Our new blog series, ‘What is...', will be taking a look at some of the most pondered questions surrounding all things personal finance, debt, banking and living your best financial life.
First up, we’re answering the question: What is a debt solution?
In simple terms, a debt solution is exactly what it says on the tin – a solution to debt.
However, there’s much more to it than that. Debt solutions are all dependent on individual circumstances and the financial situation of those seeking one.
Let’s break it down.
Who qualifies for a debt solution?
There are a number of factors that come into play when it comes to finding the right debt solution, which include monthly income and expenditure, any assets owned by the debtor, and of course, the debt amount and type.
For some, a debt solution might not be the answer and some assistance with money management and budgeting might be more suited to their situation. No matter the situation, there are a multitude of businesses, charities and resources that can help debtors to strive towards a debt-free future and healthy relationship with their finances.
Of course, qualification can also depend on the debt solution itself, as the most common solutions have their own criteria that need to be met, which we’ll discuss further below.
What is the best debt solution?
First of all, let’s take a look at the debt solutions that are generally available and most common across debt management companies in the UK. These are:
Debt Management Plan (or Debt Arrangement Scheme in Scotland)
Individual Voluntary Arrangement (or Trust Deed in Scotland)
Bankruptcy (or Sequestration in Scotland)
Debt Relief Order (or Minimal Asset Process in Scotland)
Each of these solutions have their own set of criteria that is required for the debtor to meet in order to qualify for them, meaning there’s no ‘best’ debt solution and it's totally dependent on the personal circumstances of the individual.
For example, in order to qualify for Bankruptcy, a person’s unsecured debts (credit cards, personal loans, store cards) must total more than the value of their belongings or assets.
To find out more about individual debt solutions and their criteria, visit our dedicated information pages here.
It’s important to us that we highlight the existing stigma around some debt solutions, many of which surround their cost to the debtor, which we’ll investigate further below.
Does a debt solution cost money?
As confusing at it is, most debt solutions do incur a cost to the debtor.
IVAs seem to be the most controversial debt solution, as a large focus has historically been placed onto the cost of the debt solution, rather than what it can offer.
Let’s break down the costs associated with an IVA and how that looks for the debtor:
So, let’s say that the debtor has £30,000 of debt, and can only afford a debt payment of £100 per month.
Due to rules surrounding IVAs that mean they only ever last for five years (or until debt is paid off if it would be less than five years), debtors often end up writing off at least some of their debt. Different providers charge different fees but we’re going to use £3,500 for the purpose of this calculation and example.
Overall, these payments, with fees included, mean that over five years, the debtor will write off £27,500 of debt and the fee incurs no extra cost to the debtor.
This, of course, is only one example, and other debt solutions have different costs associated.
How do I go about finding a debt solution?
There are plenty of debt advice companies that can help you to find information around the right debt solution for you based on your personal circumstances. These include:
Citizens Advice Bureau
Christians Against Poverty
Money Advice Service
Money Saving Expert
All of these companies are experienced in dealing with a wide range of complex cases, and can provide expert advice on the debt solutions suitable for cases on an individual basis.
Our app is completely free to download, as well as the use of our service, and chatting to one of our debt advisors through our in-app messaging feature (rather than speaking on the phone) is step one towards a debt-free future.
If you are in need of a debt solution, please don't hesitate to contact us - we're here to help!
About Freeze Debt
Freeze Debt is the first debt advice and solutions app helping UK users to take their first steps towards a debt-free future. Our free service provides those struggling with unmanageable debt a confidential space to speak openly about their debt and financial worries and find a suitable solution based on their personal circumstances.
Freeze Debt's in-app messaging service is a revolutionary and modern way for users to address their debts and find solutions in less than 5 minutes, compared to the traditional and uncomfortable ‘call-centre-model’ that can take an average of 45 minutes.
So far, we’ve helped clear over £30m of debt and helped many people begin their journey to a debt-free future.
For more information on individual debt solutions, visit our dedicated information pages here:
Solutions in England, Wales and Northern Ireland:
Solutions in Scotland: