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Dealing with debt itself is not optional and, in all honesty, your basic approach to dealing with it will largely be dictated to you by your circumstances.  Having said that, you most certainly do have some level of control over the proceedings and exercising this control effectively can make a great difference to the long-term outcome.

You are expected to pay off your debts in full if you possibly can

When you take out debt, you sign a contract, as part of which you agree to pay back that debt.  Some forms of debt allow a certain degree of flexibility with payments, e.g. credit cards, but all forms of debt work on the assumption that you will repay the amount borrowed if at all possible.  This means that you can only reasonably expect your creditors (and/or the law) to give you any leeway if you can demonstrate that your circumstances warrant it and you are only likely to be offered the amount of leeway your creditors (and the law) believe your situation deserves.

If you can afford to make your debt repayments in full, then you will need to use snowballing

To be clear, from a legal perspective, you can afford to make your debt repayments in full, if your income allows you to do so and still have enough left over to afford a basic standard of living.  What exactly this will mean in practice will depend on an individual’s situation, for example, if two people have an identical income, one may be expected to pay off their debts in full, with interest, because they are single and only have to take care of themselves, whereas another may qualify for some form of debt relief because they have children.  The good news is that if you earn too much to qualify for any form of debt relief, then you are almost certainly in a good place to pay off all your debts, especially if you use the snowballing method, which basically involves, making the minimum payments on all of your debts and then using your disposable income to make extra payments, starting with the highest-interest debt.  It may seem like a long, hard slog at first, but making extra payments, even small ones, can make a really big difference to your debt, especially as you start to build up momentum with your repayments.  That’s why it’s called snowballing.

If you can afford to repay the debt, but not the interest, then you need a debt-management plan

If your circumstances have changed since you took out the loan and you are now in a financial place where you can afford to pay back the principal but not the interest (or the same level of interest), then you are probably a candidate for a debt management plan.  This may be drawn up with the help of a debt-management charity or directly with the lender(s), according to your preference and theirs.  The bad news is that this approach is likely to hit your credit record.  The good news is that it is unlikely to require you to sell any assets (at least not your home).

If you can’t afford to make any form of meaningful repayment, you are insolvent

There are various paths through which you can be declared insolvent and different regions of the UK have different names for them, however in England and Wales, the three main variations of insolvency are bankruptcy, Individual Voluntary Arrangements and Debt Relief Orders.  Debt Relief Orders are essentially “bankruptcy light” and are only available to people with low levels of debt, no spare income and no meaningful assets.  Those with assets will need to choose between selling them as part of bankruptcy proceedings or entering into an Individual Voluntary Arrangements.  This choice is not necessarily straightforward and professional advice could be very helpful.

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