A debt relief order, or DRO, is a debt solution designed for those who have very little income and owe less than £30,000. A DRO can help people deal with debts that they are unable to repay within a reasonable period of time.
In this post, debt experts Carrington Dean share the advantages and disadvantages of entering into a debt relief order. Alongside helping hundreds beat debt each year, Carrington Dean provide free tips and advice and info on everything from common money questions to can I get a mortgage with a DRO?
What is a Debt Relief Order
A debt relief order (DRO) is a debt solution for people who owe less than £30,000, have very little income and few assets (assets worth less than £2,000). A DRO can last for up to 12 months and during this time, your creditors cannot take any action to recover the debt. At the end of the 12 months, the debt is written off and you are debt-free.
A DRO may be an appropriate solution if you cannot afford to repay your debts and do not think you will be able to repay them in the future. However, it is important to be aware that a DRO will have a significant impact on your credit rating and it may be difficult to obtain credit in the future. You should speak to an experienced debt advisor to see if a DRO is the right solution for you.
If you are considering a debt relief order, it is important to understand both the pros and cons before making a decision.
The Pros of a Debt Relief Order
- A DRO can help you get out of debt.
If you are struggling to repay your debts, a debt relief order can give you a fresh start. Once you are approved for a debt relief order, your creditors must contact you through your debt advisor and cannot take any further action against you. This can give you peace of mind and help you get on the road to financial freedom.
- A DRO is relatively affordable.
Compared to other debt solutions, such as bankruptcy, a debt relief order is relatively affordable. The application fee is £90 and you may be required to pay a contribution towards your debts if your income increases during the DRO period.
- A DRO will give you peace of mind.
If you are struggling to keep up with debt repayments, the worry and stress can be overwhelming. A debt relief order can give you peace of mind by stopping creditors from taking any further action against you. This can allow you to focus on getting your finances back on track.
- A DRO can help improve your credit rating.
Although a debt relief order will appear on your credit file for six years, it can help improve your credit rating in the long term. This is because a debt relief order shows that you have taken action to deal with your debts and are now on the road to financial recovery.
- A DRO will be written off at the end of the DRO term.
At the end of the debt relief order term, any remaining debt included in the DRO will be written off. This means you will no longer be liable for these debts and can start fresh with a clean slate.
- Creditors cannot take action against you.
Once you are approved for a debt relief order, your creditors must contact you through your debt advisor and cannot take any further action against you. This can give you peace of mind and help you get on the road to financial freedom.
The Cons of a Debt Relief Order
- Your name will appear on a public register.
Your name will appear on a public register. This means that anyone who does a search on your name will be able to see that you have been through debt relief. While this may not seem like a big deal, it could affect your ability to get loans or other types of credit in the future.
- A DRO will stay on your credit file for six years.
If you have a debt problem and are considering a DRO, it’s important to be aware that this debt solution will stay on your credit file for six years. This can make it difficult to obtain credit in the future. If you do need to borrow money in the future, you may find that you’re only able to obtain a limited amount of credit at high interest rates. This is a main reason that it’s important to consider all of your options before deciding whether a debt relief order is the right solution for you.
- You may struggle to obtain credit in the future.
A debt relief order will stay on your credit file for six years, which can make it difficult to obtain credit in the future. This can make it difficult to buy a house or car, or take out a loan.
- You may not be able to apply for a debt relief order again.
If you have been bankrupt or have had a debt relief order within the last six years, you will not be able to apply for another debt relief order. This is because debt relief orders are only intended to provide debt relief for a limited period. If you have been previously bankrupt or have had a debt relief order, you may still be able to apply for other debt solutions, such as an individual voluntary arrangement or debt management plan. Speak to a debt advisor to find out which debt solution is right for you.
These are just some of the advantages and disadvantages of a debt relief order. Making the decision to enter into a debt relief order is a big one. Be sure to weigh all pros and cons carefully before deciding.