Sometimes it’s not clear which is the right way out of debt for you and your family. Obviously you want the most comfortable journey if two routes will get to the same place at the same time!
But you need to make choices now, without being sure what is going to happen over the next few years or how your creditors will react.
Look at some of the possible trade-offs:
- if the easy way will take 8 years and the hard way will take 3, you might prefer to grit your teeth and get it over with;
- the easy way may not work, but the hard way is more certain;
- the hard way will give you a better credit record than the easy way;
The big choices
There is no “one size fits all” solution to debts.
If you are young and single, you will have different priorities and timescales from someone with a young family or approaching retirement. So your preferred solution might not be the choice that someone else would make.
Sometimes a direct comparison of two options can help:
Some points to think about:
- How far should you cut back? If you have already made cut backs and you can still hardly manage the minimum payments, or your debts are increasing, look at a DMP.
- If you may be able to get an affordability refund, a DMP may be your best option. Winning any affordability complaints will really speed it up.
- Don’t let worries about your credit score stop you from taking the right decision to tackle your debts. But if you can’t clear your debts, you can never save a deposit, so don’t let daydreams about a mortgage stop you from sorting your debts out.
- If you have a mortgage and you are worried about what will happen when your fix ends, read Getting a new mortgage fix with poor credit. For most people, you can stay with your current lender without having any affordability/credit checks. So this is not a reason to postpone deciding what to do about your debts.
Breathing space
A Breathing Space may sound like a lovely idea, but it doesn’t actually solve your debt problems. If you stop paying the debts during a breathing space, your credit record is still harmed. For many people there is no need for a Breathing Space as it’s clear which is your best option, so you can get going on that without a delay!
Selling the house?
Letting someone stay in their house is one of the main aims of debt advice. But sometimes it is good to consider if selling it would be better for you:
You should seriously consider selling the house if this would leave you with money that could sort out all or a lot of your unsecured debts and any of the following apply:
- it would be cheaper to rent;
- the house is in the wrong place for work or schools so it is costing money and taking time to commute;
- the house is the wrong size – you have spare rooms now the kids have left home or you are bursting at the seams and need more space (or look at a lodger if you have spare space);
- you would be able to get help with the rent through Universal Credit if you rented somewhere – use the benefits checker here to investigate this’
An uncertain future
In 2023, the last few years have upended so many people’s lives in ways they never expected, with Covid and the cost of living crisis.
This isn’t a reason not to make a decision now. But it does mean that it may be better to go for options that are fast, like bankruptcy or a DRO, or which are fully flexible like a DMP.
So think ahead to what could happen in the next few years: higher mortgage payments? more children/children leaving home? is your job insecure or might you get promoted? are you likely to retire or inherit money? meet a new partner?
This may feel a lot like guesswork, but it’s better than just assuming things will remain the same!
Still unsure?
Take your time and don’t be pressured into a wrong decision by worries about defaults, threatening letters (they may be bluffing), or getting a CCJ (contact National Debtline about how to respond).
Talk to other people – see Good places to get help and advice.
If the call is finely balanced and you keep changing your mind, in the end you have to make a decision. There is no point in delaying for months or years if nothing is changing or your situation is getting worse.
If in doubt, go for a DMP and then review your decision in 6 months time.
nigel says
Here is my dilema. I am soon to be 68 and have about £37000 of debt, most are credit cards and some catalogues. One card issuer gave me 5 very close together several years ago. One of the three catalogue companies had me on a £4500 limit as did a spin off sister company of thiers. After missing payments on one they reduced the limit to 800 but the other kept it at 4500 even though I had been late on 2 payments but caught up. Any ways, Stepchange have shown the 2 options are DMP or BR. I also am tired of working and have just finished 18 months of treatment for blood cancer, although it still remains, i also have not long had a triple bypass, diagnosed with a dystonia as well. My job would not be any issues with a BR but my concern is the restriction order length, I agree I should pay in whilst working but after I leave work we will just have our state pensions and a small military pension. We have helped our son out who lifes abroad and will never see that money in our life times returned. Paying for a further 2 years after being discharged would be impossible. Is it set in stone on how the BR must be run or is it down to the OR? I hope this makes sense. of course another option is i die at work with all the stress of this and the job and they get wiped out and my wife gets my company life insurance. i know, weird thoughts eh.
Sara (Debt Camel) says
Let’s forget those weird thoughts…
Is the only reason you are still working the debts?
Are you renting or buying? If renting, private or social housing?
What is your wife’s financial situation – does she too have debts?
Sara (Debt Camel) says
Also why are you concerned about a restriction order?
Nigel says
Sorry, I am all confused. I meant an IPA. If this is set in action then I am still in a situation where I am paying out and have nothing free to be saved.
There is an option I guess of going into a DMP….and still not being able.
I have read that an IPA could be given as late as the latter part of the first 12 months into a BR, once again never knowing what will happen for sure is still a balance on the edge of the knife. I would have thought the moment one is declared BR all that can be taken to pay creditors would start strait away.
I just don’t see any of these options work well for my situation. Everyday I am working and constantly think about these options and still can’t find a solution my head that might be the better option. I could pay into a DMP for several months then stop it and try and safe before stopping work after trying to find a place to live, then declare BR. Surely with just our state pensions, military pension we would not have enough for an IPA to be set in place.
Wife has no debts, only works 16 hours week…her health is not going to be to good due to type 1 and past medical procedures.
I just do not know.
Sara (Debt Camel) says
So you didn’t say, but I am going to assume you are renting. Your situation is VERY different if you own a property.
“Surely with just our state pensions, military pension we would not have enough for an IPA to be set in place.”
I can’t really say anything here. Some military pensions can be large. Also it will depend on what your rent and bills are for where you live.
If you have a small IPA for 3 years (and I am not saying you would) then you have to balance that against the uncertainty of a DMP and making low payments to that.
Two other options –
1) you may also be able to win some affordability complaints but with such a lot of debt owing, they would be unlikely to clear it all and so you would still need a debt solution as well. If that is bankruptcy then there is little point in delaying this for 6-12 months while affordbility complaints go through only to have to go bankrupt in the end.
2) with your health problems, you could consider making token payments for a year and then asking for write offs as your health has not improved and at your age you will not be able to work again.
I think you you need someone to help talk your through the options now and support you with putting a plan into action – the RBL is excellent and I suggest you talk to them: https://www.britishlegion.org.uk/get-support/financial-and-employment-support
Rich says
Hi Sara.
I’m in real though position right now. And really need a solid advice.
Made mistake at covid time, took some loans with high APR(?), I think one was from “Loans2go” and 2nd one cant remember + one credit card (400£)
All 3 defaulted: 1. May 2021 = Was Lantern, but now “Prac” 4060£ 2. August 2021 = Lantern 1385£ 3. May 2022 = Lantern 396£. And I have 3x active which I do pay: 1. Car finance 8400£ left (none missed payments)
2. Capital credit card (I pay full amount each month)
3. Car Insurance. And I have this sentence in my clear score account: “Missed 7x payments in last 4 years but none in last 2 years.” The situation: Lanter did send me 60% off offer to pay debt in partial agreement. (I didnt take it, and missed on deadline, but they send offers like that time to time). And now I make about 35k£ a year. I could afford to pay partial, or maybe do low monthly payments. Problem is, I cant decide what would be best thing to do. I have redundancy coming up in September, payout would be ~ 15k£.
Sara (Debt Camel) says
How easy will it be to find another job?
Rich says
Finding job wont be problem. Problem is finding same money. I am only income in house hold. (I support wife, and we have 2nd kid coming in July).
I want to apply for mortgage. And obviously with credit report like mine it will be difficult.
I thought I maybe could protest that “loans2go”. And get them reduce amount from 4k to 1k?
When I took that loan I had no work 1 month prior. And I also never made any payments to them.
Or should I just pay all of them in full and reset for future?
Sara (Debt Camel) says
How much would it cost to buy a 2 or 3 bedroom place in your area? Isn’t a mortgage just a fantasy on that income with a car on finance?
You could make affordability complaints to the original lenders about Loans2Go and whatever the other large debt was that you took out during Covid. See https://debtcamel.co.uk/refunds-large-high-cost-loans/.
If you look at your credit records from all three credit reference agencies (see https://debtcamel.co.uk/best-way-to-check-credit-score/ for how to get the free statutory reports from each CRA) they should show who the other creditor was. And/or get your bank statements from that period – if you make affordability complaints you will need the bank statements as these complaints are likely to need to go to the Ombudsman.
If you win the affordability complaints about loans the balance owing will be reduced to what you borrowed, less amounts you have already paid.
Or you could make a settlement offers to the current debt collectors – but you don’t have the money at the moment, so that should have to wait until you have the redundancy money and found a new job.
Or you could ask the current debt collectors if they can produce the CCA agreements for the debts. See https://debtcamel.co.uk/ask-cca-agreement-for-debt/. If they can’t, that would mean the debts are not enforceable in court and you can simply stop paying. The fact the L2G debt has been sold on to a second debt collector may indicate that it’s less likely that a CCA agreement can be found… but it’s not certain.
Rich says
I could get 3 bedroom house for 90k£.
Currently I pay 625£ rent pm. It might be fantasy. But my odds would be better if I dealt with these defaulted debts. From your advice I imagine best thing to do for me would be:
1. Get 4k down to 1k. And pay it off (but would they remove it defaulted statuss)
2. Do the same with 2nd debt (1.3k)
3. Not sure how to deal with 3rd one, cause that was credit card.
And then try to go for mortgage.
Not paying them seems risky. What if they CCJ me and mess up 6 more years?
If I pay them partially, that wouldn’t increase my chances at mortgage right?
From what I understand I need to pay all of them in full to have a chance.
I will try to do affordability complaint. And will update you, if you curious about outcome.
P.S. Is there any financial advisor like your self in North West area you could suggest who could help me will this?
Thanks for all the help. 🙏
Sara (Debt Camel) says
so defaults and mortgages. These defaults will be off your credit record by May 2028 (6 years after the default). At that point also your car finance may have finished (assuming it’;s not PSP so you still owe the balloon payment).
If you want a mortgage before then, the defaulted debts have to have been settled at lest one year before, preferably two. Unless you want to pay a very high mortgage rate, which may be difficult to manage on affordability grounds.
Most lenders wont care much if the defaults are settled in full or partially. But they have to be settled. I see no reason to pay them in full if you can get a partial settlement.
Talk to a mortgage broker to see if they agree with what I have written.
NB I was only suggesting not paying a debt if the debt collector couldn’t produce the CCA so it is unenforceable in court – so a CCJ cant happen
Ruth says
Hi Sara, reading these pages have been a real eye-opener. I’m going to send an affordability complaint for some of my loans, as I think I have a good case,as I had a large overdraft and credit card with the same bank as a loan I took out.
I need your advice on one of them, though. I took a loan out in my name for a relative because my score was higher than theirs at the time, so I could get a lower interest rate.
My bad money management got out of control though, and I couldn’t keep up the repayments at the time. Do I mention this in the affordability complaint?
I have a DMP in place for nearly 6 years now, and this loan is included.
Sara (Debt Camel) says
The fact you borrowed it for a relative is irrelevant. What matters is if you could afford The repayments.
Julia says
Hi! I will try to make our story simple: me and my partner have a toddler, live in rent and due to living crisis and mental health, have loans and credit cards debt around 58k made in one year. National debt line advises between iva and bankruptcy and we can’t sleep in a week because we don’t know what to do, how will this impact our life and what is the best option. We have 90£ spare to repay creditors and will take 46 years to repay if they will even accept.
Sara (Debt Camel) says
So most of the 58k debt was run up in the last year?
Is your situation likely to improve in the next year?
Do you have any assets to protect – a car you own, worth how much? Do you have a car on finance?