9 Common Misconceptions About Debt and Debt Relief Options in 2024

Debt remains a significant challenge for many UK households in 2024. According to the latest statistics from The Money Charity, the average total debt per household, including mortgages, stood at £65,395 as of December 2023. Unsecured debt, such as credit card balances and personal loans, averages £4,123 per adult.

With inflation persisting at 4% and real wages not expected to recover to 2008 levels until 2028, it’s understandable that many are seeking solutions to manage or reduce their debt burden. However, misconceptions about debt and debt relief options abound, which can lead people to make suboptimal decisions or delay taking action.

In this article, we aim to clarify 9 of the most common myths and misunderstandings surrounding debt and debt relief in the UK. By separating fact from fiction, we hope to empower readers to assess their financial situation more accurately and explore appropriate solutions with confidence. Whether it’s understanding the difference between “good debt” and “bad debt”, knowing who qualifies for debt relief, or avoiding debt solution scams, getting the right information is the first step towards taking control of your financial future.

Misconception 1: The UK’s national debt is too high and unsustainable

One common misconception about the UK’s fiscal situation is that the current level of national debt is excessively high and poses a severe risk to the country’s economic stability. However, it’s important to put the debt figures into proper context and understand that a certain level of national debt is not inherently problematic.

As of the end of March 2023, the UK’s general government gross debt stood at £2,537.6 billion, equivalent to 100.5% of gross domestic product (GDP). While this figure might seem alarming at first glance, it’s crucial to evaluate the debt relative to the size of the economy rather than focusing on the absolute number.

Historically, the UK has managed even higher levels of debt without economic collapse. In the aftermath of World War II, for instance, the debt-to-GDP ratio reached a peak of nearly 270% in 1946-1947. Over the following three decades, a combination of economic growth, moderate inflation, and primary budget surpluses gradually reduced the debt burden to more manageable levels.

Moreover, the UK is not alone in having a debt-to-GDP ratio above 100%. Other major economies, such as the United States, Japan, and several European countries, have comparable or even higher debt levels. The International Monetary Fund projects that the UK’s debt-to-GDP ratio will decline to 96.9% by 2026-2027, indicating a stabilising trajectory.

It’s also worth noting that a significant portion of the UK’s national debt is domestically owned by entities such as pension funds and insurance companies. This means that the debt is essentially owed to British institutions and citizens, rather than to foreign creditors, reducing the risk of a sudden loss of confidence or capital flight.

Furthermore, maintaining a reasonable level of national debt can have positive economic effects. Government bonds provide a safe and stable investment option for pension funds and insurers, supporting the country’s long-term savings infrastructure. Additionally, well-targeted public investments financed by borrowing can boost productivity, stimulate growth, and enhance the economy’s long-term revenue-generating capacity.

So, while the UK’s current debt-to-GDP ratio is indeed elevated compared to historical averages, it is not necessarily unsustainable or a cause for panic. With a balanced approach that prioritises economic growth, fiscal discipline, and strategic investments, the UK can manage its debt burden effectively and ensure long-term economic stability. The focus should be on implementing policies that promote sustainable growth and gradually reduce the debt ratio over time, rather than on pursuing drastic austerity measures that could undermine the recovery from the COVID-19 pandemic.

Misconception 2: All debt is bad and should be avoided

While it’s understandable to view debt negatively, not all debt is inherently bad. In fact, certain types of debt can be beneficial when used strategically to improve your overall financial position. The key is to distinguish between “good debt” and “bad debt.”

Good debt is often associated with investments that have the potential to generate long-term value or increase your net worth. Common examples include:

  • Mortgages: Borrowing to purchase a home can be considered good debt, as property values tend to appreciate over time, and you’re building equity with each mortgage payment.
  • Student loans: Investing in your education can lead to better job prospects and higher earning potential, making student debt a worthwhile investment in your future.
  • Business loans: Borrowing funds to start or expand a business can be a smart move if the venture is well-planned and has a strong likelihood of success.

On the other hand, bad debt typically involves borrowing money for depreciating assets or consumables that don’t contribute to your long-term financial well-being. Examples of bad debt include:

  • High-interest credit card debt: Carrying a balance on credit cards with high interest rates can quickly snowball, making it difficult to pay off the debt.
  • Payday loans: These short-term, high-interest loans can trap borrowers in a cycle of debt and should be avoided whenever possible.
  • Car loans for luxury vehicles: While reliable transportation is a necessity, borrowing heavily for a high-end car that rapidly depreciates in value is often considered bad debt.

It’s crucial to remember that the type of debt matters more than the amount. A £200,000 mortgage with a low interest rate can be a better financial decision than £10,000 in high-interest credit card debt.

When considering taking on debt, always assess the potential long-term benefits and weigh them against the costs. By understanding the difference between good and bad debt, you can make informed decisions that support your financial goals and avoid the trap of believing that all debt is necessarily bad.

Misconception 3: Debt relief options will ruin your credit

While it’s true that some debt relief options can negatively impact your credit score in the short term, it’s essential to understand that not addressing your debt can be far more detrimental to your financial health and credit in the long run. The effect on your credit largely depends on the specific debt relief option you choose.

Debt management plans (DMPs) arranged through credit counselling agencies typically have a minimal impact on your credit score. These plans involve negotiating with creditors to reduce interest rates and create a more manageable repayment schedule. As long as you make consistent, on-time payments through the DMP, your credit score may only experience a slight dip, if any at all.

On the other hand, debt settlement and bankruptcy can have a more significant impact on your credit score. Debt settlement involves negotiating with creditors to accept a lump sum payment that is less than the total amount owed. This process often requires you to stop making payments to your creditors, which can result in late payments and defaults being reported to the credit bureaus. These negative marks can stay on your credit report for up to six years.

Similarly, bankruptcy can remain on your credit report for up to six years for individual voluntary arrangements (IVAs) or debt relief orders (DROs), and up to six years for bankruptcies. However, it’s crucial to remember that while these options may temporarily lower your credit score, they also provide a path to resolving your debt and improving your financial situation.

In fact, many people find that their credit scores begin to recover within a year or two after completing a debt relief program, provided they maintain good financial habits moving forward. This includes making on-time payments on any remaining debts, keeping credit utilisation low, and avoiding taking on new debt unnecessarily.

Ultimately, the decision to pursue debt relief should be based on your unique financial circumstances and goals. While the potential impact on your credit score is an important factor to consider, it’s equally important to weigh the long-term benefits of becoming debt-free and the reduced stress that comes with regaining control of your finances. By working with a reputable credit counselling agency or debt relief provider, you can develop a plan that minimises the negative impact on your credit while putting you on the path to financial recovery.

Misconception 5: Debt relief is only for people with serious financial hardship

A common misunderstanding about debt relief is that it’s only suitable for individuals facing extreme financial difficulties or on the brink of bankruptcy. However, the reality is that there are debt relief options available for a wide range of financial situations, from mild struggles to more severe hardship.

For those who are finding it challenging to keep up with monthly payments but are not yet in a dire financial position, debt management plans (DMPs) and debt consolidation loans can provide much-needed relief. DMPs involve working with a credit counselling agency to negotiate reduced interest rates and more manageable repayment terms with creditors. This can help lower monthly payments and make it easier to stay on top of debt obligations.

Similarly, debt consolidation loans allow borrowers to combine multiple high-interest debts into a single loan with a lower interest rate. This streamlines the repayment process and can potentially save money on interest charges over time. While these options may require a relatively stable income and decent credit score, they demonstrate that debt relief is not exclusively for those in severe financial distress.

On the other end of the spectrum, options like debt relief orders (DROs) and bankruptcy are designed to provide relief for those in more serious financial situations. DROs, for example, are suitable for individuals with less than £30,000 in qualifying debts, minimal assets, and low disposable income. The recent changes announced in the 2024 Spring Budget, such as raising the maximum debt threshold to £50,000 and increasing the permitted vehicle value to £4,000, will make DROs accessible to even more people struggling with problem debt.

The key takeaway is that it’s better to explore debt relief options early on before the situation escalates to a point of severe hardship. By proactively assessing your financial circumstances and reaching out for assistance, you can find a solution that matches your specific needs and prevents your debt problems from spiraling out of control. Whether it’s a DMP to help you better manage payments, a consolidation loan to simplify your debts, or a more formal insolvency solution like a DRO or bankruptcy, there are debt relief pathways available for various stages of financial difficulty.

Misconception 6: Debt consolidation loans are the best way to get debt relief

While debt consolidation loans can be an effective tool for managing and repaying debt, they are not always the best solution for everyone. It’s important to understand the pros and cons of consolidating debt into a single loan and compare it to other debt relief options to determine the most suitable approach for your unique financial situation.

One of the main advantages of debt consolidation loans is the potential to simplify your repayment process by combining multiple debts into a single loan with one monthly payment. This can make it easier to keep track of your debt obligations and avoid missed payments. Additionally, if you qualify for a lower interest rate on the consolidation loan, you may be able to save money on interest charges over the life of the loan.

However, it’s crucial to note that debt consolidation loans often require good credit to qualify for the most competitive interest rates. If your credit score is less than ideal, you may end up with a higher interest rate on the consolidation loan, which could increase the overall cost of repaying your debt.

Moreover, debt consolidation loans may come with additional fees, such as origination fees or balance transfer fees, which can eat into the potential savings. It’s essential to carefully review the terms and conditions of any consolidation loan offer to ensure that the benefits outweigh the costs.

Another factor to consider is the repayment term of the consolidation loan. While a longer repayment term can lower your monthly payments, it also means you’ll be in debt for a more extended period and may pay more in interest over the life of the loan.

Before deciding on a debt consolidation loan, it’s wise to explore other debt relief options, such as:

  • Debt management plans offered by credit counselling agencies, which can help you negotiate lower interest rates and more manageable repayment terms with your creditors.
  • Balance transfer credit cards with introductory 0% APR periods, which can allow you to pay off your debt interest-free for a set time, typically 12 to 18 months.
  • Debt settlement, which involves negotiating with creditors to accept a lump sum payment that is less than the total amount owed, although this option can have a significant negative impact on your credit score.

Ultimately, the best way to get debt relief depends on your individual financial circumstances, including your credit score, income, and the amount and type of debt you have. It’s recommended to consult with a reputable credit counselling agency or financial advisor to assess your options and develop a personalised plan to achieve your debt relief goals.

While debt consolidation loans can be a useful tool in the right situation, they are not a one-size-fits-all solution. By carefully evaluating your options and seeking professional guidance, you can make an informed decision about the most effective way to manage and repay your debt.

Misconception 7: Debt relief programs are scams

While it’s true that some predatory companies exist in the debt relief industry, it’s important to recognise that there are also many legitimate programs and organisations dedicated to helping people manage and overcome their debt. The key is to be cautious and thoroughly research any debt relief provider before engaging their services.

Reputable debt relief companies, such as those accredited by the Financial Conduct Authority (FCA) or members of trade associations like the Debt Managers Standards Association (DEMSA), adhere to strict codes of conduct and prioritise their clients’ best interests. These organisations provide transparent, impartial advice and work to find sustainable solutions tailored to each individual’s unique financial situation.

On the other hand, debt relief scams often exhibit telltale signs, such as:

  • Guaranteeing to eliminate debt quickly or making overly optimistic promises
  • Demanding upfront fees before providing any services
  • Pressuring you to make immediate decisions without allowing time to review contracts
  • Failing to explain the potential risks and consequences of their programs
  • Encouraging you to stop communicating with your creditors directly

To protect yourself from falling victim to a debt relief scam, consider the following tips:

  • Check if the company is FCA-authorised by searching the Financial Services Register
  • Read reviews and ratings from past clients to gauge their reputation and effectiveness
  • Be wary of unsolicited calls, emails, or social media messages promoting debt relief services
  • Ask detailed questions about their processes, fees, and potential impacts on your credit score
  • Trust your instincts – if an offer seems too good to be true, it probably is

If you’re unsure where to start, seeking advice from a free, impartial service like the Advice Debt can help you understand your options and connect with trustworthy debt relief providers. By arming yourself with knowledge and carefully evaluating your choices, you can find legitimate support to help you regain control of your finances and achieve lasting debt relief.

Misconception 8: Debt problems will resolve on their own over time

One of the most dangerous misconceptions about debt is the belief that ignoring the problem will make it go away. Many people mistakenly assume that if they can just hold out long enough, their debt issues will somehow resolve themselves without the need for action on their part. However, the reality is that untreated debt problems tend to worsen over time, making it increasingly difficult to find a workable solution.

When you’re struggling with debt, it’s easy to feel overwhelmed and tempted to bury your head in the sand. You might hope that by ignoring calls from creditors or leaving bills unopened, the problem will eventually disappear. But in truth, failing to address your debt only allows balances to grow as interest and fees continue to accrue. As time passes, your options for resolving the situation become more limited, and the consequences of default or legal action become more likely.

In the UK, the average credit card debt per household reached £2,033 in 2023, with a total credit card debt of £59.4 billion across the country. These figures underscore the widespread nature of debt problems and the importance of taking proactive steps to address them. Waiting for debt to resolve itself is not a strategy – it’s a recipe for financial disaster.

The longer you wait to seek help, the fewer options you may have available. For example, if you fall behind on payments, you may no longer qualify for a debt management plan or debt consolidation loan, which could help make your monthly payments more affordable. If your accounts are passed on to debt collectors, or you’re sued for non-payment, you may face wage garnishment, frozen bank accounts, or even bankruptcy.

That’s why it’s crucial to reach out for assistance as soon as you realise you’re having trouble keeping up with your debts. A reputable credit counselling agency like Advice Debt can help you assess your situation and explore potential solutions, such as negotiating with creditors, setting up a manageable repayment plan, or pursuing an insolvency option like a Debt Relief Order (DRO) or Individual Voluntary Arrangement (IVA) if appropriate.

Remember, there’s no shame in admitting you need help. In fact, seeking advice is a sign of strength and a commitment to taking control of your financial future. The sooner you take action, the more options you’ll have available and the faster you can start making progress towards your goal of becoming debt-free.

Don’t let the misconception that debt problems will resolve themselves keep you trapped in a cycle of growing balances and mounting stress. Reach out for help today and take the first step towards a brighter financial tomorrow.

Misconception 9: You can’t qualify for debt relief if you have assets or income

A common misunderstanding about debt relief options is that you’re automatically disqualified if you have any assets or income. However, the eligibility criteria for different debt solutions vary, and it’s often possible to qualify even if you have some money coming in or a few possessions to your name.

For example, to be eligible for a Debt Relief Order (DRO) in England and Wales, your qualifying debts must not exceed £30,000 (increasing to £50,000 from 28 June 2024), and you must have less than £75 per month in disposable income after covering your essential living expenses. You’re also allowed to have up to £2,000 in assets, not including a vehicle worth up to £2,000 (increasing to £4,000 from 28 June 2024).

Similarly, while bankruptcy typically involves selling your assets to repay creditors, you’re usually allowed to keep items needed for daily living and work, such as clothing, household goods, and tools of your trade. Certain pensions are also excluded from your bankruptcy estate.

Other debt solutions, like Debt Management Plans (DMPs) and Individual Voluntary Arrangements (IVAs), are based more on your ability to make regular payments than on your overall asset level. What matters most is demonstrating that you have enough disposable income, after covering essential living costs, to make the agreed-upon contributions to your creditors.

The key takeaway is that having some assets or income doesn’t automatically rule out debt relief. The specific criteria vary depending on the solution, and it’s always best to consult with a qualified debt adviser to assess your unique circumstances. They can help you understand the eligibility requirements and find the most suitable option for your needs, even if you don’t think you qualify at first glance.


Throughout this article, we’ve clarified 9 of the most common misconceptions about debt and debt relief options in the UK. By separating fact from fiction, we hope to have empowered you to assess your financial situation more accurately and explore appropriate solutions with confidence.

It’s crucial to remember that seeking help for debt problems is a sign of strength, not weakness. Whether you’re considering a debt management plan, debt consolidation loan, or an insolvency solution like a Debt Relief Order or bankruptcy, there are reputable organisations ready to provide guidance and support. Advice Debt, a leading debt charity in the UK, offers free, confidential advice to help you understand your options and take control of your financial future.

The final key takeaway is that no one should feel trapped by debt or ashamed to seek assistance. By separating fact from fiction and arming yourself with knowledge, you can make informed decisions about managing your debt and achieving lasting financial wellbeing. Remember, the right time to take action is always now – don’t let misconceptions hold you back from getting the help you need to build a brighter, debt-free future.

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