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.
We have worked really hard to pay off all of our debts. It was a huge sigh of relief when we finally paid off all of our student loans!
It is amazing isn’t it to know you don’t have it hanging over you.
It’s not much better here in the US! I agree that taking small steps first is the best way to start chipping away and not overwhelming yourself.
Definitely sometimes its best to work on one as well then you can really see a difference happening.
this is a very informative post that I’m sure will help many people with financial problems… it can be very stressful and build anxiety, I know! I had a huge health scare 5 years ago and the health bill was ginormous, which caused me to feel stressed and horrible to put my family in financial ruins. But I paid it all off over the past few years. Money comes and goes so it’s best to know how to handle it ; )
This really should be shared with everyone. So many people feel like they have no options when they come into debt and instead hide it and let it eat away at them. Thank-you for bringing light to an important topic
It can feel very lonely I think and people think they can’t talk about it because of the stigma which is a shame.
Most of our current debt is medical bills. Thankfully there’s no interest on that and I refuse to put that on a credit card. I’d rather make a monthly payment to the hospital than put it all on a card then pay interest on top of that. Anyway, I do believe that debt can be worse for people who have a mental disorder. You often help yourself to feel better by buying something. It’s short lived and then you repeat the process putting you even farther into debt.
It amazes me how much medical care can cost, we are most definitely so lucky to have the NHS over here and as some who have mental health problems and long term issues, I hope we do manage to keep it.
Yes change your life style for a while !! for a future stress free life very important though you have share !! Must needed
IVA can really be a good way to lighten your debt burden with a better payment term designed for your inflows. Cost-cutting measures can also help you free up more cash for repayment.
It is good to know that things can be set up for your situation and be able to make sure you can afford the repayments.
Very informative. I had credit cards and paid them off through a loan which I then paid off, there are options out there, people just need to find the right one for them.
Debt can definitely play a big role in your physical and mental well-being. It is important to know you have options.
It really can it is such a horrid situation to be part of.
I made my budget mistakes young, as a single mom I had to charge a lot of of gas and groceries. It took me years to pay it off, but I did. I worked two jobs, and focused mainly on one debt at a time.
I do think it should be taught in school so people have a basic understanding of budgeting and don’t just head off into the known.
This is a serious topic and so glad you are bringing awareness too it. Too many people have no idea how to manage their debt.
It can be so easy to just let it overwhelm you or just hide from it.
I’m LUCKY I was taught the value of money from a very early age
Basically being savvy not a skint glint has worked for me
Sadly it’s I want mow and ignpte the consequences for most people
Thankfully I was as well, I have been debt, once as someone stole my ID so I had to deal with proving that it wasn’t me which was horrid, I did end up paying some off in the end as I lost the will to fight, and we did have a slightly larger credit card bill for a while when Ash’s health went down hill.
I know from experience that debt and financial issues can definitely be stressful. Thankfully, we were able to make some changes and become debt free (aside from our mortgage) a few years ago. I can not express how good it feels!
Yay that is awesome, it really does feel amazing not to have it hanging over you.
That’s for the options paying of debt feels so good and a great accomplishment.
Really helpful post! It’s important that people know their options when they get into a bit of bother.
Thankfully we don’t carry too much debt other than mortgage etc. Never maintain a balance on credit cards.
I always try and pay off my credit card in full every month. Use it as a tool to build my credit rating rather than to just buy what I want.
*Sigh* It’s so crazy how much inflation and cost of living have gone up in just over a decade. Factoring in school loans and then other types of debt it can be overwhelming, but I think getting ahead of things before they get out of control is probably the most ideal approach. Good tips!
It is nuts isn’t it and I don’t think wages have gone up in line with at all, at least not for the lowest paid.
Been there, done that. The IVA was probably the best thing to happen to me. Took a long time to get sorted, but got it all cleared and life goes on. In a better situation now 🙂
So pleased it helped you and your in a much better situation now.
I’m a big fan of the small change making a huge difference – especially when it comes to debt. Great tips and information!
It really can, of course you can’t pay it all off but confronting it and doing what you can can make a big difference in the end.
This is such a useful post, when I had money problems it really affected my mental health x
It is one of those things that can affect everything I think 🙁
Going to share this with a few friends of mine who keep overspending and getting into insane debts. I keep telling them it has a huge impact on their stress levels and health but all I hear is “I will pay it back/it’s just bought on credit.” I don’t think people take money seriously anymore because credit-cards are so easily available. Might be old fashioned of me but I tend to pay everything with cash, it forces you to actually see the money you spend and think twice.
Oh gosh not good 🙁 I really hope it helps them, I think sometimes people carry on as a way to almost hide from the reality.
Those are staggering statistics! I don’t think that the IVA is an option in the US. I am a huge fan of paying what you owe though. It takes a strict budget and time, but being debt free is amazing!
It is crazy isn’t it – budgeting is something I think should be taught in schools so people have an idea from the offset on how to do it.
This is very interesting. I suffered from both physical and mental health issues after reduced income. I’ll have to study it. Thanks for sharing Sarah.
it took me 11 years! But I did it, I started off by speaking up. making sure I communicated well with all parties concerned, then I worked out honestly what I owed, and what I made, and what I could realistically live off, then agreed a payment plan. I paid the higher interest rates off first, then as soon as something was paid off, I would use that money to pay another debt x
Speaking up about it really is the most important first step, getting it off your chest makes all the difference.
This is an important subject and I am sure this post will be very helpful for a lot of people.