Ways to clear your debt

 August 2017

Fact sheet no. 34 SCOT Ways to clear your debt

Use this fact sheet to:

  • see the different ways you can deal with your debt and how each one works;
  • find out what advantages and disadvantages each different way has; and
  • help you to decide which way meets your needs.

Key facts for each way tell you:

  • how big or small your debts would have to be;
  • what type of debt could be repaid; and
  • how long you could expect to wait before you would be clear of your debt.

The detailed sections that follow tell you how that option works, its advantages and its disadvantages.

Informally negotiated arrangement

Key facts

How much debt must I owe? ​There is no minimum or maximum level of debt.

What type of debt? Use this option for credit debts only, after you have dealt with priority debts.

How long will it last? There is no time limit. You may be paying for many years.

How it works

Normally, you work out your offers of payment based on a pro-rata distribution of your available income, after you have worked out what you have to pay on any priority debts and your essential household outgoings. This means that all your creditors are offered a fair share of what you can afford to pay. You also need to ask that any interest and charges are frozen.

Creditors have to treat you fairly if you are in financial difficulties. They should consider your offer of payment and consider freezing interest and charges if you ask them.

You may need to offer no payments and ask creditors to hold further action if you have no available income. This is called a ‘moratorium’. You may prefer to make token offers of payment of £1 each month to each creditor. Creditors are only likely to accept this for a short time.

Advantages

  • Fair and transparent method of distributing payments.
  • Recognised by courts and widely accepted by creditors.
  • You can alter payments if circumstances change. You do not need an advice agency to negotiate these payments for you. Our budget tool Your budget shows you how to draw up your own personal budget and make offers to creditors. You can use sample letters when negotiating with your creditors. Alternatively, you could speak to one of our advisers about the CASHflow service. This is similar to using our budget tool, but a money adviser will check your budget sheet for you before you send it to the creditors.
  • Through an advice agency you can use the Standard Financial Statement.

Disadvantages

  • Creditors may refuse your offers (although it is always worthwhile asking them to reconsider).
  • Creditors may refuse to freeze interest and the debt will grow. (Again, it is worthwhile asking them to reconsider.)
  • You will have to pay your debts off in full. This may take a long time.
  • Creditors may refuse offers unless made through an advice agency. (You can complain to the Financial Ombudsman Service if this happens.)
  • Creditors may take court action. A creditor could get an inhibition on your home. This could stop you selling your property until the debt is paid and the inhibition has been removed.
  • You are responsible for administering all the payments yourself and keeping your creditors up to date with your circumstances.
  • Many creditors will often accept reduced offers for a limited period only and may ask for regular reviews.
  • Your ability to get further credit will be affected.

Debt Arrangement Scheme (DAS)

Key facts

See our fact sheet:

Debt Arrangement Scheme (DAS).

How much debt must I owe? ​There is no minimum or maximum level of debt.

What type of debt? All debts must be included: priority debts such as council tax arrears and non-priority debts like credit cards. Debts being collected by a deduction from a social security benefit continue to be taken.​

How long will it last? For individuals, couples and sole traders: any reasonable length of time, but usually within 12 years.

How it works

You can apply for a debt payment programme under the Debt Arrangement Scheme (DAS) if you can clear your debts within a reasonable period (usually within 12 years). All debts must be included. You must find an approved money adviser to act for you.

If your application is successful and you keep up the payments, all interest and charges will be stopped from the date of your application. Your creditors will not be able to use diligence against you to enforce the debts. If you are trading as a business and you are not a sole trader, different rules apply, but you can still apply for a debt payment programme through DAS. Contact us for advice.

Advantages

  • You will get time to repay your debts over a reasonable period.
  • You will only have to make a single regular monthly payment. This is paid to an approved payment distributor who will send the money to your creditors for you.
  • The debt payment programme is normally free.
  • Joining DAS will protect you from most creditors using court action to recover their debt.
  • DAS is flexible and, if your circumstances change, you may be able to vary your debt payment programme to make it more affordable, or even pay it off more quickly if your situation has improved.
  • If you have a sudden and short-term drop in your income of 50% or more, you may be able to arrange a payment holiday of up to six months, until your circumstances improve.
  • Interest, fees and charges are frozen from the date you apply for a debt payment programme and are written off completely when it is completed.
  • If you have made payments for 12 years and have paid 70% of your debts, you may be able to end the debt payment programme early. This is called a composition.

Disadvantages

  • You cannot apply directly. You need to find an approved money adviser to act for you.
  • A debt payment programme cannot protect you from enforcement of child support or maintenance arrears.
  • You will need to arrange to pay child support or maintenance arrears as part of your essential spending.
  • A debt payment programme through DAS is usually free but some approved money advisers may charge a fee. Contact us for advice.
  • If you own your own home, creditors may still get an ‘inhibition’ to stop you from selling your home or getting a loan secured on it.
  • A debt payment programme under a DAS will be registered on the DAS Register.
  • Your bank account may be suspended or restricted, so you may need to get a basic bank account.
  • A debt payment programme through DAS will affect your ability to get further credit.
  • Your DAS may be ended or ‘revoked’ if your income changes and you can no longer clear your debts within a reasonable period.
  • A debt payment programme will not stop a mortgage or secured lender or landlord from repossessing your home if you have mortgage or rent arrears, (although it may make it less likely for the court to grant repossession).

Free debt management plan (DMP)

Key facts

See our fact sheet:

Debt Arrangement Scheme (DAS).

In Scotland, a debt payment programme under the Debt Arrangement Scheme (DAS) is usually a much better option than a free debt management plan because, for example, interest and charges automatically stop. You include priority and non-priority creditors and you are protected from creditors taking enforcement action.

How much debt must I owe? No minimum or maximum level of debt. You will need to be able to pay at least £5 each month to each debt.

What type of debt? Use this option for credit debts only.

How long will it last? ​You will usually have to be able to repay your debts in less than 10 years.

How it works

See our fact sheet:

Debt management plans (DMPs).

You need to have at least £5 each month to pay each of your non-priority debts after you have paid your essential outgoings and any priority debts. You usually have to be able to repay your debts in less than 10 years.

You make the agreed monthly payment to a debt management company which distributes the payments among your creditors for you.

Make sure you use a debt management company that does not charge you any fees for their services. Contact us for advice.

Advantages

  • This is a fair and transparent method of distributing payments.
  • The debt management company will help you work out how much you can afford to pay using the Standard Financial Statement.
  • The debt management company will negotiate with creditors on your behalf. This means that offers are more likely to be accepted and interest frozen.
  • You can increase your payments if your circumstances improve.
  • You may be able to reduce your payments if your circumstances get worse.
  • The debt management company administers all payments to your creditors. You just make one monthly payment to the debt management company. They should pass your payments on within five working days.
  • The debt management company should review your plan with you every year and give your creditors regular updates.

Disadvantages

  • You will have to pay your debts back in full. This could take a long time.
  • The debt management company cannot force creditors to accept offers, or freeze interest, so a DMP cannot guarantee that all creditors will take part.
  • Creditors may still take court action against you.
  • Your ability to get further credit will be affected.
  • It is very important to make sure you use a free debt management company. It is not always easy to tell if the service is free when you look at their website. Contact us for advice.

Protected trust deed

Key facts

How much debt must I owe? At least £5,000. Some insolvency practitioners may set their own minimum debt level at higher than £5,000.

What type of debt? Most debts except: fines, penalties, compensation and forfeiture orders imposed by any court; any debt that has been incurred through fraud; student loans; any obligation to pay maintenance to an ex-spouse due under a court order (not Child Support Agency arrears or Child Maintenance Service arrears); and money owed to a creditor whose debt is secured on your property (such as a mortgage or secured loan).

How long will it last? ​They usually last five years.

How it works

See our fact sheet:

Trust deeds.

A protected trust deed (PTD) is an alternative to bankruptcy. An agreement is drawn up by a licensed insolvency practitioner to pay an agreed amount off your debts over a shorter period of at least four years. Any unpaid part of a debt included in your trust deed is written off.

The arrangement will become protected and means all your creditors have to keep to it unless enough of your creditors object (see Disadvantages below).

National Debtline can help you to set up a PTD by referring you to a qualified insolvency practitioner. Contact us for advice.

Advantages

  • If a creditor agrees to the terms of the trust deed, the debt you owe them is ‘frozen’ at the start of the arrangement.
  • As long as you keep to the terms of the trust deed, no further interest will be added to the debt. Once the trust deed has been set up, they should direct most correspondence to the trustee rather than to you.
  • You can still have a bank account. This is usually an instant access account, where you can use a cash card, but you do not get a cheque book, cheque card or an overdraft facility. Contact us for advice.
  • You can still continue to be employed in most cases. (It is always a good idea to check your contract of employment to make sure that a trust deed will not affect your job.)
  • You may still be able to hold public office, although some public bodies may have their own rules preventing this.
  • Any monthly payments you have to make based on your earnings may be increased or decreased if your circumstances change.
  • You may be able to enter into a trust deed without putting your home at risk.

Disadvantages

  • Only the creditors who agree to the terms of your trust deed are bound by the arrangement, unless it becomes ‘protected’.
  • If you do not cooperate with the trustee, they can try to make you bankrupt.
  • You cannot continue to be the director of a limited company unless your trustee agrees and unless the rules of the limited company allow you to enter into a trust deed.
  • Some public bodies, such as councils, may have rules that prevent you from holding office with them.
  • Your credit reference file will be affected. This could make it more difficult to take out further credit during and after the trust deed.
  • A trust deed cannot include certain debts.

Bankruptcy

Key facts

How much debt must I owe? A creditor can only issue a bankruptcy petition if you owe £3,000 or more. You can also make yourself bankrupt if you owe £3,000 or more.

What type of debt? Most debts except: fines, penalties, compensation and forfeiture orders imposed by any court; any debt that has been incurred through fraud; student loans; any obligation to pay maintenance to an ex-spouse due under a court order (not Child Support Agency arrears or Child Maintenance Service arrears); and money owed to a creditor whose debt is secured on your property (such as a mortgage or secured loan).

How long will it last? Most people are discharged from all their debts after one year (but there are exceptions to this). If you have spare income you may have to make payments for four years.

How it works

See our fact sheet:

Bankruptcy.

You can apply for your own bankruptcy if you are eligible under the ‘minimal asset process (MAP)’ rules, or have a ‘certificate for sequestration’, or are ‘apparently insolvent’. 'Apparent insolvency' is a legal term meaning that you cannot pay your debts as they become due. See our Bankruptcy fact sheet for details. Alternatively, a creditor can make you bankrupt.

The information in this section applies if you go bankrupt on or after 1 April 2015 because you have a certificate for sequestration or are apparently insolvent. If you go bankrupt under the MAP rules, see the section Minimal asset process (MAP) bankruptcy. If you went bankrupt before 1 April 2015, the rules may be different. Contact us for advice.

Your financial affairs will be dealt with by the Accountant in Bankruptcy or a separate insolvency practitioner, called the trustee. Valuable assets are usually sold to pay your creditors.

Your bankruptcy usually lasts one year, but you may have to make payments for four years. When you are discharged (usually after one year) any unpaid debts included in your bankruptcy are written off.

Bankruptcy may be a good option, particularly where you rent your home and have no assets..

Advantages

  • ​Relief from the stress and anxiety of being in debt.
  • Having your debts written off, or ‘discharged’, after one year.
  • Being able to build a new life.

Disadvantages

  • The possible loss of certain assets, particularly your home;
  • The trustee has wide powers over your financial affairs;
  • Certain types of job can be affected.
  • You cannot hold public office (for example, as an MP, MSP, councillor, or member of a school board) and you cannot serve as a company director unless the sheriff court agrees.
  • You cannot take out credit of more than £2,000 unless you tell the creditor about your status.
  • You cannot take out credit of any amount if at that time you have debts of at least £1,000.
  • The bankruptcy will be listed on your credit reference file for six years. Even after this period it can still be difficult to get credit, such as a mortgage. This is because lenders may ask whether you have ever been bankrupt.

Minimal asset process (MAP) bankruptcy

Key facts

How much debt must I owe? ​The total amount of your debts must be at least £1,500 and no more than £17,000.

What type of debt? ​Most debts except: fines, penalties, compensation and forfeiture orders imposed by any court; any debt that has been incurred through fraud; student loans; any obligation to pay maintenance to an ex-spouse due under a court order (not Child Support Agency arrears or Child Maintenance Service arrears); and money owed to a creditor whose debt is secured on your property (such as a mortgage or secured loan).

How long will it last? You will be discharged after six months. However, you will be under certain restrictions for a further six months after discharge.

How it works

See our fact sheet:

Bankruptcy.

You have to meet certain criteria to be able to apply for your own bankruptcy under the MAP rules. The total amount of your debt must be at least £1,500 but no more than £17,000. You must not have a single asset worth more than £1,000 and your total assets must be worth no more than £2,000.

You can keep a car worth up to £3,000 if you need it, for example, to get to work. You must get advice from a money adviser and when they complete your budget sheet with you, it must show that you cannot afford to pay anything towards your debts. Alternatively, you must show that you have been receiving certain benefits for the six months before your application.

You must not own any land and you must have a ‘certificate for sequestration’. This is a certificate, signed by a money adviser, which confirms that you cannot pay your debts as they fall due. Your MAP bankruptcy will last for six months, but you will be under certain restrictions if you apply for credit for a further six months.

Advantages

  • ​Relief from the stress and anxiety of being in debt.
  • Cheaper than the standard bankruptcy.
  • Having your debts written off, or ‘discharged’, after six months.
  • Being able to build a new life.

Disadvantages

  • The possible loss of certain assets.
  • The trustee has wide powers over your financial affairs;
  • Certain types of job can be affected.
  • You cannot hold public office (for example, as an MP, MSP, councillor, or member of a school board) and you cannot serve as a company director unless the sheriff court agrees.
  • You cannot take out credit of more than £2,000 unless you tell the creditor about your status.
  • You cannot take out credit of any amount if at that time you have debts of at least £1,000.
  • The bankruptcy will be listed on your credit reference file for six years. Even after this period it can still be difficult to get credit, such as a mortgage. This is because lenders may ask whether you have ever been bankrupt.

Consolidation loan

Key facts

How much debt must I owe? There is no minimum or maximum level of debt. It will depend upon what the lender is prepared to lend.

What type of debt? Any debts that your lender allows you to include.

How long will it last? ​It will last the length of time it takes you to repay the loan.

How it works

See our fact sheet:

Debt consolidation and credit.

Apply to a lender for a loan to clear debts. These are often advertised as ‘consolidation loans’. The lender may want to secure the new loan on your house if you own property.

It is very important that you shop around for the best deal from high street and internet lenders. If you are viewed as a poor credit risk, it is possible that a good deal may not be available to you.

Advantages

  • Paying off your debts with a consolidation loan is less likely to have a negative impact on your ability to get further credit.
  • You will be making one monthly payment on one loan, rather than many payments to different creditors.
  • Your new monthly payment should be lower, but you must check that you can afford the new payments.

Disadvantages

  • If you are viewed as a poor credit risk, you may not be able to take out a consolidation loan, or you may be offered one on worse terms and conditions, for example at a higher interest rate.
  • If the loan is secured on your house, then it could be repossessed if you do not keep up with the payments.
  • Interest rates often change over the loan period, making it impossible to work out what the total cost of the loan will be.
  • Check if the interest is ‘fixed’ or ‘variable’. If it can change, you could end up paying much more than you expected.
  • Loans are often offered over a longer time than your original loans. This means that, even if the interest appears reasonable, the length of time you have to repay can increase the overall cost of the loan significantly. This means that in the end you pay more.
  • If you don’t clear all your existing borrowing, then you may struggle to make the payments.
  • If you keep your credit cards, it may be tempting to use them again.
  • If you did not use Your budget to make a full budget, listing your income and outgoings, you may not have worked out if you can realistically afford the new payments.

​Full and final settlement offer

Key facts

How much debt must I owe? There is no minimum or maximum level of debt.

What type of debt? Use this option for credit debts usually.

How long will it last? A short time, unless payment is in instalments.

How it works

If you have a lump sum available that will pay off part of your debts, you can ask your creditors to accept a part payment and write the rest off.

You may get creditors to agree to you making monthly payments for a set period and then writing the rest off.

Advantages

  • You clear your debts in full but only pay part of the debt back.
  • It relieves stress and anxiety.
  • It allows you to make a fresh start.
  • This gives you a goal and means you are more likely to make the payments.

Disadvantages

  • You lose your lump sum or asset which you could have used elsewhere.
  • It is vital to get agreement in writing from your creditors before paying the lump sum to them.
  • You may need to ask for help from relatives or friends.
  • The debts will still show up on your credit file and affect your ability to get credit in the future, but your file will be marked to show you have made a ‘partial settlement’.
  • A creditor could refuse your offer and try to recover the whole debt by taking court action.

Write off the debt

Key facts

How much debt must I owe? There is no minimum or maximum level of debt.

What type of debt? You would usually use this option for credit debts.

How long will it last? Debts would be cleared at the time that they are written off.

How it works

It may be possible to ask your creditors to write off the debts if you have no available income to make any payments and have no savings or assets.

You need to convince the creditors that your circumstances are unlikely to improve in the future.

Your circumstances may need to be exceptional; for example, you have a severe illness.

You need to convince your creditors that it is not worthwhile trying to collect the debt.

We have a sample letter that you can use to ask your creditors to write off your debts. If they do not agree at first, we have a further sample letter that you can use to ask them to reconsider their decision.

Advantages

  • It relieves stress and anxiety where you are in an exceptionally difficult situation.
  • It allows you to make a fresh start.
  • Your creditors accept that it is not appropriate to take any further action because of your situation.

Disadvantages

  • Creditors do not normally agree to write off the debt.
  • It will still show up on your credit file and affect your ability to get credit in the future.
  • Some creditors choose not to pursue the debt but do not put this in writing.
  • There is no guarantee they won’t chase you for the debt in the future.
  • Some creditors may refuse whilst others agree.

Equity release

Key facts

How much debt must I owe? There is no minimum or maximum level of debt. However, it’s more likely to be a suitable option if you have debts that you can’t afford to clear through your existing regular income.

What type of debt? You can use this option to clear any type of debt.

How long will it last? There is no time limit. Different equity release schemes can give you money in different ways and at different times. For example, some may give you a cash lump sum. Others may give you regular payments over time.

How it works

You consider all options to deal with debts and raise funds. You identify that you would like to release money from your property to help clear debt.

You get independent financial advice and independent legal advice to help you understand the advantages and disadvantages of equity release.

There are two main types of scheme available.

  • Lifetime mortgages give you funds in a single lump sum or smaller instalments over time, or a combination of both. You remain the owner of your home. The lifetime mortgage is repaid when you die or go into long-term care.
  • Home reversion plans allow you to sell part, or all, of your property to a home reversion company. They give you a lump sum or regular smaller payments. When the property is sold, the home reversion company gets their share of the sale proceeds.

Advantages

  • They can give you a cash lump sum or regular monthly payments. This can help with regular bills, home improvements, care costs and so on.
  • You can usually stay in your property for as long as you need to.
  • You may be able to move, as long as the new property is acceptable to the equity release firm.
  • You can set aside part of your property value as an inheritance for your family members.
  • You do not have to pay rent to the equity release provider.
  • For lifetime mortgages, you may be able to choose whether to pay back interest or let it build up.
  • The loan is only paid back when you die or when your property is sold.
  • For some lifetime mortgages, interest rates are either fixed or can’t rise above a set level.
  • For some equity release schemes, there is a guarantee that the total amount you owe cannot be greater than the value of your property.
  • You will not have to pay tax on the equity released from your main home.

Disadvantages

  • Your equity immediately becomes less.
  • You may leave a smaller inheritance to other people when you die.
  • A lifetime mortgage means that you are securing further borrowing against your home.
  • For home reversion schemes, home reversion companies will usually pay a lot less than the full market value of their share of your property. Also, you will no longer be the sole owner.
  • If you die or sell your home shortly after taking out an equity release scheme, you could lose money. There may also be early repayment charges if you decide to repay what you owe within a short time of taking out the deal.
  • If house prices fall, you may owe a greater percentage of your home’s value.
  • With a lifetime mortgage, if you live long enough, you could end up owing 100% of your property’s value.
  • The money you get from equity release could affect the amount of benefits you are entitled to.
  • You may need the provider’s permission for someone else to move in, such as a relative or carer.
  • You usually need to get your provider’s permission to move to another property.
  • You usually have to pay costs for arranging the transaction, for your property to be valued and for legal fees.
  • You will still be responsible for paying all the usual bills such as council tax, gas and electricity. You may also need to pay for buildings insurance.
  • You will usually be responsible for repairs and maintenance. So you may need to regularly set aside some money for this.

Pension release

Warning:

think carefully

Think very carefully about whether you use your pension fund to pay off your debts or not. Take your time to decide. Making a hasty decision could mean that you lose a lot money because of the tax or benefit rules. Taking money from your pension pot now will reduce your income later in retirement and might reduce the amount of benefits, tax credits or financial support from your local council that you get in the future.

Key facts

How much debt must I owe? There is no minimum or maximum level of debt.

What type of debt? Any kind of debt.

How long will it last? This depends on how much money you take from your pension fund and how often you take it.

How it works

The rules governing defined contribution pensions, sometimes called ‘pension funds’ or ‘pension pots’, have changed. If you are 55 or over, you now have access to your pension fund. This affects many personal and workplace pensions, but not defined benefit pensions such as final salary schemes. If you are considering moving money from a final salary scheme pension or a defined benefit pension, get specialist pension advice from an independent financial adviser first.

If you have a defined contribution pension, you might be able to use some of your pension fund to deal with your debts. You can choose to take up to 25% as a single, tax-free, lump sum.

You can do this in five different ways:

  • buy an annuity;
  • get an adjustable income (called 'drawdown');
  • take cash in chunks;
  • cash in the whole pension fund in one go; and
  • mix any of the options.

You can also decide to leave your pension fund untouched. Creditors should not pressurise you to use your pension to pay off debts. Contact The Pensions Advisory Service on 0300 123 1047 for free, impartial information and guidance about your pension choices.

You may be able to get a Pension Advice Allowance of up to £500 from your pension fund to help pay for financial advice about your pension options. You will need to write to your pension provider to make the request. Not all pension providers will offer this. The allowance is paid directly to a regulated financial adviser. It is not given to you. You can get an allowance up to three times, but not more than once in any tax year.

Advantages

  • Using the money in your pension fund might make it possible for you to deal with your debt in a way that otherwise you could not afford.
  • If a creditor issues a statutory demand and is threatening to make you bankrupt, you may prefer to use money from your pension to deal with this instead of trying other options, like offering a charge on your property.
  • You will not have to take out credit that you cannot afford to deal with your debt.

Disadvantages

  • Taking money from your pension now will reduce the money you and your family can get from your pension fund later.
  • If you are getting any benefits or tax credits, or if you get financial support from your local council, you should inform the Department for Work and Pensions (DWP), HM Revenue & Customs or your local council of any money that you take from your pension fund, so that you are not overpaid. Your benefit may be reduced or stop once you have done this.
  • If you take money from your pension fund, the DWP, HM Revenue & Customs and the local council will consider whether you have spent the money to try to get more in benefits or tax credits later. If they decide that you have done so, you may be given less in benefit or tax credits than you would otherwise have received.
  • You may need to pay for advice about what option to take.
  • If you take money from your pension fund without getting advice, you could lose a lot of money.
  • Your pension provider may charge you a fee for leaving your pension early.
  • Taking a lump sum greater than the tax-free amount from your pension would mean that some of the money would be taken in tax.
  • If you take money from your personal pension, it may affect whether you are able to use some of these options for dealing with your debts.
  • If you take money from your pension while you are in some of these debt options, it may be taken off you.

Selling assets

Key facts

How much debt must I owe? There is no minimum or maximum level of debt. It’s more likely to be a suitable option if you have debts that you can’t afford to clear through your regular income.

What type of debt? You can use this option to clear any type of debt.

How long will it last? There is no time limit. It may take you longer to sell some assets than others. It depends on the asset and the method you use to sell it.

How it works

You consider all available options and decide that you want to sell an asset to help clear your debt. Contact us for advice before making this decision.

You choose which assets you want to sell and how you want to do this. You explore all the costs involved in the method of sale you choose.

There are many ways of selling assets yourself, such as online auctions and advertising in local newspapers. There are also legally binding ways of using assets to pay debts, such as entering into an individual voluntary arrangement.

You consider how you want to use the money you raise. If you cannot pay all your debts off, you could consider making smaller offers to settle each debt and ask the creditors to write off any remaining amounts. It is important to take into account how you can treat creditors fairly. This is because if you consider some other options to deal with your debt in the future, how you have previously treated creditors can be taken into account when deciding whether further restrictions should be applied to you.

Advantages

  • It can help to relieve pressure from creditors who may be chasing you for payment or threatening legal action.
  • It can help to stop priority creditors taking legal action to take away an essential service or an essential item.
  • You may be able to pay off those creditors who charge interest at a higher rate so that your other debts are easier to manage.

Disadvantages

  • You would have less financial security for the future. For example, depending on which assets you sell, it may mean you have less money and security for your future and retirement.
  • You may leave less inheritance to other people when you die.
  • If emergencies occur in the future, you may be less likely to have the funds to deal with them.
  • In some situations, you could still be treated as having money you have used to clear debts when the Department for Work and Pensions or your council look at your benefits.
  • You may need to get professional advice to make sure that selling your assets does not affect your tax position.

Charitable payment

Key facts

How much debt must I owe? ​There is no minimum or maximum level of debt.

What type of debt? It depends on the charity, but usually priority debts.

How long will it last? Debts would be reduced or cleared by the payment.

How it works

Apply for financial help from a suitable charity on the Turn2us website www.turn2us.org.uk.

Get information about trust funds you can apply to for financial help by going to the Auriga Services website www.aurigaservices.co.uk. Click on the link Download booklet Help with Water and Energy at the top of the page.

Advantages

  • It relieves stress and anxiety where you are in an exceptionally difficult situation.
  • A charitable payment may pay off a particularly urgent or pressing debt.

Disadvantages

  • Most charities are unlikely to be able to help with large credit debts.
  • You must fit the charity rules to apply in the first place, so it may be hard to find a suitable charity.
  • Charities are only likely to help with an emergency or priority debt, not the whole problem (assuming you have more than one debt).
  • You will normally have to fill in a detailed application form or find an advice agency to apply for you.