Of course, any debt is a priority – and any problems repaying those debts should be addressed immediately.

There are different types and levels of debt – and as such, there are different debt solutions that might be more appropriate for each individual's circumstances. Here we look at two debt solutions: debt consolidation and IVAs (Individual Voluntary Arrangements).

Debt consolidation

Debt consolidation is a way of combining your debts and simplifying your finances. It is usually most suitable for people who feel they are able to repay their debts within a realistic timeframe, but not necessarily on the original terms. A debt consolidation loan can also be useful for people who simply want to benefit from the convenience of a single monthly payment.

A debt consolidation loan is essentially a new loan taken out to repay your existing debts, after which you will repay your new lender in regular monthly payments. This means that instead of dealing with several separate debt repayments each month, you will only need to make one.

It is also possible to reduce your monthly outgoings with a debt consolidation loan. By spreading repayments across a longer time period than the original debts, your total monthly payment will be reduced – but be aware that this will lead to you paying more in interest than if you had repaid the debt in a shorter space of time.

However, if you are consolidating high-APR debts, such as credit cards or store cards, you may be able to save money in interest, since the interest rate is often lower on a debt consolidation loan.

IVA (Individual Voluntary Arrangement)

An IVA is for more serious problems with debt – usually £15,000 or higher – and is generally considered a preferable alternative to bankruptcy. An IVA involves making reduced monthly payments to each of your creditors, based on how much you can afford.

Before you enter into an IVA, you will work with a debt adviser or Insolvency Practitioner to draw up a proposal for your creditors, detailing how much you are able to pay each month. This proposal will then be submitted to your creditors, who will be invited to approve (or reject) it. Creditors accounting for a combined 75% of your overall debts must approve the proposal for the IVA to go ahead.

If your proposal is approved, you will begin the IVA and make regular monthly payments to your debt adviser, who will distribute the money on a pro rata basis (based on how much is owed to each creditor). This will usually continue for five years, after which the remaining debt will be considered settled.

Be aware, though: an IVA is a significant financial commitment that will leave you with little or no disposable income for the duration. If you are a homeowner, you will also be expected to free up some of the equity in your home in the 54th month of your IVA (half way through the fifth and final year), and this amount will also be distributed amongst your creditors.