Debt Management Guide: Pay Off Debt & Get Free Help

1. Understanding Your Debt Situation

The first step to tackling debt is understanding exactly what you owe. Many people avoid looking at the full picture, but knowledge is power when it comes to debt management.

Create a Complete Debt Inventory

List every debt you have, including:

• Credit cards
• Personal loans
• Overdrafts
• Store cards
• Buy now, pay later (Klarna, Clearpay)
• Catalogue accounts
• Council tax arrears
• Utility bill arrears
• Mortgage arrears
• Rent arrears
• Benefit overpayments
• Student loans
• Money owed to family/friends

Information to Gather

For each debt, record:

• Creditor name
• Total amount owed
• Interest rate
• Minimum monthly payment
• Account status (up to date, in arrears, default)
• Any payment arrangements in place

Create a Budget

Understanding your income and essential spending is crucial. Work out:

• Total monthly income (after tax)
• Essential living costs
• What's left for debt repayment

2. Priority vs Non-Priority Debts

Not all debts are equal. Some have more serious consequences if not paid and should be dealt with first.

Priority Debts

These have the most serious consequences and should be paid first:

Non-Priority Debts

While still serious, these have less severe immediate consequences:

• Credit cards
• Personal loans
• Overdrafts
• Store cards
• Catalogue debts
• Buy now, pay later
• Money owed to friends/family
• Student loans (repayments based on income)

3. DIY Debt Repayment Strategies

If you can afford minimum payments plus extra, you can tackle debt yourself using proven strategies.

The Avalanche Method (Mathematically Optimal)

Pay off debts in order of highest interest rate first:

1. List all debts by interest rate (highest first)
2. Make minimum payments on all debts
3. Put all extra money toward the highest-rate debt
4. When that's cleared, move to the next highest
5. Repeat until debt-free

Best for: Saving the most money on interest

The Snowball Method (Psychologically Effective)

Pay off debts in order of smallest balance first:

1. List all debts by balance (smallest first)
2. Make minimum payments on all debts
3. Put all extra money toward the smallest balance
4. When that's cleared, move to the next smallest
5. Repeat until debt-free

Best for: Quick wins and motivation

Balance Transfer Strategy

Move high-interest debt to a 0% balance transfer card:

• Look for longest 0% period (often 20-29 months)
• Factor in transfer fee (usually 1-3%)
• Set up Direct Debit for at least minimum payment
• Divide total by months and pay that amount monthly
• Clear before 0% period ends

Debt Consolidation Loan

Combine multiple debts into one lower-rate loan:

• Only worthwhile if interest rate is significantly lower
• Don't extend the term too much (costs more overall)
• Close credit accounts after paying off (avoid re-borrowing)
• Compare total cost, not just monthly payment

4. Talking to Your Creditors

If you're struggling, contact your creditors before you miss payments. They often have hardship procedures and may offer help.

What to Ask For

• Payment holiday: Temporary pause on payments
• Reduced payments: Lower monthly amount
• Interest freeze: Stop interest accumulating
• Charges waiver: Remove late payment fees
• Breathing space: Formal 60-day protection

Breathing Space Scheme

The Breathing Space scheme gives you legal protection from creditors:

• Standard Breathing Space: 60 days protection
• Mental Health Crisis Breathing Space: Extended protection
• Must be applied for through a debt adviser
• Most enforcement action, interest and charges pause
• Free to access through debt charities

Get Agreements in Writing

Always get any agreement confirmed in writing. This protects you if there are disputes later.

5. Formal Debt Solutions Explained

If you can't afford to repay debts in full, formal solutions may help. Each has different criteria and consequences.

6. Debt Management Plans (DMPs)

A DMP is an informal arrangement to repay debts at an affordable rate. It's not legally binding but can provide structure and relief.

How DMPs Work

• A debt advice organisation assesses your budget
• They propose affordable payments to creditors
• You make one monthly payment to the DMP provider
• They distribute payments to your creditors
• Creditors may freeze interest and charges
• You repay your debts in full over time

Advantages

• Simple to set up and manage
• Flexible—can adjust payments if circumstances change
• You repay what you owe in full
• Free through charities (StepChange, Payplan)
• Less formal than IVA or bankruptcy
• Can include all non-priority debts

Disadvantages

• Not legally binding—creditors can refuse
• Creditors may not freeze interest
• Can take many years to complete
• Affects your credit rating
• Creditors could still take action

7. Individual Voluntary Arrangements (IVAs)

An IVA is a formal, legally binding agreement between you and your creditors to repay debts over a fixed period, typically 5-6 years.

How IVAs Work

• Set up through a licensed Insolvency Practitioner (IP)
• Creditors vote on whether to accept the proposal
• If accepted, it becomes legally binding on all creditors
• You make monthly payments for 5-6 years
• At the end, remaining debt is written off

Eligibility Criteria

• Typically need £6,000+ in debt (to at least 2 creditors)
• Regular income to make payments
• Unable to repay debts in full within reasonable time

Advantages

• Creditors legally bound—can't take further action
• Interest and charges frozen
• Fixed monthly payment
• Significant debt written off at end
• Usually keep your home
• Avoid bankruptcy

Disadvantages

• Serious credit impact for 6 years
• May need to release equity from home
• Must declare windfall income (inheritance, bonus)
• Failure can lead to bankruptcy
• Certain professions may be affected
• IP fees taken from your payments

8. Debt Relief Orders (DROs)

A DRO is a form of insolvency for people with low income, few assets, and debts under £30,000. It's effectively a simplified version of bankruptcy.

Eligibility Criteria (2025)

• Total qualifying debts up to £30,000
• Assets worth no more than £2,000
• Vehicle worth no more than £2,000
• Disposable income of £75 or less per month
• Not a homeowner
• Haven't had a DRO in the last 6 years
• Not currently in another formal debt solution

How DROs Work

• Applied for through an approved intermediary (usually debt charities)
• £90 fee (can sometimes be paid in instalments)
• 12-month moratorium period begins
• Creditors cannot pursue debts during this period
• After 12 months, debts are written off

Advantages

• Debts written off after 12 months
• Low cost (£90 fee)
• Creditors cannot pursue you
• Relatively quick process
• Good for those with little income/assets

Disadvantages

• Recorded on Insolvency Register (public record)
• Affects credit rating for 6 years
• Some debts not included (student loans, court fines)
• Restrictions on obtaining credit
• Can be revoked if circumstances change

9. Bankruptcy

Bankruptcy is a formal insolvency process that writes off most debts but has significant consequences. It's typically a last resort.

How Bankruptcy Works

• Apply online (costs £680 in 2025)
• Official Receiver assesses your finances
• Your assets may be sold to pay creditors
• If you have income above needs, you pay for 3 years
• Usually discharged after 12 months
• Most debts written off at discharge

Assets at Risk

• Your home (may need to be sold)
• Valuable possessions
• Savings and investments
• Business assets
• Vehicle if high value

Protected Items

• Basic household goods and furniture
• Tools needed for work
• Vehicle if low value and needed for work
• Pension (usually protected)

Bankruptcy Restrictions

• Cannot obtain credit over £500 without disclosure
• Cannot act as company director
• May affect certain professional qualifications
• Name published on Insolvency Register
• Bank accounts may be frozen initially

10. Scottish Debt Solutions

Scotland has its own debt solutions with different rules. If you live in Scotland, these options apply:

Scottish Options

• Minimal Asset Process (MAP): Scottish equivalent of DRO. Lower fee (£50), similar criteria.
• Protected Trust Deed: Scottish equivalent of IVA. Typically 4 years.
• Sequestration: Scottish bankruptcy. £150 fee or free if low income.
• Debt Arrangement Scheme (DAS): Formal debt payment plan with interest frozen.

Key Differences

• Generally lower fees than English equivalents
• DAS provides strong legal protection while repaying in full
• Trust Deeds often shorter than IVAs
• MAP thresholds different from DRO

For Scottish debt advice, contact:

• Advice Scotland: 0800 085 7145
• StepChange Scotland
• Citizens Advice Scotland

11. Debt and Mental Health

Debt and mental health are closely linked. Financial problems can cause or worsen mental health issues, and mental health problems can make managing money harder.

You're Not Alone

Research shows:

• People in problem debt are 3x more likely to have a mental health problem
• 50% of people in debt have a mental health condition
• One in four people with mental health problems is also in debt

Support Available

• Mental Health and Money Advice: Specialist service combining debt and mental health support
• Mind: Mental health charity with financial guidance
• Samaritans: 116 123 (24/7 listening support)
• Mental Health Crisis Breathing Space: Extended debt protection

12. Rebuilding After Debt

Once you've dealt with your debts, it's time to rebuild your finances and credit rating.

Rebuilding Your Credit Score

• Check your credit report: Ensure all debts are marked as satisfied/settled
• Get on the electoral roll: Easy boost to credit score
• Credit builder card: Use responsibly, pay in full monthly
• Keep credit utilisation low: Under 30% of available credit
• Don't apply for lots of credit: Multiple applications hurt your score
• Be patient: Most negative information stays 6 years

Building Financial Resilience

• Build an emergency fund (aim for 3-6 months' expenses)
• Create and stick to a budget
• Set up savings before spending
• Avoid using credit for everyday expenses
• Plan for irregular expenses (Christmas, holidays, car repairs)

Timeline for Credit Recovery

Conclusion

Dealing with debt is challenging, but millions of people successfully overcome financial difficulties every year. The key is taking action rather than ignoring the problem.

Key takeaways:

• Always seek free debt advice from charities first
• Priority debts (rent, council tax, energy) come first
• There's always a solution—even if it takes time
• Creditors often prefer arrangements to legal action
• Your mental health matters—support is available
• Recovery is possible—credit can be rebuilt

Remember: you're not alone, and there's no shame in seeking help. The sooner you address debt problems, the more options you'll have.