The different types of debt solution
Discover different kinds of debt solutions that you can access if you're having problems with debt, and how Lowell can help you find free independent advice.
There are lots of different debt solutions and different ways that you can resolve debt problems. We know that all of the different solutions and acronyms can be overwhelming, so we’ve put together this helpful guide to help try and make things a little bit clearer and help you find solutions to help you learn how to get out of debt. Every problem has an answer, and there are several debt solutions that may be available in your situation.
This content is intended to be an impartial guide regarding the different types of debt solution available within the UK, and how they differ from one another.
Lowell Financial Ltd is not endorsing any one type of solution; as every circumstance is different and a solution that is right for one person may not be suitable for another.
What to do if you're struggling with debt problems
We understand that having debt can be troubling, which is why our mission is to help our customers on the path to being debt-free. Lowell are here to help and work with you so that you can get the support you need. If you’re struggling with how to get out of debt or need help with debt problems, here are some of the ways you can get information and assistance.
Get independent advice and help
Lowell can help to put you in touch with organisations and debt management companies that offer free, independent advice and can help you with debt solutions. Independent charities like StepChange can help you to find a solution, or even manage your debt on your behalf. StepChange have a helpful online debt remedy tool, which can help you to work out your options for getting help with debt problems.
If you decide to work with an independent organisation and you would like them to manage your debt on your behalf, we’ll put your account on hold to give you the time you need to get support and advice. Lowell are committed to helping our customers access the help that’s right for them, so you don’t have to worry about making payments while you’re seeking advice.
Once they’ve spoken to you, the organisation will contact us directly to agree an affordable plan.
Remember that support is available
We understand that having debt can make you feel worried and nervous. It can be reassuring to know that you aren’t alone and that help is available. We work with lots of helpful independent organisations, but if you’re having a tricky time and your financial situation is affecting your mental health, remember that it’s okay to ask for help. Samaritans offer free support and advice to anyone who’s going through a difficult time, and Mind is a mental health charity that can help you to find the right support you might need.
Speak to Lowell
If you’re already working with Lowell and your circumstances change, it might mean that your payment plan isn’t affordable or doesn’t work with your budget anymore.
If this happens, get in touch to talk to us about it.
We know there are lots of reasons why a payment might get missed, so it’s always best to let us know what’s going on and if payments are likely to be missed. If you’re going through a difficult time, we might be able to pause your payments. Whatever your situation is, we’ll make sure you have the time and space you need to get things back on track before we get in touch to talk about the best way forward for you.
If we’ve been in touch about your debt but you’re not working with us yet, it’s worth speaking to us and looking at a payment plan. If the debt that’s held by Lowell is your only debt, we can help by creating a reasonable and fair payment plan that works with your budget. If this is the case, you don’t have to worry about any other debt solutions or debt recovery solutions and you can just pay your agreed Lowell payment plan. Don’t think of this as ‘paying off Lowell’ but as taking the first step toward becoming debt-free.
We’ve heard from our customers that sometimes want to know ‘how to stop Lowell calling’. If you have concerns, please don’t be worried about speaking to our friendly and supportive team. We know having debt can be worrying, but at Lowell we believe in being open and honest so that our customers feel comfortable discussing their debt.
Different kinds of debt solutions
There are lots of different kinds of debt solutions that can help you to get out of debt, or help with debt problems. We’ve listed some of the main options for you below, but you can find more information at Money Helper or at sites like Money Saving Expert.
Before you decide to go ahead with any of these solutions, make sure that you get free, independent advice from organisations like StepChange or National Debtline. If you’re already working with Lowell on a payment plan, let us know that your circumstances have changed and we’ll discuss the best way forward for us to work together.
It’s also worth bearing in mind that some of these debt solutions only apply in England – if you live in Scotland, there are different kinds of debt solutions that may be available to you. For more help with Scottish debt solutions, visit Citizen’s Advice Scotland.
Debt Management Plans (DMP)
A debt management plan (DMP) is an informal agreement between you and your creditors, putting a plan in place to pay your debts.
You’ll agree regular payments to a licensed debt management company, usually a single payment each month. In most debt management plans, a debt management company will then split this payment and share it out between your creditors, if you have more than one.
Most DMPs are managed by a DMP provider like StepChange, who specialise in helping people to get out of debt. If your debt has been purchased by Lowell and you’re not currently paying off Lowell payment plans with us, these organisations will work with us on your behalf to manage your debt.
You can arrange a free DMP with organisations like StepChange. A debt management plan can help you get out of debt by helping you find a reasonable and affordable payment that can be adjusted depending on your situation, but they can’t be used with some kinds of debt.
For more detail about how these plans can help with debt problems, take a look at our guide to debt management plans.
Debt Relief Order (DRO)
A debt relief order (DRO) pauses all payments to qualifying debts for 12 months. During this time, you don’t have to make any payments to your creditors, and they won’t take any actions to recover money from you. If your circumstances haven’t changed after the 12 months, all of the debts included in the DRO will be written off.
Debt Relief Orders are intended for people who have problems with debt, and total debts under £30,000. If you don’t own your own home and if you have less than £75 of income left after you pay your bills, this kind of debt solution could be right for you. A DRO could help you to get out of debt, though you should bear in mind that a DRO will show on your credit file for six years and could have an impact on applying for credit while it’s on your file.
The criteria for a Debt Relief Order changed in June 2021, increasing the threshold for qualifying debts. Under the new criteria, you may be able to get a DRO if you have debts under £30,000 (increased from £20,000) and monthly disposable income of less than £75 (increased from £50). For more information, check out our complete guide to Debt Relief Orders.
You can’t apply for a debt relief order on your own. Instead you can apply through an approved organisation, like StepChange. They have some helpful guides to DROs and information about how to apply on their website.
Debt relief orders are only available in England, Wales and Northern Ireland. If you’re in Scotland, a Minimal Asset Process (MAP) is a similar kind of process, but there are different rules involved. For more about MAPs, we’d recommend this helpful guide at StepChange.
Individual Voluntary Agreement (IVA)
An individual voluntary agreement (IVA) is a formal agreement, which freezes your debts and allows you to repay an amount each month over a set period, based on what you can afford to offer to pay. Any money that you still owe after this period, which is usually five or six years, will be written off.
The agreement will be used to pay off your creditors, if you have more than one. Not all debts can be included - examples of excluded debt would be fines and secured credit. To be approved, 75% of your creditors have to agree to a proposed offer via vote. Because IVAs are legally binding, once your creditors have agreed you can work with them via the agreement and you won’t have to worry about any legal action.
Individual voluntary agreements can be a good idea if you have a lot of creditors and have had difficulties getting out of debt. You’ll need to work with a qualified professional called an Insolvency Practitioner, who will help you to put together a proposal for your creditors. There are also some fees involved with an IVA. You can arrange an IVA through organisations like StepChange, and while there’s nothing to pay upfront, some fees may be added to the total you’re paying back.
Individual voluntary agreements are only available in England, Wales and Northern Ireland. If you’re in Scotland, a protected trust deed is a similar kind of process. For more about protected trust deeds, try this handy guide from StepChange.
Bankruptcy is an option to help clear your debts and make a fresh start. Bankruptcy could help with getting out of debt, but it isn’t the right option for everyone or for every situation. Bankruptcy can be a very serious step, so you should always get independent advice and guidance before you think about declaring bankruptcy.
If you’ve come to a point where you can’t pay back certain kinds of debts, you can pay £680 to declare bankruptcy through a bankruptcy order. Once a bankruptcy order is over, normally after a year, you can make a fresh start as you won’t have to pay back the debts that the bankruptcy order covers.
However, declaring bankruptcy can have very serious disadvantages. Your home and possessions may be at risk, and your credit file could also be affected for up to 6 years. Some jobs also don’t let people who have been made bankrupt carry on working, which is why it’s important to think carefully about your options and get help and advice before proceeding.
If you live in Scotland, rather than bankruptcy, the equivalent debt solution is called ‘sequestration’, but the process is similar to declaring bankruptcy. You can find out more at StepChange.
If you’re a Lowell customer and you’re considering declaring bankruptcy, get in touch with us. Our team is trained to be considerate of your circumstances and we might be able to help or put you in touch with expert advice to see if there are other options available for you.
The Debt Respite Scheme (known as Breathing Space)
The Debt Respite Scheme, also known as the Statutory Breathing Space scheme, is not a debt solution in the same way as some of the other solutions we’ve listed here. Instead, the new Breathing Space scheme, introduced in 2021, is meant to help relieve some of the stress and pressure caused by debt, and give you ‘breathing space’ while arranging a separate debt solution.
If you are eligible, Breathing Space puts a hold on your eligible debts for 60 days. During this 60 day period, no interest or fees will be added to your debts, and your creditors won’t take any actions to recover money from you. Breathing Space is not a payment holiday, so you will still need to continue paying your debts during this time, but the scheme is designed to give you time and space to get advice and help.
If you’re feeling overwhelmed or need help finding out how to get out of debt, you can use the 60 day Breathing Space to find out more about other debt solutions, such as the other ones mentioned in this guide. You can find out more and apply for Breathing Space from an approved debt advisor like StepChange.
Lowell are here to help
There are lots of different debt solution options available for people who need help with debt problems. It’s important to consider your options, and get independent advice on your financial situation before you take any actions.
No matter your circumstances, Lowell are here to help our customers work towards clearing their debt. If you’re feeling worried, although we can't facilitate the debt solutions mentioned above ourselves, we can listen to your concerns and put you in touch with other, approved organisations who can help you seek independent advice on your next steps.