A step-by-step guide to getting out of debt

What to be careful of…

The biggest thing to avoid is borrowing more money – it might be a quick fix but you’re ultimately losing a lot more cash and by doing so you’re keeping yourself inside a vicious circle of debt.

IVAs

You’ve probably seen the adverts on TV explaining the "little-known piece of government legislation" which can write off a lot of your debts. If you think about how much advertising on television costs, you’ll probably start to wonder how these companies are afford it. It’s because they make hundreds and thousands of pounds through their debt management products. A lot of the money you pay to these companies goes towards the payment of the company themselves, rather than paying off your debt. 

• In some circumstances, an IVA is the best option because it’s a way of avoiding bankruptcy and sometimes can help people keep their homes. If you anticipate that you might not be able to keep up the payments they set you then it’s not the answer for you – because high penalty charges will usually be incurred as a result. Only ever take out an IVA through the advice of a professional independent organisation such as the Consumer Credit Counselling Service, and never go to a company advertised on TV. Read more about what an IVA is and how it works in our article.
  

Debt consolidation loans

Like an IVA, you should only use this option - which involves combining all your existing debts into one big loan - if you’ve been advised to do so by a not-for-profit debt counsellor. If you can find a loan with a cheaper interest rate than you already have, which isn’t secured against your home, it might be worth considering. Once again, avoid the companies with TV ads – they’re only after your money and really aren’t there to help you at all. By taking out a consolidation loan, you’ll ultimately be paying out more money, even if it is a lesser amounts over a longer period of time.For more information about debt consolidation loans read our article. 

Debt management companies

First things first, any company that tells you their service is free is lying (unless they’re a charity). They will incorporate their fees into your payments, and any company that does tell you they won’t charge you should not be trusted. This option should only be used if you really have exhausted every other option possible – because they offer a costly service which you can get for free from a free debt advisory service. Look at our article about debt management companies for more info.