How to get out of debt

Being in debt can be stressful and can sometimes feel like a real-life game of Snakes and Ladders. Just when you think you’ve made progress, you can slip straight back into debt. While it can be hard to stop the spiral of spending that leads to debt, confronting it and making a realistic plan to pay it off is an important part of getting back on your financial feet.

There are different steps to consider when thinking about how to get out of debt. Firstly, where to turn to for professional advice and what alternatives exist. Secondly, how to budget for the future to avoid falling back into debt, and finally, how to go about repairing your credit history, if debt has caused you to miss repayments.

How to find advice on getting out of debt

There are lots of free independent services that will give you information on how to deal with debts. This includes information on coping with the emotional side-effects of debt, such as anxiety or depression. The mental health charity Mind has advice on money and mental health and you can contact them online or on the phone.

For practical advice on what to do about debts you can speak to the Money Advice Service, which is a free and impartial service set up by the government. The National Debtline is an independent charity that offers confidential debt advice. You can chat to them online or read debt advice on their website.

Getting expert advice can offer you practical steps on how to get out of debt, and can also help you to share the mental burden, if it feels overwhelming or unsolvable.

What are insolvency solutions?

Insolvency solutions are various legal processes that are available to people in debt. Solutions like an Individual Voluntary Arrangement (IVA) or a Debt Relief Order (DRO) are aimed at people who are unable to meet repayments on their debts and need legal protection from their creditors. They are not available to everyone who has debt, as they are only issued in specific circumstances.

Another insolvency solution is personal bankruptcy, which will have a long-term effect on your financial health and your ability to get credit. Bankruptcy is a last resort and is only an option for people who have no other way of paying back their debts.

Other potential options include debt consolidation – which could lower your monthly repayments or at least make them easier to manage. You could get a Debt Management Plan, which is an agreement with your creditors on how your debts will be repaid, organised by a third party.

Repairing your credit history

If you have had trouble paying back debts, it might mean you have late or missed repayments on your credit report. If you have a County Court Judgement (CCJ) or have used any of the solutions listed above, for example, IVAs, DROs or bankruptcy, these will also be recorded on your report. This can make it harder to get credit as lenders will be able to see you have had trouble with paying back loans in the past.

It can take time to improve the health of your credit report. For example, insolvency solutions will stay on your credit report for up to six years. On the other hand, just because you’ve had problems with debt in the past doesn’t mean there isn’t hope for the future. The important thing is to change how you use credit. Borrow responsibly, avoid becoming reliant on credit and make repayments on time. These steps, as well as other credit hygiene factors, can all help to improve the state of your credit history.

Budgeting for the future

Keeping track of your spending and your debts can help make everything easier to manage. Creating a budget can help you anticipate when you might run a little bit short, and when you might be able to put a little bit of money aside. This can also help to change how you use credit, i.e. not just relying on it in emergencies.

A budget can also help you spot places where you might be able to cut back. It’s easier said than done, especially when money is tight, but, wherever possible, cutting back on your spending can help. It might be small things like walking to work or changing where you do your weekly shop. A few pounds saved here and there will add up and can improve your cash flow.

It’s also important to try and address debt problems as early as possible, especially if you think you might be slipping back into reliance on quick credit. Admitting to yourself that you’re in debt is one thing, but talking to your partner, family and debt advice counsellors is also important. It can be useful to seek the advice of professionals and those closest to you, who might be able to point out spending habits or solutions that you might not recognise.