Debt can feel overwhelming, but there are clear steps to take control. This guide covers what to do when you can’t pay your debts — with specific advice for the US, UK, and Canada.
Warning Signs You Need to Act
Don’t wait until the bailiffs knock. Act now if you:
- Are only paying the minimum on credit cards every month
- Are using one credit card to pay another
- Have been contacted by debt collectors
- Are struggling to pay rent or mortgage
- Are losing sleep over money
- Have been refused credit
- Are using overdrafts or payday loans to cover essentials
If any of these sound familiar, the steps below will help.
Step 1: Work Out What You Owe
Before you can fix the problem, you need to know exactly where you stand.
Make a Debt List
Write down every debt you owe:
| Debt | Creditor | Balance | Monthly Payment | Interest Rate | Priority |
|---|---|---|---|---|---|
| Mortgage/Rent | High | ||||
| Council tax / Property tax | High | ||||
| Utilities (gas, electric, water) | High | ||||
| Car finance | High | ||||
| Tax debts (HMRC/IRS/CRA) | High | ||||
| Credit cards | Medium | ||||
| Personal loans | Medium | ||||
| Overdrafts | Medium | ||||
| Buy Now Pay Later | Low | ||||
| Store cards | Low | ||||
| Family loans | Low |
Priority vs Non-Priority Debts
Priority debts have serious consequences if you don’t pay — you could lose your home, face legal action, or lose essential services.
Non-priority debts won’t result in loss of home or criminal charges, but can still affect your credit score and lead to county court judgments (UK), lawsuits (US), or garnishment (Canada).
Step 2: Contact Your Creditors
This is the most important step and the one most people avoid. Creditors would rather work with you than chase you for payment.
What to Say
Call each creditor and explain:
- You’re experiencing financial difficulty
- You want to pay what you owe
- You need to discuss a revised payment plan
What They Can Offer
- Payment holidays — temporarily pausing or reducing payments
- Reduced interest rates — some creditors will freeze interest
- Extended payment terms — spreading payments over longer
- Hardship programmes — specific plans for people in difficulty
Tip: Always get any agreement in writing before making reduced payments.
Step 3: Prioritize Your Debts
Pay your priority debts first. Here’s the order:
UK Priority Order
- Mortgage or rent
- Council tax
- Court fines
- TV licence
- Gas and electricity
- Child maintenance
- Student loans
- Credit cards and loans
US Priority Order
- Mortgage or rent
- Property tax
- Auto loan (if you need the car)
- Utilities
- Child support/alimony
- Federal student loans
- Credit cards and personal loans
Canada Priority Order
- Mortgage or rent
- Property tax
- Spousal/child support
- Auto loan (if needed)
- Utilities
- CRA tax debts
- Student loans
- Credit cards and lines of credit
Step 4: Choose a Debt Solution
Debt Management Plans (All Countries)
A debt management plan (DMP) consolidates your unsecured debts into one affordable monthly payment. A DMP provider negotiates with your creditors to freeze interest and accept reduced payments.
| Feature | DMP Details |
|---|---|
| Who it’s for | People who can afford some payment but not full amounts |
| How it works | One monthly payment split between creditors |
| Duration | Typically 3-5 years |
| Credit impact | Noted on credit file for 6 years |
| Cost | Free (UK), low-cost or free (US/Canada) |
Individual Voluntary Arrangement (UK Only)
An IVA is a legally binding agreement to pay back a portion of your debts over 5-6 years. The remaining debt is written off at the end.
| Feature | IVA Details |
|---|---|
| Who it’s for | People with significant unsecured debt (£6,000+) |
| How it works | Fixed monthly payment for 5-6 years; remaining debt written off |
| Credit impact | Severe — stays on file for 6 years after completion |
| Cost | Paid from your monthly contribution (typically £1,500-£3,000) |
| Requirements | Must have a regular income; creditor approval needed |
IVA vs Bankruptcy (UK):
| Factor | IVA | Bankruptcy |
|---|---|---|
| Duration | 5-6 years | 12 months |
| Home | Can keep (with equity clause) | May need to release equity |
| Car | Can keep (below £4,000 value) | May lose it |
| Income | Reduces to agreed amount | Surplus income paid for 3 years |
| Credit impact | 6 years | 6+ years |
| Public record | Insolvency Register | Insolvency Register |
Debt Settlement (US)
Debt settlement involves negotiating with creditors to accept less than the full amount owed. Typically used for credit card debt over $10,000.
| Feature | Debt Settlement Details |
|---|---|
| Who it’s for | People with significant unsecured debt who can make lump-sum payments |
| How it works | Stop paying creditors; save up; negotiate lump-sum settlements |
| Typical settlement | 40-60% of the balance |
| Duration | 2-4 years |
| Tax implications | Forgiven debt over $600 may be taxable |
| Credit impact | Severe — accounts go delinquent during negotiations |
Warning: Be wary of debt settlement companies that charge large upfront fees. Legitimate companies charge fees only after settling each debt.
Debt Consolidation Order (Canada)
A debt consolidation order through a Licensed Insolvency Trustee combines all debts into one payment with a court protection from creditors.
| Feature | Debt Consolidation Order |
|---|---|
| Who it’s for | Canadians with $5,000+ in unsecured debt |
| How it works | Court-ordered payment plan; creditors cannot contact you |
| Duration | Up to 5 years |
| Interest | Court can order interest to stop |
| Credit impact | Noted on credit report for 3 years after completion |
Consumer Proposal (Canada)
A consumer proposal is a formal offer to creditors to repay a portion of your debts. It’s filed through a Licensed Insolvency Trustee.
| Feature | Consumer Proposal |
|---|---|
| Who it’s for | People who can repay some but not all of their debt |
| How it works | Offer to repay a percentage (typically 20-80%) over up to 5 years |
| Credit impact | Stays on report for 3 years after completion |
| Cost | Trustee fees paid from your payments |
| Benefit | Legally binding — creditors must accept if majority agree |
Bankruptcy (Last Resort)
Bankruptcy eliminates most debts but has serious long-term consequences.
| Country | Duration | Key Impact |
|---|---|---|
| UK | 12 months | Can’t be a company director; credit severely damaged |
| US | 3-5 years (Chapter 13) or immediate (Chapter 7) | Loss of assets; public record for 10 years |
| Canada | 9-21 months | Loss of assets; credit severely damaged |
Step 5: Get Free Help
Free Help in the UK
| Organisation | What They Offer | Contact |
|---|---|---|
| StepChange | Free debt advice, DMPs, IVAs | stepchange.org / 0800 138 1111 |
| National Debtline | Free debt advice by phone and online | nationaldebtline.co.uk / 0808 808 4000 |
| Citizens Advice | Free general debt advice | citizensadvice.org.uk |
| MoneyHelper | Free government guidance | moneyhelper.org.uk |
| PayPlan | Free DMPs and IVAs | payplan.com |
Free Help in the US
| Organisation | What They Offer | Contact |
|---|---|---|
| NFCC (National Foundation for Credit Counseling) | Free debt counselling, DMPs | nfcc.org / 1-800-388-2227 |
| Money Management International | Free DMPs, housing counselling | moneymanagement.org |
| InCharge Debt Solutions | Free DMPs, bankruptcy counselling | incharge.org |
| 211 (United Way) | Connects to local help | dial 211 |
| Legal Aid | Free legal help for low income | lawhelp.org |
Free Help in Canada
| Organisation | What They Offer | Contact |
|---|---|---|
| Credit Counselling Society | Free counselling, DMPs | creditcanada.com / 1-800-267-2272 |
| Money Mentors | Free debt help (Alberta) | moneymentors.ca |
| Consolidated Credit Canada | Free debt help | consolidatedcredit.ca / 1-844-411-1898 |
| Licensed Insolvency Trustees | Consumer proposals, bankruptcy | osb.gc.ca (find a trustee) |
| United Way Centraide | Local help | 211.ca |
Step 6: Build Financial Resilience
Once you’ve dealt with your immediate debt problems, take steps to stay out of trouble:
- Build an emergency fund — even £500/$500 can prevent future debt
- Create a budget and stick to it — track every dollar/pound
- Build your credit score — pay bills on time, keep credit use low
- Avoid unnecessary credit — cut up store cards, close unused accounts
- Get income protection — insurance that covers your bills if you can’t work
How Debt Affects Your Credit Score
| Action | Credit Impact |
|---|---|
| Late payment (30+ days) | Drops score 60-110 points |
| Missed payment (90+ days) | Drops score 80-140 points |
| Default | Drops score 100-150 points |
| County Court Judgment (UK) | Drops score 150-200 points |
| Bankruptcy | Drops score 200-300+ points |
| Debt Management Plan | Noted on file; moderate impact |
| IVA | Noted on file; significant impact |
Recovery timeline: Most negative marks stay on your credit report for 6 years (UK/Canada) or 7 years (US). Bankruptcy stays for 10 years in the US.
Common Debt Myths
- “I should pay off the smallest debt first” — The avalanche method (highest interest first) saves more money. The snowball method (smallest first) gives psychological wins. Choose what works for you.
- “Debt collectors can arrest me” — In all three countries, debt is a civil matter. You cannot be arrested for owing money (except court fines in the UK).
- “I have to accept the first payment plan offered” — You can negotiate. Creditors expect it.
- “Ignoring the problem makes it go away” — It makes it worse. Interest grows, collectors call, and credit suffers.
- “Debt write-off is easy to get” — It’s rare and usually only for people with no assets and no income.
When to Seek Professional Help
Don’t try to handle everything alone if:
- You’ve been contacted by bailiffs (UK) or a debt collector (US/Canada)
- You’ve received a court summons
- You’re being threatened with repossession
- You’re considering bankruptcy
- Your mental health is being affected
- You’ve been struggling for more than 6 months
Debt problems are common and solvable. The sooner you act, the more options you have. Every debt advice service listed above is free — there is no excuse for not reaching out.