Paying Off Debt: What are your Options?

If you’ve found yourself struggling with debt recently, you are definitely not alone. Average household debt in the UK has been on the rise for years, standing at £13,200 in 2016, the highest it’s been since before the 2008 financial crisis.

Worryingly, debt is sometimes being taken on just to make ends meet- a study by YouGov and Shelter found that one-third of low-income families are using credit cards, Payday loans, and money borrowed from friends and family just to keep up with rent payments.

With inflation sitting at 2.7%, and wage rises falling behind (only 2%), more and more of us are struggling. This means that, on average, our wages are worth about £20 a week less than they were in 2006. The gap between earnings and living costs is being plugged with borrowing by many, especially when unexpected expenses crop up.

Debt and Health

Debt can have a surprising bearing on both your physical and mental well-being. A Creditfix survey carried out this January found that 86% of people seeking debt help found that their debts had an impact on their mental health. Some people go the route of choosing to refinance high-interest debt with your home as collateral in Norway – if that’s where you live! Wherever you are, refinancing high interest debt is always a smart idea if you’ve spoken to a financial advisor first, as this will help you to feel more in control of your debts. 

30% of respondents reported suffering from depression and anxiety as a result of their debts, whilst a small number mentioned insomnia, and even suicidal thoughts. The biggest culprits for these symptoms seemed to be hassling phone calls and letters from creditors.

Because of the stigma which continues to surround mental health issues, many people avoid making their creditors aware of them. Less than one in three people in debt who have a mental health problem report these to their creditors, despite the fact that mental health can often impact a person’s ability to pay back their debt.

The Royal College of Psychiatrists found the main reason for this was an embarrassment – respondents reported fear that the information would somehow be used against them.

Even physical health is not safe from the effects of debt. A 2013 study by Northwestern University found that adults with high debts tended to have a significantly higher blood pressure than their low-debt counterparts.

This group also reported worse general health, and were more likely to suffer from insomnia and lowered immune function. Another poll by Associated Press and AOL saw people with high levels of “debt-stress” encountering ailments including ulcers, back pain, and migraines.

What Can I Do?

These findings make for scary reading, but fortunately, there are a lot of things you can do to get your debts- and your health- back in check.

IVAs

If you’re juggling multiple debts, an Individual Voluntary Arrangement (IVA) could be the right solution for you.

IVAs are legally binding agreements made between you and your creditors to pay back a fixed amount of your debts every month over a period of time- usually about five years- based on what you can afford. Most unsecured debts can be consolidated into a single IVA, including bank loans, credit card debt, and Payday loans.

There’s no minimum or maximum amount of debt required to be eligible for an IVA, but it’s usually £10,000 or more.

The best thing about IVAs from a mental health standpoint is that once you’ve entered one, creditors legally cannot contact you- no more being bombarded with letters and phone calls requesting payment.

Instead, an insolvency practitioner acts as a mediator- they’ll also arrange the agreement from start to finish, based on your personal circumstances. There are fees involved with IVAs, but these are included in your monthly payments.

IVAs usually involve creditors writing off some of your debt too, so they can still work as a low-cost way to deal with your debt. IVAs are an alternative to bankruptcy which allows you much greater control over your assets.

Debt Management Plan

These are similar to IVAs- small monthly payments are agreed between an individual and their creditors. The difference is that debt management plans are not formal and legally binding. This can be an advantage since your agreement will not affect your credit rating or appear on the Individual Insolvency Register.

On the other hand, though, without a legal arrangement in place, creditors are under no obligation to stop contacting you or asking for repayment beyond what your plan entails. You can make these arrangements yourself or use the services of an insolvency practitioner. The latter incurs a fee, as with an IVA.

Bankruptcy

If you’re unable to pay your debts and don’t have the disposable income for an IVA or debt management plan, filing for bankruptcy can release you from your debts- this is usually considered a last resort, however.

Bankruptcy is a legal procedure, so is recorded on the Individual Insolvency Register, and could result in you losing your home and other assets, as well as affecting your credit score for six years. Once the process begins, though, you are no longer obliged to communicate with your creditors, and it can offer you a fresh start.

Smaller Steps

Choosing one of these solutions, but only after reviewing pros and cons of personal loans, is a big step, and it might be worth reviewing your finances to see whether budgeting could free up some money for paying back your debts. You could also consider prepaid visa cards to help keep you on track.

Small changes could include making weekly or monthly budgets and sticking to them, paying in cash to make keeping track of spending easier, and giving yourself a financial boost by selling unwanted possessions. It can be especially helpful to find yourself a supportive friend- ideally someone in a similar financial position- to offer mutual support and share saving tips.

If your debts can’t be managed by lifestyle changes such as these, and are causing you distress, it might be time to get advice from a professional. You have plenty of options, and a licensed practitioner will be able to offer you the best solution based on your circumstances. There’s always something that can be done to help.