Many people can fall into a debt trap when they take out multiple credit cards or borrow substantial amounts to make large purchases. People also often fall into debt when their income has decreased but their expenditures remain the same. The Money Charity reported  that the average debt per household in the UK in 2020 was over £60,000. We know it’s not easy to dig yourself out of debt so we have consolidated a list of 5 debt repayment options to help you get out of the red.

Exceed The Minimum Payment

The minimum payment is the lowest amount of money you need to pay back your lender every month. Repaying only the minimum amount means that your account will be open for longer. The longer your account is open, the more money your lender makes from the APR  they charge you on your debt and the more that you need to pay back. Therefore it is best to exceed the minimum payment and try to get the debt repaid as soon as possible. 

We recognize that not everyone can pay above their minimum payments. Many lenders are willing to engage with their debtors to create a plan that works for everyone – so call your lender and ask for a lower interest rate. If you ask for a lower interest rate you may be able to work out a cohesive payment schedule with your lenders. 

If neither of these options works, try and change repayment dates so they are spread out across the month. It is a lot harder to repay a lump sum if all of your bills are due at once. Staggering repayment dates may make it easier to manage your bills and repay slightly higher amounts. 

Snowball or Consolidate Debt Payments

One method of debt repayment is called ‘snowballing’. The snowball repayment method is simple: pay off debts from the smallest to largest amount. The idea is to achieve small wins by paying off your smallest debt and using that momentum to tackle your larger debts. Once you have paid off a smaller debt, you can also use the money you were previously putting towards paying it off, to the bigger debt and so on until you are debt free.  

How to use the debt snowballing method

  1. List your debts in ascending order (from smallest to largest). 
  2. Keep making minimum payments on all your debts aside from the smallest one. 
  3. Put as much as you can into paying off the smaller debt until it is paid off. 
  4. Take the money you were using to pay off your smaller debt, and use it to make larger payments on the bigger debts. 
  5. Repeat this until the debt is paid.

Using the snowball method means that you are keeping up with minimum repayments on all debts whilst taking strides to pay off your debts one at a time. Getting out of a financial hole can feel like an impossible task. This debt repayment option means you can achieve step-by-step goals, which can motivate you to keep going on your journey to becoming debt free. 

However, one of the drawbacks of this method is that it will take you longer to pay off your largest debts. Your biggest debts are the ones that are most likely to have the largest amount of interest being charged, even if the APR rate is the same as on your smaller debts. This method can provide you with a psychological boost, but remember that interest is still being charged on your larger debts. Before you adopt this method – make sure it is right for you! 

Debt Relief Counselling or Programs

Another option is to enter into debt relief counselling or a related program. Money Saving Expert recommends that you only turn to debt counselling when you are in a debt crisis. A debt crisis is when you are struggling to pay all your basic necessities (rent, electricity and other bills) and your credit card minimums.  

If you find yourself in this situation, you should look at debt counselling programmes. Debt counselling programmes. Debt counselling services provide you with one-on-one professional advice. In extreme cases they can also provide you with a Debt Relief Order or DRO. 

A DRO is a form of insolvency specifically aimed at people who do not own their own house and have debts totalling less than £20,000. DRO’s can only be ordered through independent non-profit debt counselling services such as Citizens Advice,  the Step Change Debt Charity and the National Debtline.

Balance Transfer Credit Cards

  1. What are they?
  2. What do they do?
  3. How can they help?

A Balance transfer credit card is another debt repayment option that focuses on cutting the amount of interest that you pay. By decreasing the amount of interest you are paying you have more money to pay off the rest of your debts.

What is a balance transfer credit card?

A balance transfer credit card is a new card that is used to pay off debts on credit cards and other cards you may owe money on, for example from clothing shops. While it might seem counterintuitive to get a new card – a balance transfer card often lets you repay old debts at 0% interest or for a small fee. Below is some guidance on how to use a balance transfer card as a debt repayment option.

How to use a balance transfer credit card

  1. Transfer balance cards will offer an interest-free or low interest rate for a certain time only.Make sure to clear your debt before your interest-free or low interest rate time period ends otherwise fees can rise quickly. 
  2. Read the fine print and make sure you choose the lowest rates. Some cards have terms and conditions that mean you have to pay a minimum monthly amount to keep your initial rate. 
  3. Only use this card to repay debts. If you use it as a cash or debit card you can be charged high fees. 
  4. Make sure you read any conditions attached to your credit score. Some cards will take your credit score into account when giving you a certain amount of time on 0% interest. Our guide on improving your credit score can be found here.

Declare Bankruptcy

Bankruptcy works differently in different parts of the UK, in Scotland the process is called ‘sequestration’ and more information can be found here. In England, Northern Ireland and Wales, the process of declaring bankruptcy is the same. 

There are multiple types of bankruptcy: 

  1. Joint bankruptcy 

Joint bankruptcy is a form of bankruptcy for business partners. If you are a couple you are unable to qualify for this type of bankruptcy and must each declare bankruptcy. 

  1. Voluntary bankruptcy 

This is a form of bankruptcy that you apply for and declare yourself. It is also known as the ‘debtors position’. 

  1. Bankruptcy from creditors 

This is the opposite of voluntary bankruptcy. In this form of bankruptcy, creditors will force you to go bankrupt in order to recoup the outstanding debt from assets you own.

Should I declare bankruptcy to clear my debts?

Declaring bankruptcy is a serious decision that will write off your debts but can also affect other aspects of your life like your work or any assets you own like your home. Bankruptcy is a form of insolvency, like the Debt Repayment Order mentioned above. Unlike a DRO, when you declare bankruptcy any assets you own like a car, home and high-value items in your personal possession can be repossessed and sold to repay the debt. Declaring bankruptcy also involves a fee for submitting the form itself. Bankruptcy is a long process that has a significant impact on all aspects of your life – so consider your options carefully before deciding.  

For more tips on budgeting and managing your finances, go to the Portify blog, or to use our budgeting tools, download the Portify app.


Lauren Robson is the digital communications manager at Portify.
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