Debt Solutions & Options: The Complete Guide
When you are struggling with debt, the sheer number of options available can feel overwhelming. From informal arrangements like the Snowball method to formal legal insolvency like Bankruptcy, choosing the right path depends entirely on your specific financial situation.
This guide breaks down every major debt solution available in the UK. It explains how each works, who is eligible, what it costs, and how it will affect your credit score.
Crucially, this guide is designed to help you understand the difference between solutions you can manage yourself (like debt consolidation or the Avalanche method) and solutions that require professional intervention (like an IVA or a DRO).
1. The Breathing Space Scheme (Debt Respite Scheme)
Before committing to any long-term debt solution, you should know about the Breathing Space scheme. Introduced by the UK Government, this scheme gives you temporary protection from your creditors while you seek professional debt advice and make a plan [1].
How it works
If you are eligible, Breathing Space provides up to 60 days of protection. During this time, your creditors cannot take enforcement action against you, they cannot contact you about the debts included in the scheme, and they cannot add interest or charges to your balance [1].
Mental Health Crisis Breathing Space
If you are receiving mental health crisis treatment, the protection is stronger. It lasts for the entire duration of your treatment, plus an additional 30 days [1].
How to apply
You cannot apply for Breathing Space yourself. You must apply through an approved debt adviser (such as StepChange or Citizens Advice), who will submit the application on your behalf if they determine it is appropriate [1].
2. DIY Payoff Strategies (Avalanche and Snowball)
If you have enough spare income each month to cover your minimum payments and then some, you do not necessarily need a formal debt solution. You need a strategy.
The two most effective, mathematically proven strategies for clearing debt are the Avalanche method and the Snowball method. Both require you to stop borrowing, list all your debts, and commit a fixed amount of money each month to repayment.
The Avalanche Method
The Avalanche method focuses on saving you the maximum amount of money. You list your debts from the highest interest rate to the lowest. You pay the minimum on everything, and put every spare penny toward the debt with the highest interest rate. Once that is cleared, you move to the next highest rate.
The Snowball Method
The Snowball method focuses on psychological momentum. You list your debts from the smallest balance to the largest, regardless of the interest rate. You pay the minimum on everything, and put every spare penny toward the smallest balance. Once that is cleared, you roll that payment into the next smallest balance.
Which should you choose?
Use the PlanMyDebt Calculator to enter your balances and interest rates. The calculator will show you exactly how much time and money each method will save you, allowing you to make an informed decision based on your own numbers.
Try the calculator →3. Debt Consolidation
Debt consolidation involves taking out a new form of credit to pay off multiple existing debts. The goal is to leave yourself with just one monthly payment, ideally at a lower interest rate than you were paying previously [2].
There are two main ways to consolidate debt:
0% Balance Transfer Credit Cards
If you have a good credit score, you may be approved for a 0% balance transfer credit card. You move your existing credit card debt onto the new card, and pay 0% interest for a set period (currently up to 38 months on the best UK deals) [3].
Pros: Every penny you pay goes toward clearing the principal balance, saving you a fortune in interest.
Cons: You usually pay a transfer fee (typically 1% to 3% of the balance). If you do not clear the debt before the 0% period ends, the interest rate will jump significantly.
Debt Consolidation Loans
You take out a personal unsecured loan for the total amount of your debt, use the cash to pay off your creditors, and then repay the loan over a fixed term (e.g., 3 to 5 years) [4].
Pros: You have a fixed monthly payment and a guaranteed debt-free date.
Cons: If you do not change your spending habits, you risk running up your credit cards again while still paying off the consolidation loan—doubling your debt.
⚠️ Warning on Secured Loans
You may see advertisements for consolidation loans that offer “one easy low monthly repayment.” These are often secured loans, meaning the debt is secured against your home. If you fail to keep up with repayments, the lender can repossess your house [4]. It is highly risky to convert unsecured debt (like credit cards) into secured debt.
4. Debt Management Plans (DMP)
A Debt Management Plan (DMP) is an informal agreement between you and your creditors to pay back your non-priority debts at a reduced, affordable rate [5].
How it works
You work with a DMP provider (such as StepChange). They look at your income and essential living costs, and calculate how much spare money you have left over. You make one monthly payment to the DMP provider, and they distribute it among your creditors [5].
Who it is for
A DMP is suitable if you can afford to pay something toward your debts each month, but you cannot afford the contractual minimum payments.
Pros
- You only pay what you can afford.
- Creditors will often agree to freeze interest and charges (though they are not legally required to do so).
- StepChange and other charities provide DMPs entirely for free [5].
Cons
- Because you are paying less than the minimum, it will take longer to clear your debt.
- It is an informal arrangement, so creditors can technically still take legal action against you.
- It will severely damage your credit score, as you are breaking the original credit agreements.
5. Debt Relief Orders (DRO)
A Debt Relief Order (DRO) is a formal, legal insolvency process designed for people with low income, few assets, and no realistic prospect of paying off their debts [6].
Eligibility Criteria (as of June 2024)
To qualify for a DRO in England and Wales, you must meet all of the following criteria [6]:
- You owe less than £50,000 in total.
- You have less than £75 a month in spare income after essential living costs.
- You have less than £2,000 worth of assets.
- You do not own a vehicle worth £4,000 or more.
- You do not own your home.
How it works
If approved, your debts are frozen for 12 months. You make no payments toward the debts included in the DRO, and creditors cannot take action against you. If your financial situation has not improved after 12 months, the debts are entirely written off [6].
Costs
Applying for a DRO is completely free. The previous £90 application fee was abolished in April 2024 [6].
Consequences
A DRO is a form of insolvency. It will remain on your credit file for six years, making it extremely difficult to borrow money, rent a property, or open certain bank accounts during that time [6].
6. Individual Voluntary Arrangements (IVA)
An Individual Voluntary Arrangement (IVA) is a formal, legally binding agreement between you and your creditors to pay back a portion of your debts over a set period (usually 5 or 6 years) [7].
How it works
An IVA must be set up by a qualified Insolvency Practitioner (IP). They calculate what you can afford to pay each month and propose this to your creditors. If creditors representing 75% of your debt value agree, the IVA becomes legally binding on all of them [7].
You make your agreed monthly payment for the duration of the IVA. At the end of the term, any remaining unsecured debt is legally written off.
Who it is for
An IVA is typically for people with significant debt (usually over £10,000) who have a regular income and some spare money each month, or who have assets (like a home) they want to protect from bankruptcy [7].
Costs
IVAs are not free. The Insolvency Practitioner will charge setup and ongoing management fees, which are usually deducted from your monthly payments before the money is passed to creditors [7].
Consequences
Like a DRO, an IVA is a form of insolvency. It will stay on your credit file for six years from the date it begins, severely impacting your credit score [7]. If you own a home, you will usually be required to attempt to remortgage in the final year of the IVA to release equity to pay your creditors.
7. Bankruptcy
Bankruptcy is a formal legal process for people who cannot pay their debts and have no realistic way of doing so in the future [8].
How it works
You apply for bankruptcy online. If approved, an Official Receiver is appointed to take control of your finances. They will assess your assets and income. If you have valuable assets (including your home), they may be sold to pay your creditors. If you have spare income, you may be required to make payments for up to three years [8].
Usually, after 12 months, you are “discharged” from bankruptcy, and any remaining qualifying debts are written off [8].
Costs
In England and Wales, it costs £680 to apply for bankruptcy [8].
Consequences
Bankruptcy is the most severe debt solution. It remains on your credit file for six years. It can result in the loss of your home, your business, and certain possessions. It may also affect your employment, as some professions (such as law, finance, and the police) do not allow bankrupt individuals to practice [8].
Summary Comparison of Formal Solutions
| Feature | DMP | DRO | IVA | Bankruptcy |
|---|---|---|---|---|
| Legal Status | Informal | Formal Insolvency | Formal Insolvency | Formal Insolvency |
| Debt Limit | None | Under £50,000 | None | None |
| Asset Limit | None | Under £2,000 (plus £4k car) | None | Assets may be sold |
| Homeowner? | Yes | No | Yes | Yes (but at risk) |
| Duration | Until debt is cleared | 12 months | Usually 5–6 years | Usually 12 months |
| Debt Written Off? | No | Yes (after 12 months) | Yes (at end of term) | Yes (upon discharge) |
| Credit File Impact | Defaults recorded | 6 years | 6 years | 6 years |
Where to Get Free Debt Advice
If you are considering a DMP, DRO, IVA, or Bankruptcy, you should never pay for debt advice. There are several highly respected charities in the UK that provide free, impartial, and confidential advice:
These organisations will look at your income, outgoings, and debts, and tell you exactly which solution is best for your specific circumstances.
References
- GOV.UK. (n.d.). Breathing Space (Debt Respite Scheme).
- MoneyHelper. (n.d.). Debt consolidation loans.
- MoneySavingExpert. (n.d.). Balance transfer credit cards.
- MoneySavingExpert. (n.d.). Debt consolidation loans: should you get one?
- StepChange Debt Charity. (n.d.). Debt Management Plan Advice.
- GOV.UK. (n.d.). Debt Relief Orders.
- GOV.UK. (n.d.). Individual Voluntary Arrangements.
- GOV.UK. (n.d.). Applying to become bankrupt.
Simon Bondham
Simon is the founder of PlanMyDebt. With over 40 years of experience managing budgets exceeding £700 million in both public and private sectors, he built PlanMyDebt to give ordinary people the same clarity that organisations take for granted. Read more →
Disclaimer: This guide is for informational purposes only and does not constitute financial or legal advice. If you are struggling with problem debt, please contact a free, impartial debt charity such as StepChange, Citizens Advice, or National Debtline.