How to deal with debt Other debt solutions

Pay secured creditors first

Try to pay secured and priority creditors first, such as your mortgage, rent, any loans secured on your home, council tax, gas and electricity bills and court fines.

Going direct to your creditor

If you're in debt you can contact your creditor to explain your situation and try to agree a repayment schedule with them.

Try to pay arrears on priority debts such as rent and utilities, then calculate how much you can offer your unsecured creditors. Put this in writing to them and ask for charges to be frozen.

If this is refused, make the payment you suggested then write again, explaining you can't offer any more. Under the Lending Code, banks must treat people with financial difficulties sympathetically. If they don't, you should complain to the bank and, if necessary, take the matter to the Financial Ombudsman Service. For more tips on complaining, read the free Which? guide How to complain about financial services.

  • Pros: You'll reach an agreement with your creditor, limiting possible damage to your credit rating.
  • Cons: It's not legally binding and won't always reduce the debt – the amount is just rescheduled.

Debt management plans (DMP)

A debt management plan (DMP) is an arrangement to reschedule debts, with charges sometimes frozen as well. You make a single monthly payment to a debt management organisation, which is distributed to your creditors.

Don’t use a commercial debt management company – take advice from a reputable organisation such as the Consumer Credit Counselling Service (CCCS) or Citizens Advice. See free debt advice contacts for details.

  • Pros: You'll reach an agreement with your creditor, limiting possible damage to your credit rating. Your DMP provider will usually speak to your creditors on your behalf.
  • Cons: It's not legally binding and won't always reduce the debt – the amount is just rescheduled. Creditors don't have to agree to freeze charges and interest and may still contact you.

Debt relief orders (DRO)

A debt relief order is a relatively new debt solution. Similar to bankruptcy, it is aimed at consumers with debts of less than £15,000 and a low income, and is usually cheaper than bankruptcy.

You can't apply for a debt relief order if you: have possessions or savings of over £300; own a car or other vehicle worth more than £1,000; have a private pension fund worth over £300

  • Pros: A DRO usually lasts for one year, during which your creditors cannot take action against you. At the end of the DRO period, you will no longer have to pay any debts detailed in the proceedings.
  • Cons: A DRO remains on your credit reference file for six years and may prevent you from getting credit during that time. Court fines, child support and student loans cannot be included in a DRO.

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