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Debt consolidation loans

Debt consolidation loans or debt management?

Debt consolidation means using credit to move your debts into one place to pay them off, whereas with debt management solutions you make payment arrangements with your creditors, or have debts written off. 

Debt consolidation isn’t for everyone, there may be better ways to deal with your debts for your circumstances.

cog iconIt’s important to get impartial, free, debt advice before going ahead with any debt solution.

Instead of consolidating your debts, a solution to manage them, or have them written off, may be a better option for you. This includes debt management plans (DMPs), bankruptcy, an individual voluntary arrangement (IVA) or a debt relief order (DRO).


What is a debt management plan?

A debt management plan is designed for those who have some money left over at the end of the month, but not enough to pay all their debts. The key to success of any debt management plan is that only pay what you can afford and, as your situation improves, you pay the debt off as soon as you can.

A third party will normally arrange a DMP for you. This could be a charity like us, or a debt management company. The organisation arranging your DMP will:

  • Draw up a proposal for your creditors
  • Ask creditors to accept reduced payments
  • Ask for interest and charges to be stopped
  • Manage a single monthly payment to your creditors

Find out more about debt management plans

How does bankruptcy work?

Bankruptcy is a legal procedure for people who cannot pay their debts within a reasonable time. It’s a form of insolvency, so to be eligible, your unsecured debts must outweigh your assets, including property and vehicles.

There are different forms of bankruptcy across the UK.

If you make yourself bankrupt, creditors write off your unsecured debts, meaning you have a fresh start. However, you will be subject to certain restrictions during the term of the bankruptcy.

Bankruptcy should not be taken lightly as it is a big step and you may have to give up your assets. Bankruptcy may impact your job and seriously affect your credit rating.

Find out more about:

What is an individual voluntary arrangement (IVA)?

An IVA is a legal process for those with unsecured debts in England, Wales or Northern Ireland. If you live in Scotland you can apply for a protected trust deed, which works in a similar way.

An IVA is arranged by an insolvency practitioner who helps and advises you throughout the process. They’ll assess your finances and draw up a proposal for your creditors.

With an IVA, your available income is used to make affordable monthly payments towards your debt over an agreed period of time – usually five or six years. You may also pay a lump sum towards your debts. At the end of the agreed period, your remaining debts are written off.

There is a fee involved in organising the IVA, but this will be included in the payments you make to your creditors.

Find out more about individual voluntary arrangements.

What is a debt relief order (DRO)?

To qualify for a debt relief order you must have debts less than £20,000 in total and no more than £50 left over each month after paying essential living costs. A debt relief order is not suitable for anyone who owns a home or has assets of more than £1,000. This limit excludes one car up to the value of £1,000.

DROs are only available in England, Wales and Northern Ireland.

An approved organisation, such as StepChange, must submit your DRO application to the official receiver. You will have to pay a fee of £90, which you won’t get back if your application is unsuccessful.

If your DRO application is successful, your debts will be written off after a year, providing you keep to the terms and conditions of the order.

Find out more about debt relief orders.

Not sure how to deal with your debts? We’re here to help. Use our online debt advice tool to find out what to do next, or call our advice teams for confidential, free debt advice.

Who are we?

  • UK's leading debt charity
  • Over 25 years' experience
  • Free, impartial advice & managed debt solutions

How we help