If you’re finding it difficult to keep up with debt repayment to multiple creditors, it may be worth considering a Debt Relief Order (DRO). Available to residents of England, Wales and Northern Ireland with debts up to £50,000 and minimal assets or income, a DRO relieves you from repayments for 12 months. After this, if your financial situation hasn’t changed, your debt may be written off. 

However, it’s important to consider both the drawbacks and benefits of DROs before applying so you can be sure it’s the right option for you. In this article we go through DRO advantages and disadvantages in detail and compare it to other debt solutions to help you make an informed decision. 

The Benefits of a Debt Relief Order

There are a number of DRO benefits including: 

• Potential to write off debt

If there’s no improvement in your finances during the first 12 months of your DRO and you’re therefore still unable to pay off your debt, any remaining debts included in the DRO are written off. 

• 12 months respite from your debt repayments

Dealing with debt repayments can be overwhelming, especially if you have multiple debts. Entering a DRO means you can have a break from making these payments for 12 months.

• Creditors cannot contact you during the 12 months

It can be difficult to manage multiple creditors and any warning of legal action. Once you start a DRO, creditors aren’t legally allowed to contact you or take court action against you. 

• Interest and charges are frozen

Debt can build with high interest and charges. Entering a DRO can prevent this as any interest or charges for eligible debts are frozen for a period of 12 months, along with your debt.

• You don’t need to appear in court

Your DRO will be handled by an approved intermediary who deals with the application process for you, meaning you don’t have to go to court. 

• No application costs

It’s free to apply for a DRO, making it a more affordable alternative to other debt solutions, such as bankruptcy.

Drawbacks to Consider Before Applying

Before applying for a DRO, it’s worth taking these disadvantages into account:

• Your credit rating will be affected

From the date it starts, a DRO will remain on your credit file for six years. This may mean it’s harder to get credit as it shows you’ve struggled to keep up with payments in the past.

• Your DRO will appear on a public register

Your DRO will be recorded on the Individual Insolvency Register which can be viewed by anyone, including any potential creditors. It will remain on here until three months after your DRO ends.

• Strict eligibility criteria

DROs are specifically for people with little to no income or assets, which means that to be eligible for a DRO, you’ll need to meet a set of specific criteria. For example, you can’t have a DRO if: 

• you own your own home
• you’ve had any other form of insolvency in the past six years
• you have more than £50,000 in debt 
• you have more than £2,000 in assets. 

• May violate your tenancy agreement

If your tenancy agreement includes an Insolvency Clause and you enter a DRO, your landlord is able to evict you even if you agree to pay off any rent arrears. 

• You’ll have to follow a number of restrictions

While you have a DRO, there are a number of things you aren’t allowed to do. For example, you can’t:

• apply for more than £500 of credit without informing the lender of your DRO
• promote, manage or set up a limited company without court permission
• act as a company director without court permission
• continue a business under a different name without saying that your previous business had a DRO.

• May be cancelled if your finances improve

The first 12 months of your DRO is known as the moratorium period. If your financial situation improves during this time, for example if you have an income increase or acquire property, your DRO may be cancelled

How Does a DRO Compare to Other Solutions?

A DRO may not be the right solution for everyone so it’s worth comparing it with other debt solutions available. The table below shows some of the key differences between DROs and other debt solutions:

Debt solution	DRO	IVA	DMP	Bankruptcy
Length of process	12 months	5-6 years	Varies according to repayment speed	12 months
Monthly payment	None	Based on affordability	Based on affordability	None, unless you have an IPA
Impact on credit score	Stays on credit file for 6 years	Stays on credit file for 6 years	Not on credit file unless you miss a payment	Stays on credit file for 6 years
Fees	No fees	Varies	Varies, fee-free options available	£680

Long-Term Impacts of a DRO on Your Financial Health

After your DRO ends and remaining debts included in the DRO are written off, it will stay on your credit file for six years. This means that you may find it difficult to get credit and may face high interest rates. By checking your credit file, the lender will be able to see you had a DRO, which indicates you have struggled to keep up with payments in the past.

Rejected credit applications can further impact your credit rating, so if you are rejected, it’s better to wait until your credit score has improved before applying again.

However, it is possible to rebuild your credit rating after your DRO ends. The best way to do this is to start small with credit products that are easy to repay and have 0% interest. You can use it to pay for groceries or fuel and make sure you pay it off at the end of the month. It will take time but by doing this, you can improve your credit score and overall financial health little by little.

Is a DRO the Right Choice for You?

As mentioned earlier, a DRO is generally designed for people with minimal assets or income who have debt they can’t repay. It’s therefore worth checking if you’re eligible and considering the DRO pros and cons before deciding whether to apply for it. 

Talking to a money expert can also help you to find the right debt solution for you, whether it’s a DRO or something else. You can contact our team for more information and guidance on the option available. Alternatively, services such as MoneyHelper offer free debt advice.