What can you do if you’re drowning in debt?

If you’re drowning in debt, you may feel as though there’s no way out and nowhere to turn. However, that is not the case.

Couple weighing up finances
There is lots of help out there and a number of options which can help you regain control of your finances. The best solution will depend on your circumstances.

We take a look at the options and explain the pros and cons of each.

Debt management plan

For many people, a debt management plan (DMP) is the best path out of debt. You approach a debt management company and it negotiates on your behalf with the businesses you owe money to in order to arrange an affordable monthly payment.

This path out of debt is only suitable if you have enough disposable income after all your bills to make monthly payments. You will usually repay the whole of your debt.

Read our article ‘How to choose a debt management company’ for some tips.

The pros

If you’ve been struggling to manage your debts, it can be a real relief to have someone else negotiate with creditors and just have one monthly payment to deal with.

Companies agreeing to your debt plan will usually stop any legal action they’re taking against you.

Sometimes, debt management providers can persuade your creditors to stop charging you interest while you repay the outstanding amount.

The cons

Your mortgage and any debts secured against your home are not covered by DMPs, making it vital you keep enough of your income to meet these priority debts.

The companies you owe money to don’t have to agree to your DMP.

Providers usually charge a fee for setting up and managing your DMP, meaning less of your money goes on repaying the outstanding debts.


Many people are attracted by the idea of a consolidation loan, with the possibility of combining all their debts and then making one affordable monthly repayment.

Perhaps you want to feel more in control of your outgoings and believe that making one single payment each month will help you budget.

These loans are not for everyone, as they can cost more than the combined debts would over the long term – even if your monthly repayment falls.

If you do decide on a consolidation loan, it’s vital that you take control of your finances; cut up cleared credit cards, spurn the store cards and end the overdraft. If you manage to run up more debt, you could find yourself in a really unmanageable situation.

The pros

Having only one monthly repayment can help you regain control of your debt and, if the payment is lower than you pay at the moment, it can be more affordable.

The interest on a long-term loan can be lower than on short-term borrowing like store cards so for some people, it can work out cheaper in the long run.

A more affordable monthly repayment can prevent you falling behind on your debts, protecting your credit rating.

The cons

A key issue with a consolidation loan is that they are usually secured against your home – you may have heard them referred to as ‘homeowner loans’.

That means that, if you fall behind in payments, your actual house is at risk, when your previous debts may have been unsecured. If you’re worried about your house, read our article ‘It's your home, keep it that way’.

Over the full repayment term, you may end up paying more than you would have – the interest you’ll pay will depend on your circumstances. In the current economic climate, you may struggle to find a great deal as fewer providers are offering secured loans.

Also, your credit score will be key as to whether or not you are accepted for a loan – if you have an impaired credit history you’ll struggle to find a company willing to lend to you. As a result, a consolidation loan is really only worth considering if you have relatively low debts and a good credit score.


An IVA, or individual voluntary arrangement, is an alternative to bankruptcy that allows you to make affordable repayments for a fixed period, after which any remaining debt is written off.

You should approach an insolvency practitioner who will help you make your proposal to a county court.

They tend to run for five years and are usually only an option for people with debts of £15,000 or more, owed to a number of creditors.

As a general rule, you will need to pay back at least 20p of every £1 you owe. To succeed in your application for an IVA, companies behind at least three-quarters of your debt have to agree.

For a more detailed look at IVAs, read our article ‘What to do if you're in debt’.

The pros

An IVA is not just legally binding for you; your creditors also have to stick to it. It gives you certainty that you will be out of debt within five years.

The companies you owe money to must stop chasing you for payment as long as you stick to the IVA.

Going bankrupt can end some careers, for example if you’re in the police or armed forces, whereas an IVA is okay.

The cons

If you set up an IVA and then fail to keep your end of the agreement, you could be made bankrupt.

Do you have equity in your home? You could be made to remortgage your property to free up some of that money to repay debts. If you can’t do that, it’s possible your home would have to be sold.

Although an IVA will hurt your credit rating less than going bankrupt, it will affect your score for the five years of the agreement, and a further 12 months once it finishes. You could find it hard to get a current account with an overdraft, meaning you’d need to move to a basic bank account.


If your debts are beyond your control and there is no way you could manage your way out of them, then bankruptcy could be your only option.

Once you’ve been declared bankrupt, you remain so for a year and may have to make repayments for three years. After that, most debts would be cancelled, although some – such as student loans or child maintenance – would not be.

Any ‘non-essential assets’, including your home, would be sold to repay the companies you owe money.

You can be forced into it by a creditor owed more than £750 or you can file for bankruptcy yourself – although you’ll have to pay a £150 fee and a deposit of £360.

If you can’t afford this and live in England or Wales, you may be able to qualify for a debt relief order, or Low Income Low Asset scheme in Scotland, which is a cheaper form of bankruptcy for those with very few assets and a low income.

For an in-depth look at bankruptcy, read our article ‘The real impact of going bankrupt’.

The pros

Although it’s a very serious situation, for some people, bankruptcy is a way of clearing debt and starting again.

It is not permanent, although it can affect your credit score for a very long time.

Bankruptcy is gone from your credit score after six years.

The cons

Bankruptcy remains on your credit score for six years and makes it very hard to qualify for financial products.

Although it’s obviously harder to borrow when you’ve previously been bankrupt, you may also find you have to prepay for services like gas and electricity, and use a pay-as-you-go phone.

Some people will lose their jobs as a result of bankruptcy, in particular police officers and armed forces personnel. While you are bankrupt, it’s illegal to start a new business.

Your possessions will be sold to repay creditors and you may only be able to keep essentials, such as bedding, clothes and household essentials.

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