How can I manage my debts even with a low income?

Can I make a plan to pay my debts if I’m living on a squeezed income?

Getting out of debt is difficult enough at the best of times, but when you’re on a low income, it can feel like an uphill battle. With the cost of living constantly rising, your income can be squeezed beyond breaking point, and even paying the interest on your debts can become unmanageable. 

There are lots of reasons why you might have money troubles. Your household income might have dropped, you may have separated from a partner or your costs may be spiralling. Whatever the situation, there are options to help you manage your debts, regardless of your income.

Understanding your debt management options

There are many strategies for managing debt. The right approach for you will depend on your personal circumstances and the type and amount of debt you have. We’re going to cover formal and informal debt solutions. Informal debt solutions are often preferable as they typically have a reduced impact on your credit rating. However, they require the agreement of your creditors, and missed payments can still be recorded in your credit file.  

While this guide provides a useful overview, there’s no substitute for personalised advice. At Scottish Debt Solutions, we provide fee-free advice tailored to your specific circumstances and can put informal and formal debt solutions in place on your behalf. Other sources of free, trustworthy advice include debt management charities such as StepChange, National Debtline and Citizens Advice.  

You can also contact other creditors, such as credit and store card providers and lenders you have overdrafts or unsecured personal loans with. They may offer a lower interest rate or help you create a more manageable payment plan. 

Get some breathing space while you decide what to do

The government-backed Breathing Space Scheme, also known as the Statutory Moratorium in Scotland, effectively stops creditor action for six months so you can seek professional debt advice and consider your long-term options. 

It’s not a debt solution as it doesn’t write off debt, but it is free and prevents creditors from contacting you, commencing legal action and adding interest and charges to your debt. The Statutory Moratorium can give you a much-needed break from debts, including store and credit cards, overdrafts, payday loans and outstanding household bills.  

Consider the Debt Arrangement Scheme (DAS)

If you have a stable job and some money left at the end of the month to put towards regular payments, the Debt Arrangement Scheme could be an option. It is a free debt management solution that allows you to pay your debts over time at an affordable rate. You make a single monthly payment that’s shared between your creditors, and as long as you continue to make the payments, they cannot take action against you. 

Although a DAS does not reduce the amount of money you owe, it does freeze all interest and charges and allows for payment holidays and crisis breaks if your circumstances change. Unlike other formal debt solutions such as a Trust Deed and sequestration, your home is not generally at risk as long as you continue making your mortgage payments. You must live or be based in Scotland to apply. 

The Debt Arrangement Scheme will typically remain on your credit file for six years from the date of approval, and it’s unlikely a lender will let you borrow money during that time.  

Enter into a Trust Deed

A Trust Deed can help you manage your debt if you live in Scotland and owe over £5,000 that you’re struggling to repay. It’s best suited to debts such as store cards, credit cards, overdrafts and personal loans. You may also be able to include debts such as council tax and rent arrears.

If you don’t have any income left at the end of the month to put towards your debts, you will need assets, such as equity in your home, that you can sell. An Insolvency Practitioner will set up the Trust Deed on your behalf and act as the Trustee. 

Once the Trust Deed is in place, you will make affordable monthly repayments towards your unsecured debts over a typical period of four years. During this time, creditors are typically prevented from adding interest and charges or taking further action against you. Any remaining debt will usually be written off when the Trust Deed period ends.  

Apply for sequestration

If your income is low, you have little money left at the end of the month and no real way of paying off your debts, sequestration, a form of bankruptcy in Scotland, could be your best option. You must have at least £1,500 of unsecured debt to apply.  

During the sequestration period, which usually lasts 12 months, your assets can be sold to pay off your debts. Once the period ends, you’ll be officially discharged and most of your outstanding debts will be written off. There’s also a special form of sequestration called the Minimal Asset Process (MAP). That only usually lasts six months and is suitable if you’re on a low income and have few assets. 

Explore your options

If you’re trying to manage debts on a low income, access as much free information and advice as possible before taking action. At Scottish Debt Solutions, we will assess your circumstances, explain your options and guide you on the best route forward. As Insolvency Practitioners, we can set up and implement a Debt Arrangement Scheme, Trust Deed and sequestration on your behalf. 

Please get in touch for a free consultation, to arrange a home visit, or to meet at one of our offices throughout Scotland.