If you’re struggling with debt, the number of options available can feel overwhelming. From formal agreements like Individual Voluntary Arrangements (IVAs) to flexible repayment plans, it’s not always clear which route will suit your situation best.
This step-by-step guide will help you start narrowing down your options, so picking a debt solution becomes less daunting.
Step 1: Understand your debts and priorities
Before you can decide on the right kind of debt help, it’s important to have a clear picture of your current situation. Start by making a list of:
- All the debts you owe, including amounts and interest rates
- Who each debt is owed to
- Whether they’re priority or non-priority debts.
Priority debts are the ones where missing payments could have the most serious consequences, such as losing your home or having essential services cut off. These include:
- Mortgage or rent arrears
- Council tax arrears
- Utility bills (gas, electricity, water)
- TV licence
- Certain court fines.
Step 2: Be realistic about what you can afford
Debt solutions are only effective if the repayment terms fit your budget. To work this out, you’ll need to:
- Calculate your total monthly income (including wages, benefits, and other sources).
- Subtract essential living costs such as rent/mortgage, bills, food, and transport.
- See what’s left over for repaying debts.
Our disposable income calculator makes it easy to do this. Simply fill in your details and it will tell you how much you have left each month. This can help determine whether you can commit to regular repayments, or if you need a solution that reduces your debt or pauses payments for a set period.
Step 3: Know the main types of debt solutions
When choosing between an IVA, DRO, DMP and other debt solutions, it helps to understand what each one involves:
An informal arrangement where you pay reduced amounts to your creditors each month until the debts are cleared.
A formal, legally binding agreement to repay part of your debts over a set period (usually five or six years), after which the remaining debt included in the IVA is written off.
A formal solution for people with low income, low assets, and debts under a certain limit. If you qualify, your debts are frozen for 12 months and then debts included in the DRO are written off if your situation hasn’t improved.
Step 4: Consider how long you want the arrangement to last
Some solutions are short-term fixes, while others can last several years. Think about:
- How long you’re comfortable committing to a repayment plan
- Whether your income might change during that time
- If you have assets, like a home, that you want to protect.
For example, a DMP can be flexible but might take longer to repay debts in full. An IVA has a set end date but comes with stricter terms. A DRO lasts just a year, but you need to meet specific eligibility criteria.
Step 5: Think about the impact on your credit record
Any formal debt solution will affect your credit score and remain on your file for six years. Even informal arrangements, like a DMP, can affect your ability to get credit because reduced payments are reported to credit reference agencies.
This doesn’t mean you shouldn’t consider them but it’s worth knowing how each option will appear on your credit file so you can plan for the future.
Step 6: Understand the costs and fees
Some debt solutions are free to set up, while others involve fees. With a formal arrangement like an IVA, these fees are included in your monthly payment and are clearly outlined before you agree to anything.
If you choose to work with a debt management company for a DMP, check whether they charge for their services and how that affects the amount going to your creditors. At MoneyPlus, we’re transparent about all fees, so you know exactly what to expect from the start.
Step 7: Think about future changes in your circumstances
Ask yourself:
- Could your income increase or decrease?
- Are you expecting a major life change, like moving house or retiring?
- Is there a possibility of unexpected expenses, such as car repairs or medical bills?
Choosing a flexible solution can help if your circumstances are uncertain. A DMP, for example, can be adjusted to fit changes in your budget, while an IVA or DRO is less flexible once in place.
Step 8: Get expert advice before committing
Every debt situation is different. Even if you’ve done your research, speaking to a qualified debt adviser can help you avoid costly mistakes and choose a solution that truly fits your needs.
An adviser can:
- Review all your debts and income
- Check your eligibility for different solutions
- Explain the pros and cons in plain language
- Help you prepare the necessary paperwork.
For free debt advice, you can visit MoneyHelper. Alternatively, you can contact MoneyPlus for a confidential chat about your situation.
Step 9: Take action
Once you’ve reviewed your options and spoken to an adviser, it’s time to take the next step. Whether that’s applying for a DRO, setting up a DMP, or starting an IVA, the sooner you act, the sooner you can start moving towards a manageable repayment plan.
Taking that first step can feel daunting, but having a clear plan and the right support makes a big difference.
Step 10: Keep reviewing your situation
Debt solutions aren’t ‘set and forget’ – your finances can change over time, and your arrangement may need to adapt. Check in regularly with your adviser to ensure the plan is still right for you.
If your circumstances improve, you might be able to make larger payments which will pay off the included debts sooner. If they get worse, you might need to switch to a different solution.
Choosing the right debt help is about understanding your finances, knowing your options, and getting advice you can trust. By following these steps and making use of trusted resources, you’ll be in a better position to select a debt solution that works for you – both now and in the future.
