paperwork and calculator for how to manage debt

Managing debt can feel overwhelming, and it's normal to not know where to start. This uncertainty can make it hard to figure out the best path forward.

However, there are some strategies that might help you take better control of your debt. In this blog, we'll explore different solutions you can consider. Not every strategy may be right for you, but one might be a good fit for your situation.

How to manage your debt

Budgeting

If your debt is low, improving your budgeting and using any extra money to pay off your debt could be the right solution. Start by reviewing your finances and looking for ways to reduce your expenses. If you choose this option, you must stay disciplined with your budget.

There are many budgeting strategies, tips and debt repayment tactics available. So, it's important to explore different approaches and find the one that suits you best and is easiest for you to stick to. Some of the debt repayment strategies you may consider could include:

  • Debt snowball method: The debt snowball method involves paying off the smallest debts first while making minimum payments on larger ones. Once a debt is paid off, you apply the amount used to repay that debt to the next smallest. This method creates a routine, making it easier to stay on track with payments.
  • Debt avalanche method: The debt avalanche method focuses on paying off the highest interest rate debts first to reduce overall interest. You pay off the debt with the highest interest rate first, then move to the next highest, and so on, helping to save on interest over time.

Debt management plans

A debt management plan is another option you may consider. It’s an informal agreement between you and your creditors, where you make one monthly payment that is split between them. A provider or company usually manages the plan, handling all communication with your creditors for you. This may make the process easier and give you better control of your finances.

However, it’s important to note that not all creditors may agree to a debt management plan. Additionally, it may take longer to pay off your debts since interest charges aren’t paused. So, you need to weigh up the benefits and risks carefully before you decide if this is the option for you. 

Debt consolidation loans

A debt consolidation loan can also help you manage your debt. With this option, you take out another borrowing solution and use it to pay off all your existing debts. This combines your debts into one loan, so you only need to make one monthly payment instead of many.

While debt consolidation can be useful, it's important to note that it may extend the term of your debt and could increase the total amount you repay. Be sure to consider these factors when exploring your options.

Debt relief orders

A debt relief order is for people with a low income who are struggling with debt. With this option, your debts are paused for 12 months. During this time, you won’t make any payments, and creditors cannot contact you for payment. However, interest may still be added to your debts, meaning the total amount owed could increase.

To qualify, you must meet certain criteria, and it is usually best for low-income households. You need to have less than £75 remaining after paying your bills, and your total debt must not be more than £50,000.

Individual voluntary arrangement

An individual voluntary arrangement (IVA) is another option, but it is a formal, legally binding agreement. This means it must be approved by a court, and everyone involved must stick to the plan. With an IVA, you agree to make one monthly payment, which is split between your creditors. During this time, creditors can’t charge interest or chase you for payments, which can help if you're struggling to manage your debt.

However, an IVA can have a negative impact on your credit score and make it harder to get loans or other credit in the future. It should be considered carefully before deciding if it’s the right option for you.

Filing for bankruptcy

Bankruptcy might be an option if you’re overwhelmed by debt and see no way out. With this option, it can reduce or remove your debts. This may offer relief in very tough situations. However, it can have serious, long-term effects on your credit history. In fact, it can stay on your credit record for up to 6 years.

Filing for bankruptcy can severely impact your credit score and make it harder to access finance in the future. So, it’s important to carefully consider if this is the right choice for you.

How to get debt support

If you're worried about your debts, get free support from MoneyHelper or the Citizens Advice Bureau. Before choosing an option, it’s a good idea to get support and talk to a professional to help you decide the best way forward.

Summary

Managing debt can be stressful, but there are several options that may help. Whether it's budgeting, using debt repayment methods, or exploring solutions like debt consolidation or debt management plans, it’s important to choose the best option for you. Some solutions may help, but they can also affect your credit score, so it's important to think carefully about the pros and cons before you settle on an option.

If you’re unsure about how to handle debt, reach out for professional support from services like MoneyHelper or the Citizens Advice Bureau.

Loans are secured against property. Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.