(Picture: Ella Byworth for Metro. co.uk)

Read any article on getting out of debt, and the general gist will either be ‘work hard and spend as little as possible’ or ‘use our handy trick and write everything off’.

The latter of these options seems far too good to be true.

And the former seems, well… hard.

When you consider the possibility that you might not be debt-free for a number of years, the slog and penny-pinching stretching out in front you are bleak.

That’s why some people either choose to bury their head in the sand, or seek out these mystical debt-killers who will get your balance down from thousands of pounds to a few quid a month.

Although they promise to write off debt, though, there’s a nagging feeling that surely you can’t just have the money you borrowed written off.

Companies are notorious for showing the terms and conditions in tiny fonts or saying them in one breath at the end of an ad. But if they say there are loopholes, could they lie?

The answer to that is no, but with a whole bunch of caveats.

These so-called ‘loopholes’ that can help you write off debt only come into play in certain cases – generally when you can’t afford to pay lenders back, or when credit was mis-sold or there were other discrepancies.

IVAs

The majority of the companies who claim to be able to get rid of debt are actually advertising an IVA (Individual Voluntary Agreement) service.

An IVA is a legal agreement with your creditors that means you’re protected from further action against you, and there are set guidelines of an affordable amount for you to pay back, with some of the debt written off.

Most debts can be included in an IVA, but some – like mortgages, hire purchase products, and student loans – will not be included.

All of your creditors have to agree to an IVA, which tends to be why companies or charities are brought in. They can negotiate with your creditors to ensure a favourable outcome (although they can’t force your creditors to agree to enter into an IVA).

You’ll usually pay over 60 or 72 months, and get a certificate at the end to show your outstanding balance is paid.

When your agreement is being worked out, it will be determined what is an affordable amount for you to repay each month, with your living costs taken into account. If your creditors accept this, they will freeze interests on your repayments, and write off any outstanding debt over and above this amount.

Some IVA companies will claim they can rid you of up to 90% of your debt. This is usually a fairly outlandish claim, but it is possible. In general, you’re more likely to see up to 60% of your debt written off.

Seems like a dream, right?

There are downsides to an IVA. Firstly, they are designed for people with larger debts (usually around £15,000 or more), so you can’t just ask to write off the £200 balance on your credit card.

It’s no miracle fix, and does mean that you will have to stick to a strict budget for around five years to pay back a portion of what you owe.

On top of that, your credit rating will be negatively affected. This mark on your credit report will stay for six years after you commence the IVA – so typically up until a year after you’ve finished paying.

That’s not say that IVAs aren’t a lifeline for a number of people. It’s just worth putting into perspective that it isn’t a magic wand to have debts written off, and instead is designed for people in financial hardship whose debts are unmanageable.

DROs

A Debt Relief Order (DRO) can write off debt for people who have a small disposable income, few assets and relatively low level of debt.

It’s available to those who owe less than £20,000 in unsecured debt and don’t own a home, and costs £90, which is paid towards the Insolvency Service.

It means that you won’t have to pay back anything for 12 months, and lenders aren’t allowed to contact you. If your situation is still the same in terms of affordability to repay once the 12 months is up, your debt will be written off.

You will have to prove your income and expenditure and have under £50 a month left after your living costs and under £1,000 in assets.

Like an IVA, this will also impact your credit score for six years, so isn’t a decision to be taken without due care, despite the benefits.

Bankruptcy

Bankruptcy is technically a way to rid yourself of debt, but is not an option that is suitable for a number of people.

It tends to be for people who are in very serious amounts of debt who have no other way to change their situation, and for people when the value of their unsecured debts is higher than the value of the things of value that they own (sounds complicated because it is).

It does mean that pretty much all of your debts are written of but, again, it is not so much as a legal loophole, rather an agreement you enter into that has consequences that allow for this write-off.

Unlike in an IVA, where you pay back a portion of your debt in a way affordable to you and are able to keep assets like a house, if you become bankrupt your house, car, and other assets may need to be sold.

Once you’re made bankrupt, this will have serious, long-term effects on your financial record. It will stay on your file for six years, and can affect everything from your ability to get a current account to whether you can get a mortgage later in life.

It is a complex process (and one which you will have to pay fees for). It is not something to be taken lightly as any sort of loophole, but can be a fresh start for those who see no light at the end of their debt tunnel.



Where to go if you’re in debt

None of the options spoken about in this article are a one-size-fits-all solution, and debt advice should be sought before deciding on any of them.

You can call the National Debtline on 0808 808 4000.

Alternatively StepChange and Citizens Advice Bureau provide free, impartial debt advice.

These are the best places to go for fair advice, rather than taking advice from a company who may try to sell you debt relief options that aren’t in your best interest.

Complaining through the Financial Ombudsman Service

This method is still not a loophole, and still not a way to technically ‘get rid’ of debt.

However, it is a way to have recourse if you feel that your lender acted irresponsibility in your dealings with them, and if you feel that the amount you repaid was unfair or incorrect.

You normally need to start off by complaining to the company you borrowed from, and you should get advice from the likes of National Debtline (details above), particularly if you’re still making repayments.

Services like Resolver provide guidelines on how to make a complaint and who is eligible. Then, the company will take a look and decide whether you’re entitled to compensation or some other solution.

If the company says you don’t have a claim or makes an offer you don’t feel is acceptable, you can then take your case to the Financial Ombudsman Service, who will see whether the lender acted appropriately and make a decision from there.

Again, this isn’t a form of debt forgiveness, and not all borrowing will be considered in terms of complaints. It is a way to hold borrowers to account if you aren’t being treated fairly, though.

Regardless of whether you’re right for any form of debt forgiveness, it will still take work, budgeting, and potential consequences to become debt-free.

There is not such thing as a free lunch and no such thing as free borrowing.

What there is, though, is a number of charities and advisory services who understand that you’re human, and want to help you get out of debt for good.



Debt Month

This article is part of a month-long focus in November all about debt.

Scary word, we know, but we’re hoping if we tackle this head on we’ll be able to reduce the shame around money struggles and help everyone improve their understanding of their finances.

Throughout November we’ll be publishing first-person accounts of debt, features, advice, and explainers. You can read everything from the month on the Debt Month tag.

If you have a story to share, a topic you want us to cover, or a question that needs answering, get in touch at MetroLifestyleTeam@Metro.co.uk.

 

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