When you have debts it is best to deal with things step by step. You cannot make an offer to pay towards your debts until you know what you can afford to pay. You don’t know what you can afford until you have worked out what you need to live on.
So what are the steps?
Check you owe the money. Even if you get letters it doesn’t mean that you owe the money or the amount they say you owe is right.
Work out what you need to live on so you can see what is left to pay the debts.
Make offers to the most important debts first. Some debts are more important than others because of what they can do. For example if you don’t pay the mortgage or rent you could lose your home. If you don’t pay council tax you may be summonsed to the magistrates court for an examination of your means.
Now you have made arrangements with the important debts, you can deal with the other debts you have. You can make offers based on the income you have left – but only offer what you can keep paying regularly.
If you get taken to court for rent or mortgage arrears (or Council Tax arrears) get immediate advice as this court action is serious.
If you are taken to court for credit debts (like catalogues, credit cards) don’t panic. You can still make offers on the court forms and stop further action being taken against you.
When dealing with your debts remember:
Keep in contact with the people you owe money to.
If the person you speak to is not helpful ask to speak to someone more senior, or write to them instead
Don’t ignore letters and phone calls – things will get worse. You do need to reply
Don’t be pushed into making payment offers that you cannot afford. You need to make an offer you can keep paying
Don’t borrow more money without thinking about it carefully. It will usually mean a fresh lot of interest charges adding to your debts.
What are priority expenses?
Some items are seen as priority, because if these are not paid the consequences could be serious. For example if the rent or mortgage is not paid there will soon be arrears and you may lose your home, or if council tax is not paid eventually you can be imprisoned. These priority items cannot be negotiated but have to be paid every week or month. Other items are not priority, so however much pressure the lender puts on you – they can be negotiated.
Examples of essential expenses
non priority expenses
Loans secured on your home
Unsecured loans - but be careful they lender does not take action to secure them
Service charges as part of a lease
Finance agreements in shops
Food and housekeeping
Provident loans and other door step lenders
Magistrates court fines
HP for a car
Transport to work/school
Child support maintenance
Filling in a budget sheet
You can use the personal budget sheet available in our dealing with debt guide to fill in your personal details to help you decide how much money you have available to pay non-priority credit debts. Make sure you list your priority debts on the sheet when you are working out how much money you have left for your non-priority debts.
These are debts which arise from essential expenses and for which there are serious consequences - like eviction from your home if you have rent or mortgage arrears.
Examples of priority debts are:
Secured loan arrears
Inland Revenue debts
Magistrates Courts fines
Council Tax arrears.
These debts need to be arranged first.
Examples of non-priority debts are:
Payment on non-priority debts should be made once all the essential expenditure has been made and once arrangements have been made to pay priority debts.
It is possible that you may only be able to pay non-priority debts £1 or £2 month, because that is all the money available after priority debts have been paid.
The creditor may take out court proceedings – if so it is very important to take advice at that point, and respond to the summons and make an offer of payment on the court papers. The Court ‘Admission Form’ includes an Income and Expenditure form on which the person owing the money can put their priority expenses and make an offer of payment against the debt each month.
Your credit rating
There will be an effect on your credit rating if you can offer only an instalment arrangement with credit debts. This will be the case if the creditor takes you to court and obtains a county court judgement.