Managing Debt

How to Deal with your Debts

This information gives you basic advice about debt and simple guidelines for dealing with

money problems. It is important not to panic about debt problems but also not to ignore

them - they won't go away.

If you are worried about taking the first steps, there is free, confidential advice available from your Financial Advisor

- please remember, they are not just here to invest your money for you, but to offer overall financial advice. Also,

there are other avenues to obtain free advice - to find out more about getting advice, see under heading Seeking

advice.

There are certain debts which it is particularly important to deal with first, see under heading Types of debt below.

If you are in debt it is most important to keep in touch with your creditors (the people you owe money to). They may

be writing or phoning you and putting pressure on you to pay off your debts. Unless you contact them, they will

assume that you don’t want to pay and may take further action against you. It is essential to keep in contact with

them and to let them know that you are in financial difficulties and you will be amazed sometimes at how

understanding banks and other financial institutions can be. Remember, most creditors would rather get 'some'

money back than 'none' at all.

Your First Steps To Managing Debt should be:

• make a list of your debts. Remember to divide them into separate headings – priority and non-priority debts (see

under heading Types of debt to find out which are the most important debts). You have to make offers to pay off

your priority debts before you tackle your non-priority debts

• make an income and expenditure list. Be honest and make sure that the amounts are realistic. You may be able to

identify where you can make some savings. Work out what you can afford to pay to each creditor.

• do not ignore creditors’ letters or phone calls. Contact your creditors as soon as possible and explain to them that

you are in financial difficulties. If you phone, you should follow up the call with a letter, confirming what you have

said on the phone.

• if you are thinking of using a debt management company (this is a company that usually charges a fee to manage

your debts for you), take advice from your Financial Advisor or one of the free advice agencies first

• if you only have a small amount of money available for your creditors after your essential spending, you may have

to offer all of this to your priority creditors. You could have very little, or nothing to offer to non-priority creditors

and you should explain this to them.

If possible, do not borrow more money to repay your debts. Think about the ways in which you could earn extra

money or increase your income instead.

Dealing with Creditors

If a creditor is pressurising you for payment, it may be because they are not aware of your financial circumstances.

If you tell them about your difficulties, they may agree to accept reduced payments from you. In some

circumstances, a creditor may give you a short payment holiday even.

Although creditors are allowed to send reminders to you if you are in debt, they are not allowed to harass you. If

you think you are being harassed, or if a creditor is not listening to you, take advice from your Financial Advisor.

If you do not feel able to negotiate with your creditors yourself, there are companies that may be able to help

by negotiating for you, or again, see your Financial Advisor.

Types of Debt

There are two types of debt, non-priority debt and priority debt. It is not the size of the debt which makes it a

priority debt, but what the creditors can do to get their money back. The penalties are more serious, for example,

creditors can apply to court to have your bank account or wages frozen (‘arrestment’) or to have your

possessions seized (‘attachment’). You should try to sort out your priority debts first.

Priority Debts:

• mortgage arrears - the mortgage lender may take court action for possession of your home

• rent arrears - the landlord may evict you if you have rent arrears

• income tax and VAT - you can be made bankrupt for non-payment of fines

• fines, such as court fines. If these are not paid, the court can use sheriff officers to repossess your goods

• fuel debts - if these are not paid you may have your fuel supply disconnected

• loans are priority debts if they are secured against your home

• hire purchase will be a priority debt if it is for an essential item for example, if you have bought a car on

lease/purchase and you need the car to get to work.

You must deal with these debts first before tackling any non-priority debts.

Non-priority Debts

• credit card and store card arrears

• catalogue arrears

• bank overdrafts and unsecured loans

• benefits overpayments

• hire purchase is a non-priority debt where it is for goods which are not essential to you, for example, a television

bought on lease/purchase.

• money borrowed from family or friends.

The consequences of not paying non-priority debt are less severe than for priority debt. However, if you make no

payments and do not explain why, creditors are likely to take you to court. This can lead to further action against

you.

Preparing to Negotiate With Creditors

Negotiating with creditors may be difficult and can take some time. The arguments you use will depend on a number

of factors:

• whether you have both priority and non-priority debts

• whether you have any assets you can sell

• whether you have any available income, and

• whether your situation is likely to improve or not.

Creditors may also want details of your spouse or partner’s income, so you will have to be prepared to talk about

your debts to your partner.

You need to be clear about what you want the creditor to agree to and about what you can offer – do not be

unrealistic. For example, if you have a very low income you may only be able to offer very small amounts – token

offers – to each of your non-priority creditors.

How Much to Offer:

Priority creditors will generally be less flexible because they know they can take stronger legal action against you.

You must remember when paying off priority debts, such as rent arrears, that you must pay off the amount you are

currently liable for as well as any arrears.

When you are working out what to offer to your non-priority creditors, try to divide up your available money

according to the size of the debt. The larger the debt, the larger your offer of repayment ought to be. However,

you can only do this if you have a reasonable amount of money in your budget. If you don’t have much left after

your essential expenditure, you will have to make token offers to your non-priority creditors.

Making Your Offer to Repay:

When you tell your creditors how much you can repay, explain why you are offering to repay them in this way.

Tell the creditors:

• how much you are offering to pay them and how regularly, that is, monthly or weekly

• the truth about your financial situation

• whether your financial situation is likely to improve or not (if you expect it to improve, tell your creditors when)

• whether you have both priority and non-priority debts. If you have priority debts, explain that you are going to

pay these off first.

If you do not feel confident about dealing with your creditors or are finding it difficult to negotiate with them, contact

one of the free advice agencies or your Financial Advisor.

Responses from Creditors:

Your creditors may not accept your offers at first. Creditors will often try to pressurise you into paying more than

you can afford. If you find this is happening, you should seek advice.

Creditors may challenge your budget and claim that you can afford to pay more than you are offering. You need to

be prepared to justify your offer by providing proof of your income such as wage slips or benefit details, and proof

of your expenditure, such as copies of fuel bills, details of rent payments or mortgage payments.

If creditors do not reply to your offers, start paying them what you can afford anyway and seek advice immediately.

Credit Reference Agencies

Credit reference agencies collect and store information about everybody’s financial situation. They provide

information to lenders, for example, banks and credit card companies. The lender uses this information together

with the information given by you on your application to decide whether or not to grant credit.

If you are in debt, then your credit reference will show this and you may find it difficult to get credit.

Credit reference companies list details of:

• the electoral roll

• your credit agreements, including balances and payment history

• home repossessions

• money judgements in the court

• bankruptcy orders

• previous credit checks.

You can check your credit file with a credit reference company at any time.

Debt Management Companies

Debt management companies (DMCs) are agencies which usually charge a fee to help people in debt. They will

usually only help people with non-priority debts. If you are paying fees to a DMC, this leaves a lot less money

from your available credit to pay your creditors.

There are certain rules which DMCs must follow. If they do not their licence to operate can be withdrawn. If you

are using a DMC and are not happy about its conduct, a Financial Advisor can tell you more about these guidelines.

If you are in debt, you should think carefully before using a DMC to help you. Your Financial Advisor can tell

you more about the advantages and disadvantages of using a DMC.

Seeking Advice

The main item to remember if you are in debt is this: if you are having difficulties dealing with debt you should seek

specialist advice because it is a complex area and the consequences of getting into debt can be very serious.

Seek advice from your Financial Advisor because you will need to be explained the options available to you.

We do provide a 'Debt Consolidation' Calculator on this website and to use this, please click Here.