There is no doubt that debt fuels the growth of all major economies around the world. And the UK is no exception. But, when the debt goes out of hand, it becomes a cause of concern for borrowers availing it.

As of January 2020, £31,845 was a UK adult’s average debt, much higher than the average earnings; 112% more, to be precise. While individuals owe about £1.680 trillion, public debt is £1.95 trillion. And, every day, about 318 people in the UK declare themselves as bankrupt.

Looking at the statistics, it must seem clear why paying off debt should always be on your list of top priorities. However, most borrowers do not know their rights as a borrower.

This article is a one-stop guide to everything you should know as a borrower while repaying your loans.

Before we move any further, take a look at the ready reckoner to brush up your knowledge and understand the technical jargon associated with UK loans.

Repaying Spiralling Debt – Best Plans

The following are the best plans you may avail while clearing off your debt in the UK.

1. Debt Management Plan

To avail the benefits of a Debt Management Plan, you have to register with a DMP service provider. A DMP provider would negotiate with you and your lender and decide an amount that suits both you and the lender.

As you pay the DMP provider, they would use the funds to repay your lender as per agreed terms. Generally, you may use the DMP service if you have non-priority debts, which include personal loans, overdrafts, bank loans, society loans, credit cards, payday loans, money borrowed from relatives, and home credit debts.

Although most DMP providers offer free consultation and service, there are a few providers who charge fees for providing such services. Before registering for a provider who charges money, check whether the firm is approved by the Financial Conduct Authority or not.

2. Debt Relief Order

A debt relief order is issued by the Official Receiver of the lending institution if they feel your financial condition makes it impossible for you to repay your loan.

To apply for a Debt Relief Order, your outstanding debt must be below £20,000, and you must not have any assets and savings over £1,000. Additionally, the spare cash in your hand must not exceed £50 every month.

Generally, you may apply for a DRO if you have qualifying debts, which include loans, credit cards, overdrafts, rent, Council tax, utility bills, Income Tax, or insurance contributions.

3. Individual Voluntary Arrangement

An IVA is an arrangement between you and your lender through the help of an Insolvency Practitioner. When you and the lender enter into the IVA, the lender allows you the facility to pay a fixed amount every month for a period not exceeding 72 months. Whatever amount remains to be paid after the repayment period is usually written off.

IVA is a nice way to show the lender that you are willing to pay a certain sum without being a defaulter. This can make your lender remain open for you if you need a loan in future.

You may apply for an IVA if you have taken an overdraft, credit card, catalogue debt, or personal loan.

Repaying Debt – COVID-19 Relaxations

The COVID-19 pandemic has prompted the UK administration to take several steps aimed at easing citizens’ burden. Know the short-term relief you may avail if you have taken a loan and are struggling to repay the EMIs.

1. Mortgage Loans

If you are paying off a mortgage loan, then you may request your lender to offer you up to six months’ loan holiday. The last date to apply for the relaxation is 31st October 2020.

2. Credit Cards and Personal Loans

If you haven’t paid your credit card or personal loan dues, then you may avail of an extra three months’ payment holiday. You need to apply before 31st October 2020, though.

3. Insurance

You may delay insurance payments for three months or reduce your cover at no extra cost.

4. Overdraft

Banks are giving away three months’ interest-free overdrafts below the amount of £500. Hence, if you have still not applied for an interest-free overdraft, you may do so before 31st October 2020.

Clearing Off Debts – The Time-Tested Tips

Now that you know what you can do to repay your debt when in trouble and the temporary relaxations you may avail of, it’s time to know the things you can do to shape up your debt profile.

1. Pay Off As Early As You Can

If you are paying credit card, personal loan, or student loan EMIs, the chances are high that you pay the same amount every month and have to continue paying it for the rest of the tenure.

Any wise borrower would always pay a little extra when they have extra funds in their account. This way, they can not only save interest cost but also enhance their credit score. Moreover, this will make you eligible to apply for a fresh loan.

2. Have a Side Income

Sometimes, despite your eagerness to clear off your debts earlier, your wallet just won’t support that. Consider registering on websites like Upwork or Freelancer to augment your earnings. You may utilise the extra money to clear off your debts.

3. Negotiate With Your Lender

Often, by communicating with your lender, you can lower down the interest rates. While there is no guarantee that this would work, there is still no harm in trying it out. Generally, lenders show leniency towards borrowers who have a super-high credit score and attractive financial profile.

4. Transfer Your Balance

If you think your lender is charging too high a fee and is very rigid with the rates, consider shifting your balance to a new lender. While the new lender may still ask you to pay a small fee for availing the benefit, if your loan amount is high, you will emerge as the clear winner.

5. Take a Credit Card That Understands You

Instead of applying for a costly loan, you may apply for credit card from a card provider who charges low fees. Read the terms and the track record of the card provider before signing up. With some cards, you can also get amazing sign-up bonuses that can make the deal even sweeter.

Conclusion

Accumulating debt is the easiest thing you can do in the UK. As a prudent borrower, you must think of all the pros and cons of a loan before applying for it. Only by investing a little time before can you save yourself from hassles later.