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What are the pros and cons of a debt relief order?
Sometimes referred to as a mini bankruptcy because of the many similarities between the two, a Debt Relief Order (DRO) is a form of insolvency for people struggling with debt. As with other debt relief programmes, there are both pros and cons of a debt relief order that must be considered before taking action.
The Pros of a Debt Relief Order
There are numerous benefits to entering a debt relief order. Perhaps the biggest advantage is how how inexpensive they are to enter. Costing just £90.00, a DRO is a great solution for people struggling with a small amount of debt and looking for a quick and cheap way to begin to escape from it. Once you enter a DRO, all interest and charges relating to your debts covered by the DRO are frozen for the entire duration. Furthermore, once you have been approved for a DRO, your creditors will no longer be able to take legal action against you – freeing you up from the immediate stresses of calls and letters demanding payments and the threat of legal action. Perhaps the biggest advantage of a DRO is how quickly it can help you escape from debt. Once you enter a DRO, all debt covered by it will be written off once it ends – this usually being 1-year. As such, many people see the pros of a Debt Relief Order as offering them the best opportunity of becoming debt free. Designed for people with little income and very few assets, DROs are a great assistance to people struggling with small debts and whom have little prospect of paying these back themselves.
Is a DRO the best option for me?
A debt relief order is the best route for many with extreme debt, however it isn’t suitable for everybody as it only covers certain types and amounts of debt. A DRO can also have a signifcant impact on your credit rating and your lifestyle, so shouldn’t be taken without caution. Depending on your circumstances, there may be other better options. These options include debt consolidation, Individual Voluntary Arrangements (IVAs) and Bankruptcy. Complete our quick online assessment to see which is best for you.Take our quick online test
The Cons of a Debt Relief Order
Just as there are many advantages to entering a DRO, there are also various disadvantages – each of which must be carefully considered before making your decision. Perhaps the biggest hurdle preventing people from entering a DRO is the fact that homeowners are ineligible to apply. Therefore, if you own your own home, you cannot apply for a DRO. This financial restriction goes further, with only those with very low assets able to apply for a DRO. Furthermore, applicants must have less than £50 per month in disposable income to be considered. Such restrictions also apply to the amount of debt a person must have, with a DRO only granted if your total debt is less than £20,000. Another disadvantage to a DRO is that they are only available to people living in England, Wales and Northern Ireland. Residents of Scotland are not eligible for DROs and should seek advice on what similar Debt Relief Plans are offered in Scotland.
Another thing to consider is that the cons of a DRO do not stop once it has ended. Whilst most DRO’s end after 1-year and allow you to then become debt free, your credit rating will be affected for a total of six-years. This means that during these six-years you will find it extremely difficult to get loans and other related financial products. There are other problems with Debt Relief Orders, one being that they only cover specific debts – this means that even if you enter a DRO, some of your debts may not be covered, therefore meaning that you will remain responsible for honouring payments for these debts.