Benefits and Debt Guide

Benefits are a crucial financial resource, but can be impacted by unpaid debts. While benefits provide essential support, it’s important to manage spending wisely and seek advice to avoid accumulating debt.


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Being in debt can be stressful enough without the added pressure of relying on benefits as your only income source. However, for the thousands of people in the UK navigating life on a low income, debt has become a part of normal daily life.

Understanding how benefits work can help you ensure you're claiming the maximum financial support you're entitled to and dealing with your debts effectively.

Whether you're claiming benefits to help repay your debts or drowning in debt as a result of benefits overpayments, there's always help available.

What are benefits?

"Universal Credit is one of the most common types of benefits in the UK and is designed for people of working age who are on a low income."

In the UK, benefits are designed to provide essential support to people who are on a low income, unemployed, or have certain needs.

Most benefits are paid via direct debit on a weekly or monthly basis and you can qualify for several different types of benefits depending on your circumstances.

Here is a guide to some of the types of benefits available in the UK:

Struggling with debt while on benefits?

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Universal Credit (UC)

Universal Credit is one of the most common types of benefits in the UK and is designed for people of working age who are on a low income.

Once you've been approved, your first Universal Credit payment will be made up of a basic 'standard allowance' as well as any extra payments that you may be eligible for (e.g. if you have children, are disabled, or need help with housing costs).

Universal Credit payments have replaced legacy benefits payments for many people in recent years.

For example, if you want to claim Housing Benefit, Income-Related Employment and Support Allowance (ESA), Income-Based Jobseeker's Allowance (JSA), Child Tax Credits, Working Tax Credit, or Income Support, you'll be instructed to apply make a claim for Universal Credit instead.

Pension Credit

Pension Credit is a means-tested benefit for people over the state pension age (currently 66) who may be struggling financially.

The payment is designed to top up your weekly income to allow you to better manage your day-to-day living costs and is made up of 'guarantee credit' (weekly top-up amount) and 'savings credit' (extra money if you have savings or an income higher than the basic state pension).

Furthermore, if you have a severe disability or care for another adult or child, you may be eligible for extra money to cover your additional costs.

Receiving Pension Credit also means you'll automatically qualify for several other benefits, such as the Cold Weather Payment.

Child Benefit

Child Benefit is a non-means-tested benefit designed to help cover costs associated with raising a child under the age of 16 (20 if they're in approved education or training).

The monthly payment can be claimed as long as you're financially responsible for the child and regardless of whether you're in work and have savings or investments.

There is also no limit to how many children you can receive benefits for, but only one person can claim benefits for one child.

This means that, if you have multiple children, you'll have to make separate applications.

How does debt affect your benefit payments?

For some people, benefits are the difference between being able to keep a roof over their heads and falling into debt.

They are common among people who have experienced sudden and unexpected financial hardship, such as a job loss, or live with a long-term illness or disability and are struggling financially as a result.

Most benefits are means-tested, which means you'll only qualify if you meet certain criteria and your payments can be capped at a certain amount.

This can make it difficult to plan for the future and may make dealing with debt much more difficult - especially if your financial situation is getting worse.

The impact of debt on your benefits payments also depends on the type of debt you have and who you owe.

For example, if you have unsecured debts, such as personal loans, credit cards, and overdrafts, your benefits will usually remain unaffected and the amount you receive won't change.

However, if you owe money to HM Revenue & Customs (HMRC) or the Department for Work and Pensions (DWP), they may deduct money from your benefits before you receive it to help them recover the debt. This can range from 15% to 40% depending on how the debt was accrued.

How do I know which benefits I'm entitled to?

If you're struggling with debt and your income doesn't come close to covering your repayments, it's important to ensure you're receiving the maximum financial support you're entitled to.

Some benefits can even be claimed if you have a full-time job, savings, and investments.

There are several things you can do to check which benefits you're entitled to, including:

Use a benefits calculator

There are various benefits calculators available online (including on the GOV.UK website) to allow you to check your benefits eligibility.

This will give you a better idea of which benefits you're entitled to, how much your benefits payments are likely to be, and how your benefits payments could be affected if your circumstances change.

Do your research

The internet can be a great place to find expert help and advice on different types of benefits and their eligibility criteria.

By doing your research, you might discover that you've been missing out on extra financial support that can help you cover your basic essentials and, more importantly, repay your debts.

How can I better manage my debt when I'm on benefits?

Debt repayment is difficult at the best of times, but for those on benefits, every penny counts and something as simple as covering daily costs for a family of four can quickly become a financial juggling act.

However, as helpless as it can feel at times, there are steps you can take to better manage your debt while on benefits.

For example, if you've applied for benefits but won't receive your first payment for a few weeks, it's important to let your creditor know when they can expect to receive payment.

Some creditors may be willing to come to an agreement with you until you start earning a regular income.

Similarly, if you're worried about making ends meet until you receive your first benefits payment, you may be able to bridge the gap with an 'advance payment' by calling the Universal Credit helpline. This is essentially a loan that will be deducted from your first benefits payment and must be repaid in instalments through future benefits payments.

Finally, it's worth taking the time to explore the various debt solutions that may be able to help you repay your debts while you're on benefits.

From a DMP to an IVA, entering into a debt solution can allow you to repay your debt at an affordable rate, freeze ongoing interest and charges, and protect yourself from legal action.

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Which debt solutions am I eligible for while I'm on benefits?

"Generally, as long as you can put a reasonable amount of money towards your debt every month and the creditors to which you owe 75% of your debt agree to the IVA, there is no reason why it shouldn't be approved."

Receiving benefits can make it difficult to access certain debt solutions, but you do have options.

Here is a quick guide to the different debt solutions that you may be eligible for while you're on benefits:

Debt Management Plan (DMP)

A DMP is an informal debt solution designed to help you repay your debts in a way that works for you and your creditors.

Because it isn't legally binding, you'll be free to exit the arrangement at any time if it no longer works for you, but you'll no longer have legal protection from your creditors.

DMPs also give you more control over your budget compared to other debt solutions and your benefits will always be taken into account, meaning you should never be forced to make payments outside of what you can reasonably afford.

Individual Voluntary Arrangement (IVA)

An IVA is a formal agreement between you and your creditors to repay your debt through a series of monthly payments based on your income and expenditure.

Unlike DMPs, they are legally binding, which means both you and your creditors will be expected to stick to the terms of the arrangement until it officially comes to an end.

Generally, as long as you can put a reasonable amount of money towards your debt every month and the creditors to which you owe 75% of your debt agree to the IVA, there is no reason why it shouldn't be approved.

Debt Relief Order (DRO)

A DRO is a way of dealing with your unaffordable debts and is often considered a simpler and cheaper alternative to bankruptcy.

When you enter a DRO, your debts will be frozen for a set time (usually 12 months) and, as long as your situation doesn't change in this time, any remaining debts will be written off at the end of your arrangement.

Receiving benefits shouldn't affect your eligibility for a DRO as long as your payments don't exceed £75 a month, but if you get Personal Independence Payment (previously Disability Living Allowance), this may be classed as necessary spending.

What should I do if I'm in debt due to a benefits overpayment?

Most benefits payments are calculated based on information you supply to the DWP when you submit your application (e.g. your name, address, monthly income etc.).

However, in some cases, a mistake can happen on either end that results in you receiving more benefits than you're entitled to and before you know it, you're in debt to the DWP.

This may sound like a simple fix, but the DWP is unlikely to stop contacting you for payment until the full amount has been recovered and may even deduct the extra money from your wages or future benefits payments with something called a Direct Earnings Attachment (DEA).

Typically, the DWP will send you a letter as soon as it notices that you've received a benefits overpayment.

This letter should include details of the overpayment, including the period for which you were overpaid and the total overpayment amount.

Where can I get help if I'm on benefits but still struggling financially?

"When it comes to dealing with debt, keeping your creditors in the loop is key to protecting yourself from further legal action."

For many people, their benefits payments simply aren't enough to pull them out of financial hardship or even make a dent in their outstanding debt.

However, if you receive benefits but are still struggling to make ends meet, there is extra help available:

Talk to your creditors

When it comes to dealing with debt, keeping your creditors in the loop is key to protecting yourself from further legal action.

Reaching out to the people you owe can sound daunting and it's normal to want to ignore their calls and emails, but this will only make the situation worse.

Even if you know you don't receive enough benefits to cover the debt, keeping your creditor aware of your financial situation can help to diffuse the situation.

They may be happy to discuss a repayment plan with you or grant you a temporary payment break until you get back on your feet.

Seek debt advice

Dealing with debt can be a challenging and isolating experience, but you don't have to suffer in silence.

There are various charities, financial advisors, citizens advice bureaux, and debt management companies available to provide advice on benefits and debt tailored to your unique circumstances.

Knowing where to turn for debt advice can be tricky - especially with so many changes to the UK benefits system in recent years - but by getting tailored help and support from a financial expert, you can be confident that both you and your finances are in safe hands.

Check your benefits entitlement

The most important thing you can do when you're on benefits but still struggling financially is to check your benefits entitlement.

Applying for more benefits may sound counterintuitive, but it can allow you to access extra money to help you speed up the debt repayment process.

Thousands of people miss out on financial support they're entitled to every year because they don't realise their circumstances make them eligible for extra benefits.

The DWP also won't inform you if you're missing out on extra benefits, so it's important to check your benefits entitlement regularly or if your situation changes.

Enter a debt solution

Entering into a debt solution can help you better manage your unaffordable debt - even if you're on benefits. Some debt solutions, like an IVA, will even write off your remaining debts when your payments come to an end as long as you stick to the original terms of your arrangement.

However, it's important to note that some debt solutions aren't available to people claiming benefits.

For example, Protected Trust Deeds (PTDs) aren't an option if your only income source is benefits.

Let's solve your debt together


Whether you're in mortgage or rent arrears or behind on your credit card bills, relying on benefits as your only income source can make it difficult to deal with your debts quickly and effectively. Receiving a benefits overpayment can also plunge you into debt if you're already on a low income and can't afford the repayments.

However, understanding how benefits work can help you make a plan to deal with your debts without your benefits eligibility being affected or your monthly income being capped.

Simply checking that you're receiving the maximum financial support you're entitled to can also help you ensure you're doing all you can to fix your money problems.

Remember, debt can be isolating but you shouldn't have to deal with it alone. There are various debt advisers, charities, and organisations available to provide free, impartial advice tailored to your unique circumstances.

Key Takeaways

  • Benefits are designed to provide some much-needed financial help to people who are unemployed or on a low income
  • Universal Credit, Pension Credit, and Child Benefit are some examples of the types of benefits available to people in the UK
  • To find out which benefits you're entitled to, use a benefits calculator and do your research
  • When you're on benefits, you may still be able to enter a DMP, IVA, or DRO to help you repay your debts
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