The importance of discussing and dealing with debt

Record numbers of UK households are struggling with debt and in urgent need of help with their finances.

New research by campaign group Debt Justice found that 13% of the population – equivalent to 6.7 million people – have missed three or more credit or bill payments during the past six months. The group is calling on political parties to help "everyone weighed down by unmanageable debt" by providing "protection from debt collector harassment and guaranteeing decent incomes for all".

The news comes as official government data showed 10,136 people entered insolvency – including going bankrupt or taking an individual voluntary arrangement – in February, up 23% annually.

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There was some help in the Spring Budget when Chancellor Jeremy Hunt abolished the £90 charge for arranging debt relief orders from the new tax year in April. But despite energy bills falling, rent and mortgages remain high, said The Guardian, "straining household budgets".

"Keeping quiet about debt can make things worse", said the Mirror. Debt Awareness Week, running until Sunday 24 March, aims to encourage people struggling with their finances to seek support.

It can be hard to know how best to pay off your debts when you are struggling, but there are some important points to consider.

Do you have problem debt?

Many people have debts such as mortgages or credit cards. This is "managed debt", meaning money you can afford to pay back, said Raisin. 

But "problem debt" describes when you are "in over your head". Your total debt payments add up to more than your income, "meaning you are struggling to pay it off".

It's like a "beautifully kept garden", said Which?. While it can remain pretty with regular maintenance, after a few weeks or months of neglect "it'll become overgrown and wild".

Should you save or repay debts?

The nation is often encouraged to save money. But debts usually cost more than savings earn, said MoneySavingExpert founder Martin Lewis, so "cancel them out and you're better off".

There are "two exceptions" to this rule, he said. These are when there is a high penalty for clearing the debt too early and "if the interest rate on your debt is less than the amount your savings earn after tax".

Make a plan to pay your debts

To best tackle rising debt, deal with the important debts first, said Citizens Advice, such as your mortgage, rent, electricity bills and council tax. These are called "priority debts", meaning you could "lose your home, have your energy supply cut off, lose essential goods or go to prison if you don't pay". 

You may find "support is also on hand from lenders", said The Independent, if you have credit card, mortgage or personal loan problems. Help may include making reduced payments for a short period or in more severe cases "a lender may agree to an affordable payment plan" to repay over a longer period.

Seek support

A debt adviser can help with "choosing the best way to deal with your debt", said Gov.uk, and will often deal with creditors on your behalf.

You can access free debt advice services through charities such as StepChange, Citizens Advice and National Debtline. MoneyHelper also has a debt adviser locator tool. 

Options typically include a debt management plan, which is an agreement with your creditors managed by a financial company, or an administration order through a court where you agree on how much to repay over a set time.

You may be able to set up an individual voluntary arrangement (IVA), where you agree to make regular payments to an insolvency practitioner, who will divide this money between your creditors. 

Those on a low income may be able to get a debt relief order, said MoneyHelper, which "freezes debt for a year then writes it off completely if your circumstances haven't changed".

If it looks like you would find it hard to pay back debts, said StepChange, "bankruptcy may be an option for you". Bankruptcy writes off your debts, typically after 12 months, and often involves selling assets such as your car or even your home, added the charity. Your bankruptcy is on a public register and will be on your credit file for six years, added StepChange, "making it hard to get credit".

Check the Help for Households website to see if you are getting all the support you are eligible for. The Turn2Us charity has a benefits calculator where you can see what support you are entitled to based on your situation.

Beware of fees

Some options "involve fees that you may have to pay out of your own money", said StepChange. Declaring yourself bankrupt costs £680, while IVAs or court administration orders could run into thousands of pounds.

Debt management plans (DMPs) from charities are free but commercial DMPs may have charges and there are no rules on how much, said Citizens Advice. Providers do have to follow Financial Conduct Authority rules and be "open and transparent" about costs. 

If you think the fees are high, you can complain to the company and the Financial Ombudsman Service or just "use a free provider instead".