Tackling Debt
Debt is a topic that touches millions of people across the UK, and over the past decade overall household borrowing has grown significantly. In 2025, total UK personal debt including mortgages, credit cards and loans, stood at nearly £1.9 trillion. With unsecured consumer debt such as credit cards and personal loans making up over £235 billion of that total. On average, adults in the UK carry thousands of pounds of debt each, and credit card balances alone averaged at £2,600 per household in 2025.
For many people, debt starts with everyday pressures, this could include having multiple bills, unexpected expenses, or the general misuse of credit facilities with no plan on how to repay. Fortunately, there are ways to approach debt responsibly: improving budgeting habits, talking with your bank/lender, or even considering more structured solutions such as a debt management plan.
Is there one magical way to get rid of debt completely? No. However, there are good tips to either help reduce it, or prevent it from spiralling out of control in the first place.
This page provides general financial information for educational purposes only, not personalised advice.
The content on this website reflects financial rules and systems in England and may differ in other parts of the UK.
Understanding debt
What is debt?
Debt is money you borrow with the agreement that it will be paid back at a later date, usually with interest. This could be with a bank, credit card provider, finance company, or even your overdraft. Typically, the main reason for debt is to spread out the cost of a large expense, rather then paying in one go.
Main examples for debt could be getting a mortgage for a house, or a personal loan for a car. The way you get money would depend on what you want.
Is debt always bad?
There’s a misconception that people should always avoid debt, and although they mean well by saying it, it’s not always true…
Borrowing money to help improve your life, or long term financial position, can be considered “good debt” Borrowing money for a house can be considered good debt as not only does it get you on the property ladder, but it also helps you move on in life.
Bad debt on the other hand is often linked with high interest , and short term spending. For example, using a credit card to purchase the newest phone, but repaying with high interest over a period of 5 months.
It’s not always what you’re borrowing for, but the reason as well as how manageable it is. Another example is a car. Is it bad debt if the value goes down over time, or is it good debt if it helps you in a reliable way to get to work everyday to make money.
Secured vs unsecured
Debt falls into one of two categories, secured debt or unsecured debt.
Secured debt – debt that is backed up by an asset, such as a house. If your unable to keep up with the repayments, the lender can take away the asset to recover the money.
Unsecured debt – borrowed money that isn’t backed up by an asset.
Although unsecured borrowing may look more attractive at first, the chances of approval depend heavily on credit history to help prove that the borrower is reliable, and usually results in higher interest rates to compensate for the greater risks.
How to know when debt is becoming an issue
Debt isn’t something that occurs over night. It’s built more on continuous small habits that start to feel normal. Identifying early warning signs can make a huge difference and help you take action before things start to become overwhelming.
Relying on credit for everyday spending
Using a credit card responsibly can be an effective way to build your credit score, which can lead to many long term benefits. However, regularly relying on credit cards or an overdraft to cover essentials such as fuel, food or bills can be an early warning sign that your outgoings are higher then your income. Over time, this kind of reliance may point to a cash flow issue that needs identifying and addressing.
Only being able to repay the minimum
To some, it can feel manageable to just repay the minimum amount on a credit card, or just flow from the negative balance to the positive on your overdraft. This is a silent killer for having interest add up very quickly. If this becomes the norm, rather then an exception, it’s a sign that debt may be starting to take control, rather then you using it for its advantage purposes.
Feeling anxious with spending
One of the earliest warning signs is having any stress regarding your spending. If checking your balance makes you anxious, avoiding bank statements, or everyday purchases come with guilt or worry, it’s worth overlooking and tracking your spending while taking a step back. Products like an overdraft are used as a safety net, for emergency’s, while a credit card can be used for its advantage purposes. If overused, you will quickly find out that the disadvantages are just as impactful.
Regular use of balance transfer credit cards
These credit cards do have their advantages if used with a clear plan on repaying some debt. However, frequently moving debt around from one card to another may show you that there’s an underlying issue that hasn’t been resolved.
How to take control early
| Option | Reasoning |
|---|---|
| Talk to your bank or lender early | Lenders are often more willing to help before you miss payments. They may offer temporary payment plans, reduced interest, or alternative solutions to help you regain control. |
| Create a realistic budget | A budget helps you clearly see what’s coming in and going out, making it easier to spot problem areas and take action before debt becomes unmanageable. |
| Prioritise essentials over wants | Ensuring essentials like rent, utilities, food and transport are covered first reduces financial stress and lowers the risk of falling behind on important payments. |
| Cut costs where possible | Small changes, such as cancelling unused subscriptions or shopping around for better deals, can free up extra money to put towards reducing debt. |
| Save a small amount each month | Setting up a standing order into savings, even a small amount, creates a financial buffer that can prevent you from relying on credit when unexpected costs arise. |
Budgeting is one of the most effective ways to take control back over your finances, and the best part about it, it doesn’t need to be complicated. A budget is a financial plan that shows a person’s income and expenditure for a defined period of time, for example one month. The main objective is to provide information that enables people to take control of their finances and make decisions such as:
- What they can afford to spend/save.
- What their financial goals and priorities are.
- What to do if spending overtakes amount being received.
When looking at the income side of the budget, it’s important to take into consideration both earned and unearned income. Earned income being money received from work, and unearned income being money received from any source where work isn’t included, such as benefits, pensions, dividends, or gifts.
The expenditure part of the budget can be split into different sections. Mandatory being compulsory payments, such as road tax, council tax, tv licence or even car insurance. Secondly your essentials which involve the likes of rent/mortgage, food, water/gas/electric supplier, travel costs for work and basic clothing. Finally, the discretionary expenses which would be the things you want now like a tv subscription, designer clothing or even going out to eat.
The way someone manages their budget is very dependent on their lifestyle. If someone is expected to be in a surplus, they may decide to add that into savings. Someone with a mortgage may want to make an extra payment towards that. If reversed, someone who is in a deficit may look for alternatives, for example, changing car insurance or utility suppliers. The common thing to do in a deficit is to look at the discretionary area and cut back on that for starters.
Structured debt
It may come to a point where debt can start to feel unmanageable, leading to only one decision. A structured debt solution. These types of options are designed to help bring clarity and control to an individual and are aimed towards those struggling to keep up with repayments and need formal support to manage what they owe. Each solution considered will have their own advantages and disadvantages to them, so understanding more about them and how they work is an important first step before considering any of them.
While these options appear to be an effective way to write off all debt and find immediate relief, they all share a costly disadvantage relating to an individuals credit rating. The short term debt solution also creates a long term financial exclusion. It will become harder to find lenders if wanting a loan, or any basic credit product. The drop in credit score also makes it difficult to find competitive interest rates, resulting in higher repayments if approved for credit.
Debt managment plan (DMP)
A debt management plan is an informal agreement between an individual and their creditors to repay any debts at a more affordable pace. The way this works is that an individual gets in contact with a debt management company who can help sort out payments to the organisations that are owed money. An individual will pay the debt management company what they can afford each month and they will divide the payment among the organisations that are owed money, meaning the person will not have to deal with the these organisations directly.
| Advantages | Disadvantages |
|---|---|
| One affordable monthly payment based on what you can reasonably afford. | Only covers non-priority debts such as credit cards, overdrafts, and loans. |
| A Debt Management Company (DMC) arranges the plan and distributes payments to creditors. | You may be asked to increase payments if your financial situation improves. |
| Gives you longer to repay what you owe, easing short-term financial pressure. | Creditors are not legally required to accept a Debt Management Plan. |
| Interest and charges may be reduced or frozen, depending on creditor agreement. | Because payments are lower, it can take longer to fully clear your debt. |
Administration order
These type of repayment plans apply to people who have less then £5000 in unsecured debt and at least one county court judgment against them (CCJ) If applying to the courts for an administration order to be issued, the individual will have to pay what the court decides that they can afford once a month, and the courts make the repayments to the creditors. The disadvantage to this is that because the court decides how much will be repaid, the debtor could have to live on a very tight budget until fully repaid.
| Advantages | Disadvantages |
|---|---|
| Only one affordable monthly repayment is set by the court. | The court decides how much you repay, reducing flexibility. |
| Creditor contact is formally stopped — they cannot chase you directly. | Creditors must agree to the order, and some may choose not to. |
| No additional interest is added to included debts while the order is active. | The process may affect your credit rating for up to 6 years or more. |
| The court can set a fixed end date, giving certainty to when debts will be cleared. | It may take a long time to complete depending on your income and the total debts. |
| Some debt might be written off if you cannot afford full repayment within the order term. | Administration Orders are only available if your total qualifying unsecured debt is under a set limit (currently £5,000.) |
| All included debts are managed together under one order. | Priority debts (like mortgage arrears or council tax) may still need separate arrangements. |
Individual voluntary arrangements (IVAs)
IVAs help individuals make reduced, affordable repayments for five or six years to get their debt written off. These are legally binding agreements on debtors and creditors. These apply to those with unsecured debts larger then the value of their assets. The way this works is with an insolvency practitioner negotiating the arrangements with the persons creditors.
| Advantages | Disadvantages |
|---|---|
| An Insolvency Practitioner (IP) negotiates with creditors on your behalf. | Your credit file will be negatively affected for at least 6 years. |
| Interest and additional charges on included debts are frozen. | There are setup and management fees, taken from your repayments. |
| Creditors cannot take court action once the IVA is approved. | If you fail to keep up repayments, the IVA can fail and creditors may take action. |
| Affordable monthly repayments are agreed for a fixed period (usually 5–6 years). | Your finances are reviewed regularly, and payments may increase if income rises. |
| Any remaining unsecured debt is written off at the end of the IVA if completed successfully. | You may be required to release equity from your home, or extend the IVA if this isn’t possible. |
| Provides legal protection and structure for managing significant debt. | Your IVA is listed on a public insolvency register during the term. |
Debt relief order (DRO)
Debt relief orders (DROs) enables people to have 12 months to get their debts cleared. They have the debts frozen so creditors cannot add interest or charges to them. Creditors cannot contact the debtor to ask for a payment during this time. If the debtor finds themseles unable to repay after the 12 month period, the debt gets written off.
| Advantages | Disadvantages |
|---|---|
| No repayments are required during the 12-month DRO period. | Your credit history will be affected for up to 6 years. |
| Creditors cannot contact you or take legal action. | You must meet strict eligibility criteria (low income and assets). |
| Gives time to stabilise personal and financial circumstances. | A £90 application fee is required (non-refundable). |
| At the end of 12 months, qualifying debts are written off. | Financial restrictions apply during the DRO period. |
| Simple and low-cost compared to other formal debt solutions. | Changes in income or assets may cause the DRO to be revoked. |
Bankruptcy
Bankruptcy is a formal and legal process designed to help individuals who are unable to pay their debts. Essentially, the persons assets are shared between their creditors who write off the remaining debt. An official gets appointed by the courts to manage the persons financial affairs, which can include selling any assets or putting savings and income to use by repaying the creditors.
It’s usually considered the final and most serious step to dealing with debt and should only be considered when no other options are available, no longer suitable, or have failed. During and after bankruptcy, obtaining credit can be extremely difficult and in many cases impossible as the borrower would be considered high risk to lend to. Even if a lender would consider giving credit out, the interest would be far from competitive, in low limits, and with strict conditions.
| Advantages | Disadvantages |
|---|---|
| Debtors do not have to deal directly with creditors — most creditor contact and enforcement action stops. | There are costs involved in declaring bankruptcy, including application and administration fees. |
| Most qualifying unsecured debts can be written off within around 12 months, providing a fresh start. | Bankruptcy stays on your credit file for six years, making it harder to obtain credit. |
| Debtors can keep certain essential possessions, such as basic household goods. | You cannot usually apply for new credit while bankrupt and must declare your status if you do. |
| In some cases, a vehicle may be kept if it is essential for work or daily living. | You will normally only be able to have a basic bank account during bankruptcy. |
| Provides legal protection from creditors while the bankruptcy is in force. | Non-essential assets may be sold, including valuable cars, luxury items, or property. |
| Offers a chance for a financial reset once the process is complete. | You may be barred from certain occupations or acting as a company director while bankrupt. |
| If you are self-employed, your business may be affected or forced to close. | |
| Some debts cannot be written off, including student loans, court fines, and child maintenance. |