If you’re struggling with debt, there are several programmes to help you pay off credit card debt in the UK. The exact details vary slightly between England, Wales, Scotland and Northern Ireland, but the basic options are:
debt management plans (DMPs)/debt payment plans (DPPs);
debt relief orders (DROs);
individual voluntary arrangments (IVAs)/protected trusts; and
In most cases, you can only access these programmes through an approved person or organisation, known as an intermediary. Most charities that offer free debt advice can act as intermediaries.
Debt management plan
In England, Wales and Northern Ireland, debt management plans (DMPs) let you make affordable payments towards any amount of non-priority debt (like credit card debt) through an intermediary.
Your intermediary will help you work out a payment plan and negotiate with your creditors (the people you owe money to). Once your creditors agree, you’ll make one payment a month.
In Scotland, you can apply for a debt payment plan (DPP) through an approved intermediary. A DPP is very similar to a DMP, but also freezes all interest and charges from the day you apply for the DPP.
While you’re on a DPP, you’ll be listed on the public debt arrangement scheme (DAS) register, and the DPP will appear on your credit record for six years.
Debt relief order
If you have no assets and a low income and it’s unlikely you’ll ever be able to pay off your credit card debt, a debt relief order (DRO) may help.
To qualify, you must:
owe less than £20,000;
own less than £1,000 worth of savings and belongings;
have less than £50 left after paying your monthly bills; and
have lived in or owned a property or a business in England, Wales or Northern Ireland in the last three years.
The DRO freezes your debt for a year. If your circumstances haven’t changed after a year, your creditors write off your debt. DROs must go through an intermediary.
Individual voluntary arrangement
In England, Northern Ireland or Wales, if you can afford to pay something towards your debts, an individual voluntary arrangement (IVA) could help you. You pay what you can afford towards your debt. After five or six years, the remainder of your debt will be written off.
To be eligible, you need to prove you have a regular long-term income.
Debt advisers can help you find insolvency practitioners to set up your IVA. Your insolvency practitioner’s fees will be deducted from your monthly payments.
A protected trust is a similar arrangement for people living in Scotland.
Bankruptcy is a chance for a fresh start, but it has some serious disadvantages. If you have any assets, they’ll be seized and used to pay off your debts. Bankruptcy will affect your credit rating, and for six years you won’t be eligible to borrow more than £500 without telling the lender about your bankruptcy.
Full and final settlement
An offer in full and final settlement is similar to an IVA, minus the insolvency practitioner. If you get a lump sum, for example from an inheritance or compensation payment, a full and final settlement could be a helpful option to pay off your credit card debt.
You offer to pay a lump sum towards your debt; in return, your creditors write off the rest of the debt. Alternatively, creditors may let you make monthly payments for an agreed period then write off the balance.
Writing off your debts
This is similar to a DRO, minus the waiting period. If you have no income, assets or savings and your situation is unlikely to improve in the future, your creditors might write off your debt. This only applies in truly exceptional circumstances.
If you owe less than £5,000 across at least two debts, one of which is a county or higher court judgement against you, you may be able to apply for an administration order. This allows you to make regular monthly payments to the court, which distributes the money to your creditors.
Free debt advice
If you’re having trouble with credit card debt, StepChange and the Money Advice Service offer free, confidential online or telephone appointments with experienced debt advisers. These advisers know which programmes you’re eligible for and will be able to help you plan to pay off your credit card debt.
Once you have a plan, the advisers can discuss better ways to manage your money, check you’re on the appropriate benefits and entitlements, and guide you through the next steps to pay off your credit card debt.
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