Debt affects many people in the country. In 2013 Money Advice Service (MAS) estimated the number of people living with ‘serious debt’ as 9 million. Their 2016 report A Picture of Over Indebtedness estimated the figure at 8.2 million. Our own 2016 survey found that 90% of our readers were struggling to some extent with money management and that 16% identified themselves as facing serious financial problems.
​Definition
Anyone with a mortgage, credit card or loan is technically in debt. And access to financial products like these is often a sign of financial health or resilience. The challenge is to identify those who cannot afford the debt they have. According to MAS ‘Over-indebted’ is someone who ‘Finds keeping up with bills and credit commitments a heavy burden’ and/or ‘[Has] fallen behind or missed payments in at least three of the last six months’. 

Budgets
The only sure way to identify if an individual is over indebted is for them to do a thorough budget. The online one provided by Stepchange is very good, especially as it suggests reasonable values for many of the items (things such as groceries, TV Services, Children’s Clothes etc). We produce a paper one that has been very well received too. But at the end of the day a piece of paper is all you really need. Citizens Advice Bureaux will do a budget as a first step with anyone who approaches them with debt problems.

Becoming Debt-Free
Depending on the level of debt an individual is faced with there are options to move towards a debt-free future. Be careful though, while there are many reputable charities and organisations operating in this are, there are also a lot of ‘Debt Management Sharks’, unscrupulous organisations whose main interest is in charging fees that make the process of becoming debt-free more difficult or impossible. A quick google search of ‘debt management plan’ will throw up adverts for several of these, for example. It is vital that the person in debt uses a free service so that all their money goes to paying off their debt.

Debt Management Plan
​A debt management plan is an agreement between the person in debt and their creditors to repay a certain amount per month. It is suitable for people whose debt levels are not very high compared to their income, and only relates to unsecured debts. They can take several years to repay, and do damage your credit score. There are some great people operating in this area including Christians Against Poverty (CAP), Stepchange and Payplan. All offer free plans. CAP are the only ones who visit every client and work through their budget in person with them, but they are an openly Christian organisation and we have heard some reports of them proselytizing their clients.

Individual Voluntary Agreement (IVA)
Only introduced a few years ago the IVA remains an option, but not one that is often used. They can be helpful in rare cases where the person in debt wishes to protect an asset (such as a house) and so is therefore not prepared for bankruptcy.

Debt Relief Order (DRO)
If the total debt is less than £20,000 a DRO can be applied for. Eligibility criteria are quite strict…

• you owe less than £20,000
• you’ve less than £50 a month spare income
• you’ve less than £1,000 worth of assets
• you’ve lived or worked in England and Wales within the last 3 years
• you haven’t applied for a DRO within the last 6 years

Once granted a DRO protects the person in debt from any further action by creditors attempting to recover money, and effectively wipes the slate clean after 12 months. A DRO will stay on your credit record for 6 years.

Bankruptcy
People who really cannot afford their debt will eventually go bankrupt. Bankruptcy means that all debts are erased, but equally all assets (cars, houses, etc) will be seized and sold to cover outstanding debts. After 12 months (in most cases) the Bankruptcy is ‘discharged’ and the debts are cleared. Bankruptcy stays on your credit report for 6 years.