The first thing to do is
1. Find out how much you owe in total.
It seems simple, but the first thing to do is work out how much
you owe. Its the easiest thing in the world to fear to open the
envelopes and sit them under the bed. In addition to this, when
debt gets harder to manage (and harder for the creditor to collect)
they will pass it on to a debt collection agency typically. This
means conceivably you could be getting chased for the same debt by
two or more different companies.
2. Work out your Income and Expenditure
The other side of the equation comes next: how much do you earn
and how much do you spend on stuff not outwith paying off the
monthly instalments of debt (but do include your mortgage or rent).
The surplus is how much you have left available for your
3. How long will it take to pay back?
Then, divide your total unsecured debt (i.e your loans and
credit cards) by this figure. This will give you the number of
months you will need to be debt free assuming that all the interest
Once you've got that then you can assess whether
1. you can pay back the debts in full (with the interest
frozen), but over a longer period of time
2) you need some form of "debt reduction" (i.e you'll only pay
back a proportion of what you can afford in full settlement of the
Every case is different, but if the time to repay in full is
upwards of 5 years it becomes more likely that option 2 becomes
Tools for Surviving Debt
OK, once you have established your position you then need to
consider what are the best tools for you. Below is a quick summary
of the tools available to get out of debt with some pros and cons
The first two involve some form of "debt forgiveness" - i.e only
a portion of the debts are paid back, the rest are written off.
Protected Trust Deeds
One of the most popular ways of getting out of debt, due to the
fact that you pay a monthly affordable contribution which, after
three years, is divided up amongst the creditors in full
and final settlement. It's still a form of insolvency, but
its less serious than full blown bankruptcy, known as sequestration
See our Trust
Deed section for more information.
Sequestration involves handing over your assets to a trustee who
manage them on your behalf. The problem is that in order to qualify
you need to be "apparently insolvent". Since April 2008 a new form
of sequestration called Low Income Low Asset or LILA Sequestration
has been introduced to try and widen the qualification to
more about sequestration here
Debt Management Plans
Debt Arrangement Schemes and Debt Management Plans, involve
repaying the full debt amount (normally with interest frozen), over
an agreed period of time.
out more about Debt Management Plans here