How to pay off debts

Image of author, Maxine McCreadie

Maxine McCreadie


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Debt is something we all know about, whether you’ve taken out credit cards in the past, or you’ve got involved with payday loans and are struggling to control your finances. Although debt is a familiar concept, however, it’s still common for people to be unsure of how to get themselves out of it.

In this guide, we’ll explore your options for paying off debt: Why it’s important to understand your current debt level, what happens if you can’t make your debt payments, and which debt solutions will help you pay off your debt most effectively.

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Understanding your current budget

Before you take steps to get out of debt, you first need to make sure you understand exactly how much debt you’re in, and what kind of budget you have to pay your way out of it. That means taking stock of your finances.

The first step is to get on top of your income and expenditure. Make a note of everything that comes into your bank account (your wage, benefits, or any other money), and anything that goes out (whether that’s student loans, credit card payments, your car loan, or other bills).

The difference between your income and your expenditure is your disposable income – money that’s yours to do what you like with. This figure (plus any money you have in savings accounts) will give you an indication of the level of monthly payment you can commit to paying off your debts.

Which debt should I pay off first?

The first thing many people ask when they decide they’re ready to pay off debt, is which debt they should pay off first. Luckily, debts come in two categories, priority and non-priority, which will help you decide where you should concentrate your money.

Priority debts

Mortgage and rent arrears, Council Tax arrears, utility bills

Priority debts are the debts that come with more serious consequences should you fail to repay them, including added interest, charges, and even court action.

Some of the most common priority debts include:

  • Mortgage debt and rent arrears
  • Council tax debt
  • Bills for gas and electricity services
  • Court fines
  • Tv license payments

Once you have identified your priority debts, it’s important you make a plan to pay off your debt immediately. Either reach out to your creditors (the people you owe money to) directly, or talk to debt settlement companies about helping you arrange a debt management plan.

Non-priority debts

Credit card debt, store card, personal loans

Non-priority debts are debts that don’t come with consequences quite as serious if you fail to repay the company or creditor you owe money to. That doesn’t mean you don’t have to settle your debt, it simply means you have more time to come to an arrangement.

Your non-priority debts might include:

  • Credit card debt
  • An unpaid store card or catalogue
  • An auto loan (as long as you don’t need the vehicle for work)
  • A personal loan (money borrowed from friends and family)

With non-priority debts, it’s still important you repay when you can. If you continue to avoid repaying your credit card issuers, for example, they may eventually take you to court seeking credit card repayments.

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How can I pay off debt with no money?

Paying off debt can be difficult even if you have a certain amount of money. It takes discipline, and means making sacrifices and sticking to a strict budget.

If you don’t have any money coming in, are unable to work, or are relying on benefits, finding a way to pay off your debts is even harder.

The good news is there are always debt options available, even if you have little-to-no money or assets. Certain debt solutions are aimed specifically at people on low-income or benefits, and many come with a debt write off that will allow you to put your debt behind you and make a fresh start.

Which debt solutions will help me pay off debt most effectively?

The best debt solution for you depends on your financial situation, the amount of money you can commit to the arrangement, and your overall debt level. Below are some of the most popular debt solutions available in the UK.


An Individual Voluntary Arrangement (IVA) is one of the most popular ways for people to get out of debt. The agreement is set up by an Insolvency Practitioner – a debt professional approved by the Financial Conduct Authority. It allows you to turn your debt into one monthly payment over a fixed term (usually six years). When that time is up, your creditors will write off any debt you have left over.

Trust Deed

A Trust Deed is Scotland’s answer to the IVA, which is only available in England, Wales, and Northern Ireland. Like an IVA, it offers people a way to pay off all kinds of debt, whether it’s credit cards, unpaid insurance policies, or a personal loan, through a single monthly payment. A Trust Deed offer a quicker way to get out of debt, usually lasting four years, rather than six years in an IVA.

Minimal Asset Process

The Minimal Asset Process (MAP) is a fairly new debt relief solution overseen by the Scottish Government. It’s a form of bankruptcy aimed at people with extremely low income, and allows you to get out of get in six months by turning your money and assets over to the arrangement. A Debt Relief Order is a similar debt solution available in the rest of the UK.

Debt consolidation loan

A debt consolidation loan is a useful way to get out of debt, by spreading your money across all your existing debts. With a debt consolidation loan, you will take out a loan from a new credit provider and use the money from that loan to repay your existing debts at a lower interest rate, whether that’s an auto loan, student loans, or paying off your credit card debt.

Debt settlement offer

A debt settlement offer is a way of repaying your debts by offering your creditors a lump sum payment. If you have savings, or come into a lump sum, you can use that money to offer creditors a portion of your total debt upfront. The more money you offer, the more likely your debt settlement is to be accepted by your creditors, whether that’s your credit card issuers or the student loan company.

What does paying off debts do to your credit score?

Credit scores

Credit scores are the three-digit numbers (going up to 999) that offer an indication to lenders of how risky it would be to give you credit. The higher your credit score, the more likely you are to be accepted for credit cards, get deals on loans with a lower interest rate, and make use of other financial services.

Paying off debt will have a net positive affect on your credit score. In general, one of the best ways to boost your credit score is by paying off existing credit, like student loan debt. By paying off the money you owe, you demonstrate to lenders that you know how to pay off debt, and can be trusted to pay your way in future.

Credit reports

While paying off debt will improve your credit score, it may take a month or two from the day you pay off your loans to the day you see the increase in your credit rating. It’s also important to know that even when you pay off debt, traces of it will remain on your credit report.

Credit reports account for your entire financial history, and will usually carry details of your debts for a period of six years. During that time people will be able to discover your debts through a credit search – search your credit report, and your debts will appear. That said, a credit search is only usually conducted by lenders and financial services companies, not the general public.

What happens if you don’t pay a debt?

The first thing you need to do if you think you’ll struggle to pay a debt is to get in touch with the creditor. If you’re in credit card debt, speak to the credit card issuer. If you’re in student loan debt, talk to the student loans company. Just by acknowledging the problem, you make it more likely yourself and the creditor will be able to find a way forward.

If you’re still struggling to repay your debts, you need to consider your options. While priority debts are more serious, failure to repay any debt can come with serious consequences that go beyond damaging credit reports. These range from creditors taking payments directly from your income, to seeking legal action to have your home repossessed.

If you’re in serious debt trouble and you’re running out of ways to repay the money you owe, it’s time for you to seek debt advice from the professionals. There are several charities that can offer you debt advice in the first instance, like Citizens Advice and the Money Advice Service. Beyond that, a company like IVA Plan can offer you the kind of agreement that will help you put your debts behind you.

Where can I get debt advice and help to pay off debts?

Many people carry debt, but not everyone knows how to pay their debt off. It’s that uncertainty that can leave people reluctant to take action, even as their bills rack up, their money dwindles, and their creditors won’t leave them alone.

If you’re struggling with debt and your payments look like they’re way beyond your income, don’t panic. Talk to IVA Plan. We specialise in debt solutions that can help you get on top of your money troubles and answer all your credit questions.

While you’re on our website, reach out to IVA Plan today.

You could write off up to 81% of your unsecured debt today