How to Get Out of Debt
If you’re struggling to pay your bills each month, then you’re probably wondering how to get out of debt. It might seem daunting, but with expert insolvency advice, you can turn your finances around, pay off your debts, and secure your finances for the future.
Irwin Insolvency provides impartial debt management advice that could save you from bankruptcy. Recognising that you have a financial problem is the first step towards financial recovery, and our team of expert insolvency practitioners is ready to help you at every stage of the process. Keep reading, as our team explains how to get out of debt in the UK.
How Can I Get Out of Debt If I Can’t Pay My Bills?
Are you worried about your finances? If you’re having difficulty paying your credit bills, are struggling to find enough cash to repay the mortgage each month, or have creditors chasing you for payments, it’s likely you have a debt problem.
Luckily, there are a number of methods that can help you escape debt in the UK, with options ranging from simple debt management advice and budgeting plans to official debt relief orders and individual voluntary arrangements (IVAs).
However, knowing which approach to take is always difficult. Advice on how to get out of debt or how to pay off debt inevitably varies from one person to another, as it largely depends on your individual financial circumstances. The major factors that will affect the options available to you include:
- How much you owe to creditors
- Your monthly income
- The value of your assets
- The type of debts you’ve incurred
The first step towards getting out of debt is recognising or admitting that you are in financial difficulty. Because of the number of variables involved, the next step is to talk to an impartial financial advisor – such as a licensed insolvency practitioner – to discuss the best course of action. To begin with, a financial advisor may suggest one or a combination of the below options to help you turn your finances around:
One of the best ways to start learning how to pay off debt is to start budgeting. This sounds like a simple way to tackle debt (and it is), but it’s also an effective way to plan for your financial future. A basic budget takes into account your income and expenditures, accounting for everything going into and coming out of your bank accounts.
To prepare an effective budget, you can list all of the debts you owe to creditors. This includes everything from credit card bills to utilities, rent or mortgage payments. You’ll immediately be able to see if you have more money going out than coming in, which then allows you to effectively budget for future expenditure in order to start paying off your bills.
Increase Income and Decrease Expenses
If you have more money leaving your accounts than comes in each month, you can quickly spiral into debt. To combat this, you can try to increase your income while also decreasing your expenses. This leaves you with more money to pay off your debts each month and, over time, ensures that you’ll be able to keep out of the red.
There are many ways to increase your income, although you should note that this often takes time to achieve successfully. You could increase your hours, take on a side job or start a new business. To cut down on expenses, you can downsize your assets, cut subscriptions or re-evaluate expensive lifestyle choices.
If you have high value assets and you’re wondering how to pay off debt, then one option is to sell those assets. The sale of high value assets could raise enough cash to pay your debts, but of course, this could also affect your business or personal life. You may wish to start by selling assets you don’t need or use, such as a second car or expensive bicycle. If you still can’t escape your debts, you may need to consider selling higher value assets such as your property.
Apply for the Debt Respite Scheme
Individuals struggling to pay bills can apply for the Debt Respite Scheme, a government-backed debt relief programme that buys you valuable breathing space. The Debt Respite Scheme provides you with a maximum 60 days relief from creditors, during which time they cannot chase you for payments. Additional respite is available for anyone suffering from diagnosed mental health problems.
Negotiate With Your Creditors
If creditors are chasing you for overdue payments, it’s important to talk to them about your financial situation. You may find they’re open to renegotiating your debts, either by wiping certain debts out, extending your repayment terms or lowering interest rates. After all, it’s in the interests of your creditors that you’re able to pay them.
If you’re finding it difficult to negotiate informally with your creditors, then a licensed insolvency practitioner can help with an individual voluntary arrangement (IVA) instead. This is a formal agreement between yourself and your creditors, which may lower interest rates, wipe out debts and consolidate your payments.
Make Use of Debt Consolidation Loans
Debt consolidation loans are an effective way to get out of debt. It might seem counterintuitive to take more loans when you’re already struggling to make payments, but a debt consolidation loan allows you to merge your existing debts under one easy-to-manage repayment scheme. This not only helps you to budget more effectively, but lowers interest rates and takes off the pressure. You can apply for debt consolidation loans through banks and specialist debt management companies.
Implement Debt Management Plans
Debt management plans are designed to help you pay off your debts. A debt management plan takes into account your income, overheads and debts, and sees you paying what you can afford to pay to creditors over a set period of time. This allows you to reorganise and remanage your debts, which helps you to get your finances back on track. Debt management plans are overseen by an insolvency advisor, who negotiates with your creditors and deals with the monthly repayments.
How Can I Get Out of Debt Immediately?
If you’re wondering how to get out of debt in the UK immediately, then many of the options outlined above won’t be appropriate for your situation. You may need to rapidly escape debt if you desire to quickly turn your finances around, or if you have huge bills with rapidly increasing interest rates.
Whatever the reason might be, you’re unlikely to be in a position where you have the luxury of taking time to budget, increase your income or sell your assets for the best price. If you need immediate debt relief, you need to take immediate action.
Once again, a licensed insolvency practitioner can advise on the best course of action, but the primary options available to you will include the following:
- Debt relief orders
- Individual voluntary arrangements (IVAs)
Let’s take a look at these options in more detail:
Debt Relief Orders
A debt relief order is an effective way to quickly eliminate many personal debts, including things like credit card loans. A debt relief order lasts for 12 months, after which many personal debts that remain unpaid are often written off. A debt relief order only applies to individuals who have debts less than £30,000 and who have an income of less than £75 per month after their expenses have been removed. A debt relief order is overseen by a licensed insolvency practitioner and approved by the courts, a measure which ensures that creditors may no longer approach you for further payments.
Individual Voluntary Arrangements (IVAs)
An individual voluntary arrangement (IVA) is another option that can immediately help you with debt. An IVA is an official (legally binding) agreement between you and your creditors that typically reorganises or consolidates your debts while lowering interest rates. In certain circumstances, an IVA could even wipe out some or all of your debt, if creditors agree with this.
However, the primary goal of an IVA isn’t to eliminate your debt, but to establish a repayment plan that buys you time to get your finances back on track. Importantly, when the IVA is in place no creditors are legally allowed to chase you for further payments outside the agreement.
Bankruptcy is the final option available to individuals facing debt in the UK (bankruptcy cannot be applied to businesses in the UK, as it can in the US). Declaring bankruptcy is an effective way to reorganise and in many cases, eliminate large debts.
Your accounts are first placed under the control of an Official Receiver, who oversees your 12-month bankruptcy period. They will sell any high value assets you have, such as your car, business or property, in order to pay your debts. After your bankruptcy has ended, however, any remaining debts are often wiped out.
Five Steps to Get Out of Debt
Ultimately, learning how to pay off debt is a process that takes time, patience and perseverance. While you can simply declare bankruptcy and wipe out large debts, not all of your personal debts (including fines, child support and student loans) are cancelled, meaning you could still be stuck in a spiral of ever-increasing debt if you don’t tackle the root cause of your financial problems.
Escaping the debt spiral requires budgeting, prudent financial planning and, in many cases, changes in your lifestyle. You may need to cut down on your spending and expenses, find new sources of income or downsize your assets to avoid becoming indebted to creditors in the future.
Here are five steps you can take to get out of debt:
- Speak to an insolvency advisor: Licensed insolvency practitioners can provide expert advice based on your personal financial circumstances.
- Regularly assess your financial situation: Keep track of your incoming and outgoing cash, including all income streams and expenses. Work out how much you need to live on, how much you can save and how much you need to repay to creditors each month.
- Create a debt management plan: A debt management plan helps you to keep track of your accounts and make repayments that you can afford.
- Consolidate your debts: If you’re still struggling to repay your creditors, then you might wish to consider a debt consolidation loan to simplify your debts. This will lower your interest rates and help you pay off your debts.
- Stick to your repayment plans: Once you’ve established a way to get out of debt, it’s incredibly important that you stick to the repayment plans. In the future, try to avoid taking on more debt than you need to, while also keeping to any future repayments you need to make.
What Happens If I Can’t Get Out of Debt?
If you’re still unable to escape your debts or pay them off after following the five steps outlined above, then it’s imperative that you speak to a licensed insolvency practitioner. They’ll be able assess your situation, implement a debt management plan and recommend alternative options you may not have considered.
If debt management options aren’t working for you, then the last remaining option to consider when considering how to get out of debt in the UK is bankruptcy. However, while it does wipe out many of your large debts, declaring bankruptcy also means that you could lose your home, your business and be unable to apply for new lines of credit for six years.
Contact Irwin Insolvency Today for More Information on How to Get Out of Debt
If you’re struggling to pay your bills, Irwin Insolvency’s experienced debt management team is here to help. Our consultants help individuals and businesses facing financial challenges, and we can offer impartial advice on how to pay off debt.
Contact Irwin Insolvency today for more information on how to get out of debt.