Unsecured Debts Under £5000?

Have Credit Card Debts and Unsecured Loans Caused Bad Credit?

Sep 20, 2008
Asa Ghaffar

Pay Off small debts - Cohdra

If credit card debt, unsecured loans and unauthorised overdrafts are causing you stress and anxiety they're serious debts, even if they add up to less than £5000.

When you consider what constitutes a serious debt problem, you automatically think about owing a large sum of money. The reality is that personal debt is a problem when you can't afford to repay the money you've borrowed from creditors. The amount you owe is immaterial.

Dealing with Debt Problems Under £5000

If you owe multiple small debts to different creditors, there are several effective ways of paying-off your debts. Potential solutions include cost-cutting, administration orders, debt management plans and personal bankruptcy. Your options are only limited by you ability to afford the repayment schedule.

Administration Order

This debt-free plan involves making a monthly payment to the court, and they disseminate the money to creditors on a pro rata basis. There's a 10% charge for performing this function, but there's no initial fee for dealing with the N92 form. In order to apply for an administration order, the following criteria must be met:

A County Court or High Court Judgement must have been issued.
There are a minimum of 2 creditors Your total debt must be less than £5,000
If the order is agreed to, the court will normally apply an earnings attachment which ensures that payment is received each month.

If the order is agreed to, the court will normally apply an earnings attachment which prevents the debtor from failing to make their monthly repayment.

Debt Management Plans

A debt management plan is a means of putting all your debts together, and making a single payment that can be distributed to your creditors. You'll normally require a minimum of 3 creditors, and you must be able to afford a payment of at least £100 per month.

Unless self-managed, administering this debt relief program will incur a 10% fee. This is taken directly from each payment. There are some charitable organisations, such as Payplan, that offer debt-free solutions for free. They don't charge you a management fee for administering the program.

Reduce Your Spending

The most effective way to deal with very small debts is to reduce your outgoings or work some over-time. If you scrutinise your income and expenditure figures, you can normally identify ways to save money. You may be able to achieve this goal by reducing your social spending.

Declare Bankruptcy

Declaring personal bankruptcy is a means of dealing with serious debts that you can't afford to repay. You'll be able to write off all your unsecured debts, and will be fully discharged after just 12 months. The only exception is if you've committed a bankruptcy offence, such as losing money due to speculation. If this is the case, you could be held accountable for up to 15 years.

You can eliminate debts as small as just £500. Although it's not uncommon for people to declare themselves bankrupt to eliminate small debts, it's inadvisable. It incurs a charge of £385 and has a damaging effect on your credit rating.

Before selecting a debt-free solution, speak to a debt counselling service, such as the Citizens Advice Bureau (CAB) or National Debtline.