Debt options

Some debts are more important than others because the law gives different powers to different creditors.

It is important to separate your priority creditors from your non priority creditors. Always make arrangements to pay your priority creditors first.

Loan sharks are illegal moneylenders who often charge very high interest rates. If you spot a loan shark, or have borrowed money from one, you can report them anonymously on0300 555 2222 

You can also check if a lender/company is licensed by visiting the Consumer Credit Register

Once you have made arrangements with all of your priority creditors you have several options open to you to deal with all of your other creditors. Non Priority creditors can include the following:

• bank loans and overdrafts
• personal loans
• credit cards and charge cards
• payday loans and trading cheques and vouchers
• doorstep collected loans
• catalogues
• credit sale agreements

You must have debts below £5,000 and a county court judgement. You make 1 monthly payment to the court and this is distributed between your creditors. A composition order can also be made and this will have the effect of reducing the debt by setting a total payment period. There is no cost and application should be made on court form N92.

If your debts are below £20,000 and you don’t own your own home, you could apply for a DRO. This will write off your debts and will cost £90.00. You can only apply for a DRO through an Approved Intermediary.

You must also satisfy the following criteria:

• be unable to pay your debts
• owe less than £20,000 in total
• have less than £50 per month disposable income
• have assets worth no more than £1000
• not own a car worth more than £1000
• have lived in England or Wales at some time in the last 3 years
• must not be subject to another DRO in the last 6 years
• must not be involved in any other insolvency procedure such as bankruptcy at the time you apply

You usually make 1 payment to a DMP company who distribute this on a pro rata basis to all of your creditors. Be wary of advertisements for Debt Management Plans. These companies normally charge for their service. We only recommend Debt Management companies that don’t charge for this service such as Pay Plan or Grant Thornton

If correctly set up this will discharge a debt for a small sum of money. Sometimes creditors will accept as little as 25% of the outstanding balance depending on your circumstances.

You can ask your creditors to accept a payment of as little as £1 per month for a period of time. You would normally ask for this when you have no spare money left over after negotiating with your priority creditors. The Housing Debt Advice Team has successfully negotiated token payments for people who have arrears with priority creditors.

This is an insolvency option normally for those with large debts or those running a business who want to continue trading. It normally lasts for 5 years and is managed by an Insolvency Practitioner. Set up fees can be high For further information you should contact Pay Plan or National Debtline. 

You may want to consider applying for a bankruptcy order this can now be done online and the fee is currently £680. Always seek specialist advice before making an application. National Debtline and the Gov UK website have lots of useful information on their website.

View our benefits, debt and money advice to find out who to contact for assistance with:

• Council Tax
• rent
• mortgages
• grants
• existing benefit claims