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Different debts need different solutions.

Firstly, different debts would have different consequences if you had problems paying them. For example, falling behind on unsecured debt repayments (such as a loan, credit card, or overdraft) may affect your credit score and/or you may get fined. Falling behind on your mortgage could lead to repossession (not at once, of course). For that reason, certain debts should be treated as a priority.

Secondly, depending on your income, debts and general financial circumstances, different debt solutions might be available to help you, such as the ones you’ll find online and in your local community. Here, we’ll look at some of the ways to deal with debt.

Using Savings To Repay Debt

The amount of interest you could earn on any savings is (generally) significantly lower than the amount of interest you would be charged on a debt of the same size. For that reason, experts often argue that it’s better to repay debt with savings – as that would save you money overall.

While it does seem logical to repay debt with any savings you may have, at the same time it can be really beneficial to have savings in case a ‘rainy day’ comes along. As long as you can afford to keep making your regular unsecured debt repayments, you may decide there’s no need to repay your debts with savings.

Using A Loan To Repay Debt

It may not sound very logical – borrowing more money to repay what you’ve borrowed already. However, a debt consolidation loan could make your finances much simpler.

There are two types of debt consolidation loan: secured and unsecured. Secured debt consolidation involves borrowing money against the equity in your home to repay any unsecured debts. A major advantage is that you could borrow the money at a lower rate of interest and spread the payments over a longer period. That could make your payments cheaper every month, but may cost more in interest overall (as you would be paying interest for longer).

However, before securing any debt against your property, consider that if you can’t make your repayments, your property could be repossessed.

An unsecured debt consolidation loan is simply a loan that is large enough to repay all your other unsecured debt (credit card, overdraft, personal loan) leaving you with one monthly payment.

You could lower your monthly payments with a debt consolidation loan, but again, spreading the payments over a longer period could cost you more in interest overall.

Anyone who applies for a loan will be credit-checked. Bear in mind that if you have had problems paying bills or repaying debt in the last six years, you may be turned down for a debt consolidation loan.

It’s also vital to consider whether you will be able to keep up with the repayments. If your income changes month to month or you’re already struggling to pay for everything you need, a debt consolidation loan may well not be right for you.

If you are having real problems with debt, it may be time to look at some of the other debt solutions that are available.

What Is A Debt Management Plan?

Debt management plans (often referred to as DMPs) are designed to help those with a high level of debt owed to multiple creditors get their financial affairs in order. Acting on the behalf of the debtor, a debt management company can act as a mediator, negotiating an affordable plan and attempting, if possible, to freeze interest on outstanding sums.

By dealing with creditors for you and consolidating what you owe into one payment a DMP can help you to focus on meeting your repayments, rather than the many other stresses and distractions that can accompany financial difficulties.

Bear in mind that debt management plans are available as a solution to problems with unsecured debts. If your debt is secured against your home, in the form of a mortgage, for example, a DMP would not be applicable.

How Do They Work

The company providing your DMP will work with you to try and establish what you’re able to afford in monthly repayments by assessing your current financial commitments and the assets available to you. Usually, in order for a plan to be viable, you’ll need to be able to afford at least £100 per a month.

This sum is paid directly and in whole to the debt management company who, having taken a percentage as payment for their services, will then distribute it amongst your creditors. Some companies will also charge a start up fee towards the beginning of the process.

The programme can be cancelled if you do not keep up with your repayments. If this happens then you will once again be left to handle your own affairs.

Who Will A DMP Work For?

For a debt management plan to be an effective way of getting yourself out of debt you’ll need to be absolutely sure that you can afford the repayments. If you have no money left after meeting your essential living requirements then you may have to look at the possibility that you won’t be able to pay back the money you owe in its entirety. In this case you may be better at looking at ways of becoming insolvent such as an IVA or bankruptcy. Though it can seem daunting to take on the financial restrictions this entails, it can at least help you to get the majority of your debts written off.

You need to remember that with a debt management plan, though you will be able to reduce the level of your repayments, the plan itself won’t brining down the level of your debt, it will only help you to repay the existing total. Indeed, given that you may be paying fees of around 15%, by the time you’ve finished you’ll have paid more than you owed on setting it up.


As well as commercial debt management firms, there are also various charitable organisations that carry out the same work without charging any fees. This can help you to repay what you owe in less time as everything you have to spare will be going towards reducing your debt. Contacting the Citizen’s Advice Bureau or the National Debtline is a great way to learn more about these options.

How To Avoid Falling Into Further Debt

For those looking for ways to control their finances and get out of debt, the problem lies in that monthly expenditure often exceeds income. Unexpected bills can then exasperate an already dire situation and lead to further debt worries.

Thankfully, there are solutions on how to cut expenditures and focus money into debt repayments. These can include reducing utility and insurance bills, cutting down on credit and store card usage or taking short term loans to cover unexpected bills.

Reduce Costs

Reducing the cost of utilities such as gas and electricity is far easier for consumers nowadays due to new government legislation prompting providers to only advertise their lowest available tariff. This means shopping around the energy market has been made more straightforward, especially when price comparison websites can do all the hard work for you.

Shopping around for insurance has been made easier in much the same way. Price comparison websites strive to provide as comprehensive a list of quotes and rates as possible, listing figures from various companies both big and small. These websites claim to save consumers hundreds of pounds by searching for the best deal and are an invaluable resource in the fight against debt.

Target Spending

Credit and store cards are a great way to increase spending power but they need to be paid off every month to prevent them becoming a source of debt. If they are not paid off fully at this time then interest will accumulate and the debt will rise.

If credit card limits exceed your monthly income, it would be wise to avoid making excessive or expensive purchases with the card. Credit card debt rose by 4.8% this year, meaning there are those who find managing a credit card too great a responsibility.

Borrow Responsibly

People are usually cautious about getting into debt and only borrow large sums or use overdrafts when absolutely necessary. Borrowing via loans and overdrafts has decreased by 7.7% this year, meaning fewer people have commitments to long-term debts.

Many consumers are instead opting for short term loans provided by online lenders – such as Kwik Cash payday loans. These short term loans have gained popularity over recent years as they offer fast access to cash when you need it most. The repayment charges can often be cheaper than an unplanned bank overdraft and take the form of a single payment rather than a regular expenditure.

These short term loans are not intended for use as long term financial solutions to debt but can be highly beneficial in the short term as an emergency income supplement.