It goes without saying that none of us want to be in debt. Debt however is a normal part of life, and in some ways – debt is useful when it is managed correctly (a mortgage is a great example of this!).
However, when we land ourselves in debt and cannot cope anymore, we must find solutions to get out of the trouble. But what happens if you have no cash?
If you have no money and you want to pay off your debt, there are some solutions such as a debt relief order, individual voluntary arrangement or a debt management plan. However, there are plenty of extra factors to each of these.
Other than this, you may decide it’s worth working to pay off your debt or sell some of your items. Either way, you’ll need to know more – so we’ve written this helpful guide to help you understand some solutions to your debt problems.
Read on and find out more.
Paying Off Your Debt
If you have debts but you have no money, you could potentially offer to work for the person or organisation that you owe the money to and allow them to garnish your salary – or you could get a job and pay the debt off in monthly instalments.
This of course is never always possible and you may need to sell your items to offset the debt. Let’s look at both of these options first.
Working To Pay Off Your Debt
You can’t pay off a debt without any money, and the most obvious way to get money is to work for it.
Of course, this won’t be a solution for everybody, but if it is a viable option, then consider the two possible solutions below.
Arrange With The Creditor
Depending on what type of debt you have, you could arrange to work your debt off with the creditor.
For example, this could be a garage where you have failed to repay vehicle repairs.
Speak With Your Employer
You could ask your employer and your creditors to garnish your salary a set amount each month and get your debt paid off eventually – however, this could take a significant amount of time and will not always be accepted.
Sell Your Items
If you have no money and your debt is relatively low, you could sell some of your items like your car to try to offset the debt.
You may not be able to cover the entire debt amount, but you could significantly reduce the overall debt amount.
If you have no money and very little or no income, you could opt to involve yourself in one of a few debt solutions.
To find out if these debt solutions are right for you, you should speak with someone like StepChange Debt Charity or the National Debt Helpline.
These organisations are free to use and can help you by working as an intermediary between yourself and the Insolvency Service. They are non judgemental and do not ask for any payment.
However, some of these options will require a small payment – but it does not go to these organisations, it goes to the Insolvency Service.
Let’s look at a few of these options.
Debt Relief Order (DRO)
A debt relief order is often known as “mini bankruptcy”. This is a very good solution for some people, depending on circumstances and whether or not you qualify.
The basic requirements for this debt solution are:
- Your overall debt must be £20,000 or under
- You must not have more than £50 per month available to pay towards the debt (after paying essential bills)
- You must not have had a DRO in the last six years
- You must not have assets which you could reasonably sell for the debt (this is a complex point though)
Debt relief orders work by speaking with an intermediary like StepChange and discussing your situation.
If their advisors agree that this is the best course of action for you and you agree to it, you will need to fill out lots of paperwork.
Once this has been completed and you’ve included all of your debts accurately, you must then formally send an application to the Insolvency Service at a cost of £90. A 12 month period begins then.
During this 12 month period, creditors cannot seek payments from you, and assuming your circumstances do not change within this time – after 12 months you will be debt free!
You must be aware though that this solution will affect your credit rating for six years after though.
Individual Voluntary Arrangement (IVA)
An IVA is another great option for some people, however generally these are solutions for people who have reasonable amounts of money to pay towards the debt in the meantime.
Creditors will come together and agree to reduce your debt, often as much as 75% – and over time, you will pay a set amount to pay off the debt.
However, if you default on this arrangement – you could find yourself in significant debt trouble and your credit report will be extremely impacted.
Debt Management Plan (DMP)
A DMP involves speaking with an intermediary like StepChange and assessing how much money you could pay towards a debt.
The debt amount does not change, but a DMP does not affect your credit rating as much as an IVA can.
Not only this, you will likely find it easier for a DMP to be accepted over an IVA. It’s worth speaking to someone about your options though.
Apply For A Debt Consolidation Loan
If you find yourself with multiple debts and you cannot keep up with the payments – you may find a debt consolidation loan is the right course of action.
It’s worth noting though that if you have no money to pay the agreed monthly fee, you should not seek this option.
However, if you can afford it – this could be the right move.
A debt consolidation loan is essentially applying for enough money to cover your collective debts and then have one set amount to pay off each month.
This could save you hundreds or even thousands in interest payments too.
Ask For Government Help
Depending on your circumstances, the Government might be able to help you with your debts. If you are on certain benefits for example, they might be able to take a small amount out of your payments and place them towards your existing debts.
If you think you might be eligible for Government assistance, you should speak with an advisor as soon as possible.
Check Your Debts
Most importantly, check your debts and write down accurate figures. You will need to ensure who you owe money to, the accurate amount and assess if the debt is legitimate or not!
Paying off debts with no cash is a problem, but this does not mean there are no solutions. Depending on your circumstances, contact the Government or someone like StepChange for advice immediately.