What is the best debt solution for you?

Paying off debt is not easy. With more than 67% of young people between 18 and 25 years old in the UK in debt, according to a recent survey by YouGov, and 11% of them believing they will never be able to pay it off, financial education and planning can help choosing the best path to debt solution.

What are young people's main debts? - Street UK
As much as 48% of your people in the UK have debt on top of mortgages or student loans, making the situation even more worrying.

When considering the best options to clear debts, information is crucial. We have listed the 5 most common debt solution choices with key facts about each of them to help you understand which one is the right for you:


Snowballing is when you pay the minimum to all debts except for one and overpay that one by as much as you can each month.

The minimum amount you pay is the interest, and the amount you overpay clears a bit of debt, meaning interest will be a bit lower next month. This way, even if you pay the same amount as you had paid the month before, your over-payment will be larger and you debt will drop more.


As you start to pay off your debt on time each month and decrease the outstanding amount, your credit ratings will improve and you’ll be more likely to get a 0% balance transfer deal to spread your repayment even more.


If you don’t have enough money to pay the minimum amounts every month this won’t be the best solution for you.

Use this Snowballing calculator to see how long it will take to clear your debts.

Debt Management Plan (DMP):

This is an informal agreement with your creditors whereby they agree to freeze interest and let you pay what you can afford each month. A DMP can be a temporary or long-term solution to clear your debt.

StepChange can help you set DMP’s without charging any fee’s.


Gives you time to breathe and organise your finances without increasing debts or added charges. DMP’s work better as a short-term solution.


Creditors don’t have to agree to freeze interest, they also won’t stop contacting you or even taking court action. Creditors will report agreed DMP’s as a default on your credit file, lowering your credit scores

Debt Relief Order (DRO):

This is only a solution if you owe less than £20,000, don’t own a house and have little or no spare income. To set up a DRO you will need a DRO adviser, which you can find at most local Citizens Advice Bureaux’s. They will help you find out if you are eligible for a DRO or not and explain all the implications a DRO will have on your credit rating.

The application costs £90 and once you apply, you have a 12 month ‘moratorium period’ after which your debts are wiped out. During this period, your creditors can’t take any action to get money from you.


This is a fairly simple and low cost way to solve your debts when you have no money to repay them.


Student loans and court fines can’t be included in a DRO, the eligibility criteria is quite strict and it will be on your credit record for 6 years.

Individual Voluntary Arrangement (IVA):

If you have a regular source of income and assets you want to protect, such as a house with equity, this is an option. This is a long term binding arrangement with your creditors by which you make monthly payments for five years.

On the last year, if you have a house, you’ll have to remortgage it to release equity (get access to money to pay into your IVA).  If your situation gets better during your IVA, you will have to pay extra into it too. After the five years, your remaining debt is cleared.

IVA’s can be set by companies which make large sums of money on them and often highlight the advantages and dismiss the disadvantages of an IVA, therefore, make sure you ask advice from neutral people when deciding on taking this debt solution path.


Interest is frozen, creditors won’t harass you and your debts are cleared after 5 years. If you are employed and earn £20k or more a year, this is a potential solution.


If things are not so stable, the IVA is likely to fails, as it is not flexible, so it can’t be changed or cancelled.


If your debts are bigger than your assets and none of the debt solutions above suit you, going bankrupt might be the way out of debt. When you go bankrupt your debts are wiped out immediately (with a few exceptions such as student loans) and you can start rebuilding your finances.

You have to apply for bankruptcy yourself and you’ll have to pay a £705 fee to the Official Receiver (you will get a letter from the Official Receiver 2 weeks after court declares you bankrupt).

You’ll have to declare your assets on your bankruptcy petition and going bankrupt means you will lose any financial assets, even small ones. This includes cars, motorcycles, jewellery, antiques. It does not include mortgage and your pension. Your bank account will also be closed. Going bankrupt might affect your tenancy if you are renting also.


It is a quick way to wipe off debts and start afresh and get out of an uncontrolled debt situation.


You will lose many assets and the bankruptcy will be on your credit record for 6 years. Going bankrupt might also make it harder for you to open a bank account, get personal loans and get a mortgage amongst other things.

These are the most common ways to get out of debt, but there are other less used paths such as full and final settlements,  debts write-off and administration orders. When planning your way out of debt, making the right choice is essential. You can find more information on all of the options mentioned above at DebtCamel.