to you, see the National Debtline factsheet and template letter, or get help before speaking to the creditor.

Q – Can I sort out my debts myself rather than going to a charity for help?

A – Debt counsellors don’t have special powers, though they are taken a lot more seriously by creditors than individuals acting by themselves. If you want to, it is possible to make your own arrangements to try to freeze interest and make special repayment plans.

In general, the free help is usually a better idea. However, if you’re keen to do it yourself, read the summary guide from Citizens Advice. Working through the techniques by yourself to see what’s available is a useful guide, and should help you understand what the debt counsellors will do.

Here are a few tools to help you:

• Debt Analyser. This quick tool from the Debt Advice Foundation helps you work out how much of your debts you can afford to pay back, for example, priorities such as your mortgage or utilities, and other creditors. It can then create a ‘statement of affairs’, which details your financial situation, and individual creditor letters if you want to write to your lenders. The tool is best used in Excel (once downloaded to your computer), but there is an OpenOffice Calc version too.
• StepChange Debt Charity has an online debt advice service which is available 24/7. If you get stuck, you can either live chat with an adviser or call 0800 138 1111 (8am to 8pm weekdays, 8am to 4pm Saturdays). The tool helps you decide what action to take about your debts, based on your individual circumstances. The service is completely free and anonymous, so is great if you want to ask a question in complete confidence.StepChange also has several counsellors answering questions in the ExEconomics Forum on any debt issue. You can ask an open question in the discussion thread or send a private question to one of the counsellors. You need to be registered on the forum to ask a question.