The third step towards a debt-free existence
Get impartial, independent advice from leading debt charity, the CCCS on how to take your first steps to get out of debt.
Once you've taken the key step of establishing your monthly budget, detailing all your income and expenditure, you will then know how much your budget deficit or surplus amounts to.
- Adopt our goal: Draw up a budget
This will help guide you as to which debt solution best meets your needs. There are a wide variety of options, and your choice must always be based on its suitability for your individual situation.
It's advisable to seek expert impartial advice from an independent organisation such as CCCS, before committing to a course of action. They can make sure the implications of your choices are fully explained.
If at all possible, you should always try to pay back what you owe. Various repayment solutions exist, of which the most common are:
Debt management plans (DMPs)
- A plan that helps people manage their debts, when they are unable to maintain contractual payments to their creditors. Third party can act on your behalf as an intermediary with creditors, though most will charge a fee. It is based on realistic budgeting, with monthly surpluses used to make affordable payments to creditors.
- You can use a lump sum of money, perhaps from an inheritance, to offer creditors a one off payment to clear your debt, known as a 'full and final settlement'. The offer may be less than the outstanding balance but, if accepted by the creditor, can be classed as full payment. Always get written acceptance of your offer before sending money to your creditors. Not all creditors are willing to accept offers and you will have to negotiate with each individually.
Temporary repayment plans
- Following a change in circumstances, if you can temporarily no longer afford to pay your debts, "token payments" can be arranged. You pay a small amount each month, backed up by a full budget and indicating your willingness to settle your debts, until you can afford to start paying your normal payments. It alerts creditors to your situation, indicating they should be lenient until things improve.
- A free repayment plan arranged by your local county court, for those with unsecured debts under £5,000 and at least one existing court judgment. You make one payment to the court each month, which pays creditors on your behalf. Creditors cannot contact you or add interest.
- Debtors take out one large loan to pay off other smaller debts, paying only one payment per month to service the loan rather than a number smaller of payments.
If none of these are suitable for your situation, you may then want to look at insolvency options. If your debts are out of control and you have no realistic way to pay them back on your current income, and any assets you may have do not cover the balance, this may be the best course of action.
Since its creation, CCCS's ethos has always been to help the "can't pays", not the "won't pays", taking the view that the best way to tackle debt is to negotiate a way to pay it back in full or in part, based on what you can afford. The charity offers a full range of debt solutions, all free of charge.
The basis of any debt repayment plan - and indeed insolvency - is a comprehensive budget. A rigorous budget arms you with proof that shows exactly how much you can pay and why, and is a must-have before talking to creditors. See our previous post for tips!
CCCS's freephone helpline (0800 138 1111) is open 8am to 8pm Monday to Friday, while Debt Remedy online counselling is available twenty-four hours a day, seven days a week.
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