Money advice handbook

Millions of people in the UK struggle with debt, so you’re not alone. There’s no need to feel embarrassed. What’s important is taking steps to improve your situation. These pages have helpful information, but you only need to read the sections that are useful to you. They will help you manage your budget and explore your options.

Section 1: Before you start
Section 2: Planning your budget
Section 3: How to increase your income
Section 4: Reducing your outgoings
Section 5: Dealing with priority debts
Section 6: Dealing with non-priority debts
Section 7: Options for handling debts
Section 8: Contacting your creditors and sample letters

Before you start

Do you have any debts that need urgent action?

If you are at immediate risk of losing your home or essential goods or services, you should seek advice straight away from an advice organisation.

Urgent action is required if you have been:

threatened with eviction
threatened with repossession
contacted by Enforcement Agents (Bailiffs) who are collecting a debt
told your gas and/or electricity supply is going to be disconnected
threatened with bankruptcy

Do you need Breathing Space?

Breathing Space is a government scheme that pauses debt collection, giving you time to get advice and find a solution.

There are two types: a Standard Breathing Space which lasts 60 days, and Mental Health Crisis Breathing Space which lasts as long as mental health treatment, plus 30 days.

You might be able to apply if you can’t pay some or all of your debts, live in the UK and haven’t used the scheme in the last 12 months.

For more information on Breathing Space, the qualifying criteria you need to meet and how to apply, visit the National Debtline website.

Do you need a new bank account?

To stay in control of your money, you need an account that you can access and manage easily. If any of the following points apply to you, it might be a good option to open a new bank account with a bank you do not owe money to:

you are overdrawn and being charged fees, reducing the money you have access to when it comes into your account
owe money to your bank, banks can use the ‘right of set-off’ to take money you owe them for debts from your account
need a new bank account due to having an insolvency

For more information visit fee-free basic bank accounts or the Money Helper website.

Do you owe money to a loan shark?

A loan shark is someone who lends money but doesn’t have a licence to do so. There can be little or no paperwork to tell you about any interest rate or amount you owe, and you may not be allowed to settle your debt. Sometimes items are taken from you as security (e.g. passports or driving licences), or the person you owe money to might try to intimidate you, make threats, or become violent.

How to deal with loan sharks

Planning your budget

The first step to improving your situation is to understand it by completing a budget planner. A budget planner helps you see where your money goes and shows you ways to increase income and/or reduce outgoings. Some people don’t like the idea of doing a budget, but we do hundreds each year for clients, and it’s a really helpful tool.

Budget planning: if you don’t have debts

The Money & Pension Service have a Money Helper website that has a great online budget planner that you can use and update regularly.

Budget planning: if you do have debts

Use a free budget calculator from one of the below debt advice charities to make a budget and receive advice on dealing with your debts:

StepChange offer an online advice session that can help you
the National Debtline digital advice tool can help you make a budget and deal with your debts

You will need to gather as much information as possible about your income and outgoings. A lot of this information can be found on your bank statements.

Savings

If you have money left over after your essential living costs, you might want to save a small amount for emergencies or unplanned spending (e.g. broken washing machine). Having some savings means you can deal with unexpected events better.

Most creditors allow you to save 10% of your disposable income after you pay your essential living costs (up to a maximum of £20 per month).

How to increase your income

Check your benefit support

An estimated £23 billion of support is unclaimed each year. We have a quick and easy to use online benefit checker that can tell you if you are missing out on any benefits or financial support. If you are, the checker will tell you how to make an application.

Check benefits online

If you are unable to use the online calculator, contact Turn2us on 0808 802 2000. They are a charity that help people to access the benefits they are entitled to.

Extra working hours

Can you, your partner or others living in your home take on more work to increase the household income? Visit our finding employment page for information and support.

If you take on additional work and are receiving benefits, you will need to check what difference an increased income will have. You can do this using our online benefit checker. You will also need to declare any changes in circumstances to whoever pays your benefits so they can be reassessed.

Contributions from household members

Any adult living with you should be either be in employment and/or claiming benefits. You should be receiving a contribution from them towards rent, food, and other bills.

Your entitlement to Universal Credit, Housing Benefit and/or Council Tax Support could be reduced because they live with you. This means it’s even more important you receive a contribution from other adults in the property. It will help to pay for important goods and services, including rent.

Long term ill-health or disabilities

If you or someone in your household has a health condition or disability that affects daily living or mobility, you may be able to claim Personal Independence Payments (PIP). The condition must have lasted for over three months and be expected to continue for at least nine months.

If you are terminally ill, with less than six months to live, you may be able to apply sooner. You can receive PIP whether you are in or out of work, and it could increase your income without reducing any other benefits.

You can request an application form by calling the Department for Work and Pensions on 0800 917 2222 or visit how to claim PIP for more information.

Carers allowance

If you care for someone for at least 35 hours a week and they receive one of the benefits listed below, you could get £81.90 per week in Carer’s Allowance:

Personal Independence Payment (daily living component)
Disability Living Allowance (middle or highest care rate)
Attendance Allowance
Constant Attendance Allowance (with an Industrial Injuries Disablement Benefit, at or above the normal maximum rate)
Constant Attendance Allowance (with a War Disablement Pension, at the basic full-day rate)
Armed Forces Independence Payment

If someone else also provides care for the same person, only one of you can claim Carer’s Allowance.

To be eligible, you must not be in full-time education or earn more than £151 per week after tax, National Insurance, and expenses.

Visit the Carers Allowance GOV.UK page for more information on how it works and how to make a claim.

If someone in your household is receiving Universal Credit and provides at least 35 hours of care per week for a person claiming a disability benefit, they can apply for the Carers Element. This will increase their Universal Credit entitlement.

Find out more about Universal Credit’s Carers Element

Child maintenance

If you have children with an ex-partner, they should help with everyday living costs. Even if the absent parent doesn’t see their children, they are still legally responsible for the costs of raising them.

You can agree on child maintenance arrangements that work for both of you. This can include sharing costs, splitting expenses for items, or making regular payments for things like household bills, uniforms, or school trips.

You can find independent advice about child maintenance options on the Citizens Advice website. Note that the maintenance you receive may affect your other benefits.

This may not be a suitable option if:

you feel that the other parent could harm you or your children
you are a victim of domestic violence

Child Benefit

If your child leaves education, Child Benefit payments will stop on 31 August after their 16th birthday. However, if they stay in approved education or training, you can continue to receive Child Benefit payments until they turn 20 years old. This will continue to help with household finances. You need to inform the child benefit office if this is your chosen route.

Approved education must be full-time and consist of an average of 12+ hours a week of supervised study or course related work experience. It includes:

A level or similar
NVQs and other vocational qualifications up to level 3
apprenticeships / traineeships in England
home education (only if started before turning 16 years old)

Approved training is unpaid, such as foundation apprenticeships. Courses that are part of a job contract are not approved.

You must tell Child Benefit if there is a change of circumstances or any breaks in your child’s education or training. You can call them on 0300 200 3100 Monday to Friday 8am to 8pm and Saturday 8am to 4pm.

For full information, visit the GOV.UK Child Benefit website

Winter fuel payment

If you were born before 23 September 1958, and receive a qualifying means-tested benefit including Pension Credit, you could claim up to £300 winter fuel payment.

For more information including the eligibility criteria, go to the GOV.UK Winter Fuel Payment website.

Use our quick and easy online benefit checker to find out if you are entitled to Pension Credit, or any other benefits that might mean you can receive the Winter Fuel Payment.

Benefit overpayment recovery

If you claim benefits and your entitlement is reduced by deductions to repay a debt you owe, you can speak to the Department for Work & Pensions (DWP) on 0800 916 0647.

You can find out how much you owe and ask for the deductions to be reduced. By reducing the amount being deducted, you will increase your available income.

Charitable grants

Charitable funds may offer grants to help you manage financially, and they don’t need to be repaid. You can quickly search for grants on the Turn2Us website.

Reducing your outgoings

Creating a budget plan will give a realistic view of your finances, including any additional outgoings that are specific to you such as disability costs. Below are some ways you might be able to reduce your outgoings.

Increasing instalments

You can request to pay bills like Council Tax, gas, electric, or insurance in more instalments, spreading costs over the year. If billed annually or quarterly, you can ask your supplier about paying weekly, fortnightly, or monthly to make payments easier.

Council Tax discounts and exemptions

You may be able to get a discount or exemption from Council Tax if:

you live alone, or with someone who is not counted (like a full-time student)
you are a full-time student
you/another occupant are disabled and live in a larger property than you would need otherwise

More information about Council Tax discounts and exemptions

Moving to a smaller home

If you live in property that is larger than you need, you may want to consider moving to a smaller home with lower rent and running costs.

The amount you receive from Universal Credit or Housing Benefit towards your rent may be reduced if you have any spare bedrooms. This is known as the bedroom tax or under-occupation reduction.

Council or Housing Association tenants could be given a higher priority for rehousing. To learn more, call Homechoice on 0118 937 2172 or visit our Homechoice page for more information.

Reading Borough Council tenants may also be eligible for help with moving costs. Contact our Under Occupation and Transfer Officer on 0118 937 2192 for more information on the Tenant Incentive Scheme.

TV, phone and internet

You may be able to reduce your costs by:

renegotiating your contract to reduce the charge by cancelling services* you do not need such as voicemail or sport channels
switching suppliers to get a cheaper deal, you can get more information from Ofcom and searching for ‘price comparison’ – if you need any help you can contact Ofcom on 0300 123 3333
getting a bundle package for TV, phone, and internet to save on separate subscriptions
cancelling* your TV subscription and investing in a Freeview box (one off cost) to watch TV without monthly charges
cancelling* either your mobile or landline contracts if your household can manage without

*Check you won’t have to pay cancellation fees for leaving your contract early.

You may be able to reduce your costs by changing to a social tariff for broadband and phone services if you claim universal Credit, Pension Credit, and some other benefits.

Ensure energy bills are accurate

Make sure you provide accurate meter reading regularly so you do not have an estimated bill. For more information on saving money on energy and switching providers, go to the Money Helper website.

Reading Borough Council has a scheme called Winter Watch that is available to Reading residents on low incomes, have young children, are over 60, have a disability/health condition or have not lived independently before. Depending on your circumstances, you may be eligible for the £140 warm homes discount. You can visit the energy support page or contact them for advice, support and to apply all year round on 0118 937 3747.

Ensure your water bill is accurate

Requesting a water meter may help to reduce your bill. Thames Water can advise if a water meter would reduce your bill or not. For more information or request a meter visit Thames Water’s website or call Thames Water on 0800 980 8800. If a meter cannot be installed, your tariff might be changed to save you money instead.

Thames Water also offer several ways to help customers on low incomes with their water bill. For more information contact Thames Water on 0800 009 3652 or visit their Thames Water financial support page.

Reducing food costs

You may be able to reduce the costs of your food shops. Here are some things you can try:

making meal plans using up ingredients you already have, then making a shopping list of any missing items
shopping weekly – going shopping daily will make you spend more
don’t shop when hungry – this makes you likely to spend more, especially on less healthy foods, such as high-fat and sugary snacks
be strict about buying only what you’ll actually eat – the average family will throw away almost £60 of good food every month
try cheaper brands, you could save money by buying cheaper brands than you usually do as well as cutting back on luxuries
use supermarket loyalty cards
look up budget-friendly recipes – there are plenty of websites that publish recipes for cheap tasty meals including using leftover ingredients
making packed lunches for work/school rather than buying food when you are out
contact your child’s school to check whether you are eligible for free school meals

You could also consider online shopping as it will cut down on your travel costs. It will also mean you are made aware of special offers that may be relevant to you. For more information, visit our struggling with food costs page.

Reducing health-related costs

If you pay for your prescriptions, you may save money by buying an NHS Prescription Prepayment Certificate (PPC). It costs £32.05 for three months or £114.50 for 12 months no matter how many prescriptions you need.

NHS Prescription Prepayment Certificate information

You may be able to get help with your health-related costs if you are on a low income and claim some income-based benefits or tax credits. Visit the NHS help with health costs web page for more information.

If you have a low income and have capital of under £16,000, you may be able to get help with NHS costs through the NHS Low Income Scheme (LIS).

You should qualify for help with your health costs if you:

receive Universal Credit and earn less than £435 per month as a single person, or
receive Universal Credit with either a child element of the Limited Capability for Work elements and earn less than £935 per month

Reducing school costs

You may be able to get help with your child’s school related costs for uniforms, equipment, and trips through the Pupil Premium scheme. You should contact your child’s school to ask if you can receive any financial assistance with these costs.

Reducing public transport costs

If you travel on Reading Buses regularly, you may be able to reduce your public transport costs. For example, buying advance fares that include weekly, monthly or saver 10s bus tickets. You can find out more about this on the Reading Buses website.

You may also be able to receive help with transport costs if you:

have a disability
have reached state pension age
are a young person in education
are on a low income

Concessionary bus passes for older and disabled people

GOV.UK advice for reducing transport costs

Reducing or stopping smoking

Reducing or stopping smoking will help to reduce your outgoings. Visit the Smoke Free Life Berkshire website for support and advice, call them on 0800 622 6360 or text QUIT to 66777.

Other services that can help you stop smoking

Reducing or stopping drinking alcohol

Reducing or stopping drinking alcohol will help to reduce your outgoings. Visit the Drink Aware website for support and advice.

You can get advice from your doctor on reducing or stopping drinking alcohol. If you think you have a drinking problem or are experiencing any of the related symptoms of alcohol dependence, please contact your doctor or call NHS 111 as soon as you can.

Dealing with priority debts

Some debts are more important than others because of what can happen if you don’t pay them. These are called priority debts. You must deal with priority debts first to avoid serious penalties. Be sure to list all your debts on your budget plan and include the balance owed.

If you have letters or contracts, get all your paperwork together. Some people find opening letters from creditors frightening, but it is important that you do keep and read your letters. If you are struggling, ask someone you trust to open your letters with you or contact an advice organisation.

Priority debts and penalties

Below are some examples of common priority debts. Please note this is not a complete list and if you are not sure, get advice from an advice organisation.

Debt	Penalties
Rent and/or service charge	Eviction
Mortgage repayments / loans secured on your home	Repossession
Council Tax	A liability court order that allows the council to send enforcement agents (bailiffs), take money from wages, take money from benefits, and could result in bankruptcy or imprisonment
Gas or electric	Disconnection, money taken from benefits
Unpaid magistrates court fines	A visit from enforcement agents (bailiffs), money taken from wages, money taken from benefits, imprisonment
Child maintenance	A visit from enforcement agents (bailiffs), money taken from wages, money taken from benefits, imprisonment
Income Tax arrears	Imprisonment
TV licence	A fine, imprisonment
Tax, VAT or National Insurance	A visit from enforcement agents (bailiffs), money taken from wages, bankruptcy, county court judgement (CCJ)
Hire purchase or logbook loan	Repossession, county court judgment (CCJ)

Decide which priority debts to address first

If you have rent or mortgage arrears, you should always deal with this debt first to avoid losing your home.

If you are struggling to pay your rent or mortgage, go to our Money Matters page for advice and support.

After this you must decide what order to deal with any other priority debts based on how you think the consequences of not paying will affect you and your family. If you are not sure, get advice from an advice organisation.

Make repayment plans with creditors

Creditors are the individuals or businesses that your debts are owed to. You can contact your priority creditors to:

explain your financial difficulties
tell them you are preparing a financial statement
suggest an amount to pay them each month – for example, your regular weekly/monthly payment plus a contribution towards your arrears

If your creditor refuses, increase your offer and try again. Once your first priority creditor has agreed a repayment plan, you will need to:

start paying the agreed monthly amount straight away
update your financial statement and recalculate your disposable income to take account of this payment
repeat these steps for each priority creditor until all your priority creditors have been dealt with

If your creditors won’t agree a repayment plan with you, or you don’t have enough disposable income to deal with all your priority debts, get advice from an advice organisation.

Receiving a County Court Judgement (CCJ)

A County Court Judgement (CCJ) is a court order a creditor can apply for. It orders you to repay the debt that is owed to them. Having a CCJ is not a criminal offence, and you cannot be sent to prison. Before they can apply for a CCJ, the creditor must have sent you a ‘default notice’ and ‘letter of claim’. If you agree a repayment plan with the creditor, you can avoid court action.

If you do not understand the letters from the court, get help straight away from one of the organisations that offer free advice.

A CCJ will be recorded on your credit file for up to six years, unless it is paid in full within the first month of being issued. Having a CCJ can lower your credit score making it more difficult to get credit.

There are two types of order that the County Court can make:

Instalment Order, where you repay the debt over time as stated in the court order

Forthwith Order, where you are ordered to pay the debt in full straight away

If you’ve admitted the claim previously and made an offer of payment, it’s likely that you will receive an Instalment Order. The amount you repay each month should be set using information you will have given about your income when you completed your admission form. If the court does not know your income or financial situation, you will probably receive a Forthwith Order to pay in full straight away.

If you cannot afford to pay the full debt or the instalments, you can ask for the decision to be looked at again. This is called a redetermination. Get help to do this from one of the advice organisations.

If you receive a CCJ and do not pay as ordered, the creditor can ask the court to enforce the court order by:

Appointing enforcement agents (bailiffs) giving them a ‘Warrant of Execution’ to visit your home to try to seize goods to sell to pay off the money you owe.

Issuing an Attachment of Earnings Order (AOE) which requires your employer to deduct a percentage of your earnings depending on what you earn. Your employer can charge an administration fee of £1 per deduction.

If you own a property, instructing that a Charging Order to be secured against your home meaning you could lose your home if you do not pay back the debt.

Issuing a Third Party Money Order that freezes money in your bank account.

If you already have a CCJ, include this debt with other non-priority debts on your financial statement and work out the offer of repayment in the same way for each. More information on debt options.

If you need to change the amount you are paying to a CCJ, try negotiating directly with your creditor. If they agree you do not need to go back to court. If this doesn’t work you will need to apply to the court for a redetermination by completing court form N245 to try and change the court order.

Dealing with non-priority debts

Non-priority debts do not have the power to take more serious action against you, like evicting you from your home or sending you to prison.

You might feel that a non-priority debt is more urgent to you, but it is important you deal with higher priority debts first.

Non-priority debts

Below are some examples of common non-priority debts. Please note this is not a complete list and if you are not sure, get advice from an advice organisation.

credit cards
personal loans with finance companies (if not secured on property)
bank/building society loans and overdrafts
buy now pay later
catalogues/mail order
personal debts to friends and family
doorstep and payday loans

Let your creditors know you are having difficulties paying. You can ask for a temporary hold on payments and interest being charged while you make a repayment plan.

How to contact your creditors

If you haven’t made a debt payment for several years, it may be ‘statute barred’. This means it is no longer legally enforceable, meaning you might not have to pay it. In this case, seek advice before contacting the creditor.

Debt options

You may have multiple options for handling non-priority debts. For example, you could choose a short-term informal solution while preparing for a longer-term formal one.

Whether or not you have disposable income after settling priority debts, there are options to manage your debts within a reasonable time.

Below is a summary of available options, with links for more details. If unsure, contact a debt advice organisation for help.

Informal debt options

These are options that do not involve any court action.

Extended holds	A hold of usually six months can be requested if you are not able to repay your debts for a period of time. This is not a long term solution.
Token payments	Usually an arrangement of £1 per month. They show you want to repay the debt. This is not a long term solution.
Pro-Rata Arrangements or Debt Management Plans	Shares your available income equally to each of your creditors based on the amount you owe them. You pay the arrangements yourself, or can set up a Debt Management Plan where you make a single payment that is then passed on to your creditors. Make sure you use a charity like StepChange or PayPlan free of charge.
Full and Final Settlement	If you have a sum of money available you can consider offering full and final settlements to your creditors. This is when a lump sum of less than the total debt is accepted to settle the debt.
Write Off/Partial Write Off	You can try this before formal debt option if you have no available income or capital (savings or investments), and your situation it’s unlikely to improve (or may get worse) in the foreseeable future.

Formal debt options

Formal debt options will usually involve some kind of court order. Speak to a debt advice organisation if you are considering one of the below options.

Individual Voluntary Arrangement (IVA)	An IVA is a formal arrangement made through the County Court where you pay an agreed amount off your debts over a fixed period (e.g. five years) – the rest of your debts are then written off after your final payment on the Individual Voluntary Arrangement is made.
Bankruptcy	Bankruptcy is a way of recognising that you are unable to pay your debts in a reasonable amount of time. It can be seen as last resort but can be a good option particularly if your rent you home and have no assets. Your unsecured debts are normally written off.
Debt Relief Order (DRO)	A Debt Relief Order (DRO) is way to deal with your debts if you don’t own your home, have assets under £2,000, a vehicle (if you have one) worth less than £4,000 (unless adapted for disability), under £75 per month disposable income and less than £50,000 of qualifying debts. Your unsecured debts are normally written off.
Administration Order	An Administration Order is an alternative to bankruptcy and Debt Relief Orders if you have at least two debts totalling £5,000 or less, or, a County or High Court Judgment (CCJ) against you.

Extended Holds

This is where a six month hold is requested as you are not able to repay your debts for a period of time. This will not resolve your debt problems, so it’s important to work towards a long term solution.

You should send a copy of your financial statement with a holding letter to ask your creditor to suspend interest and other charges so your debt does not continue to grow (they can refuse, but keep asking).

Advantages

allows you to focus on making payments to your priority debts, and helps maintain goods and services
provides you with some time to look at long term solutions without constant contact from creditors
your creditors will understand your situation, and can make informed decisions about collection of the debt

Disadvantages

creditors do not have to hold recovery, they can refuse your request and continue interest and charges
this may affect your credit rating
it does not repay your debts

Back to debt options

Token Payments

Token payments are a low arrangement offered to a creditor. They can be anything from £1 per month and shows that you want to repay the debt. Token payments will not resolve your debt problems, so it’s important to work towards a long term solution.

You should send a copy of your financial statement with a sample token payment letter to ask your creditor to suspend interest and other charges so your debt does not continue to grow (they can refuse).

Advantages

sometimes token payments are the only way for a creditor to agree to hold interest and charges, and prevent recovery action
you are paying something towards the debt whilst you look into long term solutions
the creditor may agree to take no further action whilst token payments are being made

Disadvantages

token payments use money you might struggle to find
there may be costs involved in making payments, consider using standing orders or direct debits
this may affect your credit rating
it does not repay your debts

Back to debt options

Pro-Rata Arrangements

If you have some available income to pay towards your non-priority debts, you can offer a fair (pro-rata) share of your available income to each creditor based on the amount you owe them.

Advantages

this is a fair and transparent method of distributing payments
it is recognised by courts and widely accepted by creditors
you can increase payments when circumstances improve
you can reduce offers if your circumstances get worse

Disadvantages

creditors may refuse your offers*
creditors may refuse to freeze interest and your debts may grow*
creditors may only consider offers made through an advice agency – in this case you can complain to the Financial Conduct Authority (FCA)
creditors may still take court action against you
this may affect your credit rating
you must make the payments yourself
many creditors only accept reduced offers for a limited time and may ask for regular reviews

*it is always worth asking your creditors to reconsider

How to work out pro-rata arrangements

Use your completed financial statement to see how much disposable income you have after you have paid household bills and priority debts, but without paying anything to your non-priority debts.
Add up the total amount you owe to your non-priority debts (Part E of the financial statement).
Take one non-priority creditor at a time and divide their debt by the total debt and multiply the result by the amount of the disposable income, the sum looks like this:
Write the pro-rata offer on the financial statement against the creditor, and reduce your available income before you work out the next offer. You should not have any disposable income after you work out your last repayment offer.

You will need to contact your creditors to offer your arrangements, remember to ask them to freeze interest and charges. If a creditor doesn’t agree to your offer don’t give up. Write to them again and tell them if other creditors have agreed to your offers.

You can use the sample letter to write to your creditors with a copy of your financial statement to ask them to suspend interest and other charges so your debt does not continue to grow (they can refuse).

If you need help completing your financial statement, or calculating pro-rata arrangements contact the Reading Borough Council Money Advice Team or an advice organisation.

Back to debt options

Debt Management Plans

If you can afford to make smaller regular payments towards your debts and want an easy way of paying, you could consider a Debt Management Plan (DMP).

A Debt Management Charity/Company will go through your financial statement. If you have a disposable income, and are able to get out of debt in a realistic time, they will calculate pro-rata arrangements for you.

You then pay the total amount of your pro-rata arrangements to the Debt Management Charity/Company, and they will send on each payment to your creditors.

Warning – Some debt management companies charge a fee to arrange a DMP plus an additional monthly management fee for as long as the DMP lasts, this will take you longer to repay your debts.

Reading Borough Councils Money Advice Team can give you information/make a referral to a debt management charity who will not charge you to have DMP.

Advantages

this is fair and transparent method of distributing payments
the debt management company will negotiate with creditors on your behalf – their offers are more likely to be accepted and interest/charges may be frozen
the debt management company involved would be responsible for administering all payments to your creditors – you just make one monthly payment to the debt management company
you can increase your payments if your circumstances improve

Disadvantages

you may not be able to make reduced offers if your circumstances get worse and you cannot afford to maintain higher repayments
a DMP will not work as well if creditors won’t accept offers or freeze interest
this may affect your credit rating

Back to debt options

Full and Final Settlement

If you have some money either from savings or family/friends, you can consider offering full and final settlement offers to your creditors. This is when a lump sum of less than the total debt is accepted to repay the debt because the creditor agrees to write off the rest of the debt.

Seek advice from a debt advice organisation before offering full and final settlements to your creditors, so you can be supported to work out what to offer and have the confidence to make the offers to your creditors. You can also be supported to ask again if your offers accepted the first time.

Advantages

you repay less overall to clear the debt
it is easier than having to maintain an arrangement over a longer period
if only some of your creditors accept the offers, it would reduce your total debt, and may open up alternative options to deal with your debts

Disadvantages

creditors may report a full and final settlement to credit reference agencies as a partial settlement, making it difficult to get credit in the future
if a creditor becomes aware of the total sum of money you are planning to use to repay your debts, they may attempt court action to try and get more money for themselves

Back to debt options

Write Off/Partial Write Off

This can be a good option to try before formal debt options if you have no available income or capital (savings or investments), and your situation is unlikely to improve (or may get worse) in the foreseeable future.

You can ask for all or part of the non-priority debt to be written off. If the creditor agrees, it means they will not collect any further payments and removes the debt from their records.
Whilst most creditors accept the need to write some debts off, they don’t always agree when first asked.

Advantages

if the creditor agrees it will reduce pressure, and the total amount of debt
It will be accepted that further recover action is not appropriate

Disadvantages

the creditor may not easily accept to write off debt
this may affect your credit rating

Back to debt options

Individual Voluntary Arrangement (IVA)

An Individual Voluntary Arrangement (IVA) is a formal arrangement made through the County Court where you pay an agreed amount off your debts over a fixed period (normally five years) – the rest of your debts are then written off after your final payment on the Individual Voluntary Arrangement is made.

If you receive a sum of money that could pay most of your debts (though redundancy, retirement, insurance pay out etc.), you could consider a full and final IVA. This is where a one off payment of less than the balance you owe is made to settle your debts with any remaining debt written off.

Why apply for an IVA?

there is more flexibility than with Debt Relief Orders or Bankruptcies
they can be a faster solution than Debt Management Plans
you are protected against further action from your creditors

Who can have an IVA?

You need to have a disposable income without paying any of your non-priority debts, typically of at least £80 per month for a low contribution IVA, or typically at least £200 for a standard IVA.

How an IVA works

you need to make an application for an IVA through an Insolvency Practitioner (IP). Reading Borough Councils Money Advice Team can give you details of who you can contact
if your IP agrees that an IVA is the best option they will help you complete a financial statement and prepare proposals for your creditors
the arrangement has to be agreed by the majority of your creditors (by value)
you make the agreed payments in accordance with the Court’s terms

There is a cost to administer an IVA – this comes out of your regular payments. Some IPs charge an additional up-front set up cost to fully assess you for an IVA and take you through the whole process.

Always ask about any charges before starting the process – you could make your situation worse if you have to pay fees you haven’t planned for. Ask the Debt Advice Team or a qualified advice agency for information about IP’s who do not charge up-front costs.

Advantages

alternative to bankruptcy
not publicised
you aren’t bound by bankruptcy restrictions
you can continue to run a business
assets like your home can be excluded if creditors agree
creditors are bound by the IVA even if they voted against it
usually lasts a maximum of five years
most insolvency practitioners allow fees to be paid on a monthly basis as part of the IVA

Disadvantages

an IVA will affect your credit rating
you must have high available income, lump sum or asset
costs are high and the insolvency practitioner may want payment up front
you may still be made bankrupt if the IVA fails because your payments are set too high
your IVA’s may end if your circumstances change and your insolvency practitioner can’t get creditors to accept new terms
many IVAs have a built in requirement to revalue your home and release any equity to pay your creditors – usually after 5 years of payments – this only applies if you are a home owner
some companies will agree to set up an IVA even if it isn’t suitable for you – and they charge high fees
bankruptcy

For more information on IVAs, visit the National Debtline website.

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Bankruptcy

Bankruptcy is a way of recognising that you are unable to pay your debts in a reasonable amount of time, and do not meet the criteria of another insolvency option (Debt Relief Order or Individual Voluntary Arrangement) – it can be seen as last resort, but can be a good option particularly if your rent you home and have no assets.

You can petition for Bankruptcy yourself or a creditor can make you bankrupt. Your financial affairs will be dealt with by the Official Receiver. Once you are declared bankrupt your unsecured debts are normally written off, and you will have financial restrictions placed on you for the duration of the Bankruptcy (which is normally 12 months).

Advantages

it can help relieve stress and anxiety
you can make a fresh start after a year
your debts will be written off if you have no assets
your creditors can’t take further action against you – except for debts secured against your home
you pay regular monthly payments for a maximum of three years

Disadvantages

it will affect your credit rating
if you own your home and have equity, you may lose your home
creditors can take action to recover debts secured against your home
there is a Bankruptcy Fee £680
your assets may be sold by the Official Receiver
some debts (like student loans, court fines, penalties for fraud, maintenance and child support) are not included and won’t be written off
your employment may be affected
your business may be closed down
you may have a ‘bankruptcy restriction order’ made against you for dishonesty or ‘unfit conduct’
the Official Receiver can take criminal action against you if you have committed fraud
your bankruptcy will be published in the London Gazette and a local paper

How it works

You can apply for bankruptcy online on the government’s website. It costs £680, which can be paid in instalments before submission, or in full at any Royal Bank of Scotland branch. An adjudicator from the Insolvency Service will review your application and decide if you should be made bankrupt.

If a Bankruptcy Order is issued, your finances are handled by the Official Receiver. You might need to attend an interview or appointment. During bankruptcy, you:

must give the Official Receiver any account records if you’re self-employed
must hand over your assets – your assets could be sold and used to pay off some debts
must stop using bank accounts until you’ve disclosed everything – you can keep one account for income
must not apply for credit of £500 or more without telling your creditors that you are bankrupt

Once the order is in place, creditors chasing debts included in your bankruptcy can’t pursue you, though they may still contact you.

You’ll be released from bankruptcy after 12 months, and most debts will be written off, but payments may continue for up to three years. Your bankruptcy will remain on your credit file for six years, making it harder to get credit.

For more information visit the National Debtline website.

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Debt Relief Order (DRO)

A Debt Relief Order (DRO) is way to deal with your debts if you rent your home, have few assets and little disposable income, they are granted by the Official Receiver.

If you have rent arrears, get specialist advice before applying for a Debt Relief Order as there may be a risk to your tenancy.

If you have a DRO

your creditors can’t recover their money from you without the Court’s permission
you will usually be free from your debts after 12 months

Who can have a DRO?

You can apply for a DRO if you can’t pay your debts and you meet all of the following criteria:

you have qualifying debts of £50,000 or less
you have less than £75 a month left from your income after you have paid your household bills
the things you own (your assets) and any savings are worth £2,000 or less
your motor vehicle (if you have one) must be worth less than £4,000 – unless it has been specially adapted because you have a physical disability
you have lived or worked in England and Wales within the last three years
you haven’t applied for a DRO within the last six years

Advantages

it helps relieve stress and anxiety
there is no court hearing
you can make a fresh start after a year
your debts are written off if they were included in the DRO
most debts can be included in the DRO, including priority debts such as rent arrears, fuel debt and Council Tax
once you have a DRO your creditors cannot take further action
you have to find a fee of £90 but you can pay this in instalments – much cheaper than bankruptcy
you won’t make monthly payments on your debts included in the DRO

Disadvantages

you can’t apply if you own your home as this is counted as an asset
secured creditors can still take action against you
not all debts are written off, for example, you cannot include Court fines, student loans, penalties for fraud, maintenance and child support payments
if you forget about a debt, you cannot add it in later
details of your DRO will be in the Individual Insolvency Register
this will affect your credit rating
you may have a ‘debt relief restriction order’ made against you for dishonesty or ‘unfit conduct’
there are some powers for the Official Receiver to take criminal action against you e.g. if you have committed fraud

How DROs work

Debt Relief Orders (DROs) are issued by the Official Receiver, but you need to apply through an Approved Intermediary, such as the Money Advice Team. There is a £90 fee, which must be paid in full before your application is considered.

DROs last for 12 months, during which you won’t need to make payments on the debts listed. At the end of this period, those debts will be automatically written off. Any debts not included in the DRO must still be paid. The DRO will stay on your credit record for six years, which may make it harder to get credit.

Once a DRO is granted, you must inform lenders if you apply for credit over £500. If you start or run a business under a different name, you must tell everyone you work with the name you used for the DRO. You also need court permission to promote, manage, or set up a limited company, and you cannot act as a company director without approval.

For more information visit the National Debtline website.

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Administration Order

An Administration Order (AO) is an alternative to bankruptcy and Debt Relief Orders if you have:

at least two debts totalling £5,000 or less
a County or High Court Judgment (CCJ) against you

How it works
You apply to the County Court using Form N92 – there is no application fee.

Once the Administration Order is made:

you make a single monthly payment to the Court – usually for three years
the Court will divide this payment fairly amongst your creditors – less 10% administration fee to cover their costs
your creditors cannot take any further recovery action against you
at the end of the payment period you apply to the Court for a Certificate of Satisfaction (this costs £10) as proof you have settled your debts
you must tell the court immediately if your circumstances change and you can’t make your monthly payments – if you don’t your AO could be revoked or suspended
an Administration Order is a public record and will stay on your credit file for six years

For more information visit the National Debtline website.

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Contacting your creditors

Below are some template letters you can use to write to or email your creditors.

Sample six month holding letter
Sample write off letter
Sample pro-rata arrangement letter
Sample token payment letter
Sample statute barred letter

Last updated on 18/11/2024

Money advice handbook