Money and credit - if you've borrowed too much
It's an awful feeling but try not to
panic; there is help available. The most important thing is to take action
as soon as possible. This page should help you take control of your finances
with the following steps:
You can also get free, confidential help with this by contacting one of
the organisations listed under Where to go for help.
For further advice on money and credit, see menu
at bottom of this page.
Do:
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contact the people you owe money to and tell them you have a problem
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use the budget planner on this website to help you take control of your
finances
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get free help and advice from the experts.
Don't:
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jump out of the frying pan into the fire. Borrowing more money to get yourself
out of debt may be tempting but it can get you into deeper trouble. Before
you borrow more, get some expert advice
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ignore or throw away letters or demands for payment
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make promises about repayments that you can't keep.
What are your debts?
Some debts are more serious than others. Make a list of all the people
and organisations you owe money to (they are called your 'creditors') and
write down what you owe each of them.
You will need to sort out your priorities for repayment and the largest
debt is not necessarily the most serious. This list will help you:
Rent or mortgage If you get into arrears and don't do anything
about it, you could be evicted from your home. Even if you abandon your
home, you will still owe the money. Tell your landlord or mortgage lender
as early as possible if you are having difficulty paying and they will
help you to work out a payment plan.
Income tax If you are self-employed and do not pay your income
tax on time, the Inland Revenue will charge interest on what you owe. Eventually,
if you keep ignoring their payment demands, you could go to prison. Tell
the tax office if you can't pay and ask them for advice.
Court fines and court orders Tell the court or your solicitor
if you can't pay money that a court has ordered you to pay. If your circumstances
have changed, the amounts might be reconsidered. If you do nothing at all,
you could be sent to prison.
Child maintenance Talk to the Child Support Agency if you are
having difficulty with paying the amount you are supposed to for your children.
Council tax The council could take you to court for non-payment.
Contact the council tax department and say you are having problems. Ask
them to check that you are getting any discount you are entitled to.
Gas, electricity, water and telephone Contact your supplier as
soon as you can, you will usually be able to negotiate payments that you
can afford.
Credit or store card If you cannot even make the minimum monthly
payments, stop using the card. Return it to the credit card company or
store, or cut it up, so that you are not tempted to put anything else on
it. Then agree a repayment plan.
Credit agreements If you are buying something on credit and can't
keep up the payments, the store might be able to get a court order that
allows them to take the goods back. Talk to them before that happens.
Loans If you tell the lender that you are having difficulty making
the repayments, you should be able to get more time to pay. Ask the lender
what this would cost you.
Getting help
If you talk to your creditors and tell them that you want to get things
sorted out, you will probably find them sympathetic and helpful. After
all, they want their money and it is in their interests to help you to
pay, however long it takes. The earlier you let them know there is a problem,
the easier it will be to get them on your side.
If you don't want to talk to your creditors yourself, you can get free
help from someone who is used to doing this. They can also help you to
decide which are your most serious debts. Contact one of the organisations
listed under
'Where to go for help'.
What are you spending?
Until you know where your money is going at the moment, you will not be
able to work out how you can pay off your debts.
Write down what you spend each week, month or quarter on:
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your home – rent or mortgage, gas, electricity, telephone, etc
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food and clothes – don't forget take-away meals and any clothes you buy
for work
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travel – list all the costs of running a car or motor bike, if you have
one
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financial commitments – include the repayments you should be making on
loans or credit agreements
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other things – don't forget occasional items like haircuts, shoe repairs
or video rental. And do you have any pets? A mobile phone? Do you do the
lottery?
Be honest! This can only help you if you make it as complete as possible.
What is your income?
Now add up all the money you have coming in, including:
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wages/salary/pension – include the money from any casual work you do
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benefits – don't forget child benefit, if you receive it
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maintenance – record what you actually get, if your ex-partner does not
pay what they should
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contributions from other people in the household – do you have a lodger?
Do any of your children pay towards their keep?
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student loan – if you have a loan, do you also get parental contributions?
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other – do you have any other money coming in regularly, or occasionally?
Balancing the books
Now you need to add up all your outgoings and all your income for the week,
month or quarter. You must be spending more than you have got coming in
or you would not be in debt. Check that you have remembered to write everything
down.
You now have to work out how you can get more money coming in than is
going out. That is the only way you will be able to start repaying your
debts.
You will have to ask yourself some hard questions and accept that you
will have to make sacrifices.
Can you spend less?
You will have to find ways of spending less money, for example:
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can you save some money by spending less on entertainment?
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are you buying anything on credit that you could return?
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can you cut back on presents to friends and family?
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do you really need that mobile phone? If you do, have you got the cheapest
tariff?
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are you spending more than necessary on clothes?
Look very carefully at all the things you buy that are not strictly necessary.
Cutting back on essentials like food or heating is not a good idea unless
you are spending more than you need. For example, take-aways and ready-made
meals from the supermarket always cost more than cooking a meal at home.
That kind of food may be convenient but if you are short of money, it is
a luxury.
Can you increase your income?
You might be able to get more money coming in, either regularly or as a
one-off. For example:
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if you are not working, can you get a part-time job? What about your partner?
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are you receiving all the benefits you are entitled to? Ask the Citizens
Advice Bureau or the Benefits Agency;
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are you getting all the maintenance you should be getting? If not, go to
the Child Support Agency, or the Citizens Advice Bureau for advice
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are you paying too much tax? Ask your tax office to check
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do you own anything you could sell to raise some cash? (Don't sell anything
you still owe money on!)
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if you have a spare room, can you take in a lodger? (Ask your landlord
or mortgage lender first)
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if you are a student, can you get a larger student loan or an emergency
payment? Ask at the students' union or student services office.
It is also worth thinking about any insurance policies you might be able
to claim on - do you have any credit protection insurance? Do you have
any loss of earnings insurance?
Once you have been through all of this, you should be able to set aside
some money to begin to repay your creditors.
If you are stuck, be sure to get some help. See 'where
to go for help'. Remember that your debts will only get worse
if you do nothing.
Making an action plan
Now you know what money you have coming in and going out, how much you
owe and what debts you should tackle first. The next step is to work out
what you can afford to pay to each creditor and when you will be able to
make the payments.
Remember that it is better to make small payments regularly than to
promise larger amounts and then not be able to keep them up.
Contact your creditors (or ask your advisor to) and tell them how you
plan to repay what you owe them. Send them a copy of your budget planner
and tell them what you are doing to reduce your spending and/or increase
your income. They will want to see that you are doing the best you can
to clear your debts.
If your situation is really bad, ask the company if you can stop paying
interest and just repay the original amount borrowed.
Don't be put off
If you get a poor response at first, don't give up:
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make the payments you have offered, even if the creditor says it is not
enough
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keep copies of all the letters you send and the replies you receive
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make notes about any phone calls with the date and the name of the person
you spoke to. If they are unhelpful, ask to speak to someone higher up
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if you agree something on the phone, write a letter setting out what you
agreed, so you and the company have a written record.
If you think you have been treated unfairly, you can complain. If the company
belongs to a trade association (there should be a logo on the company's
headed notepaper) contact the association. Or try your local trading standards
department.
Do all you can to keep up the payments you have promised.
Getting deeper into debt?
Don't just do nothing and hope things will get better – they won't. Get
free, independent advice - see 'where to
go for help'.
Borrowing to get out of debt
Beware of ads or mailshots offering loans to pay off your debts (these
are sometimes called consolidation loans). You may pay out less each month,
but you will carry on paying and being charged interest for years. And
if you miss payments you could end up even deeper in debt.
Get independent advice - see 'where
to go for help'. Some loan companies offer advice but they might charge
you for it and it might simply be an offer of another, very expensive,
loan.
If you have a house or flat and you put it up as security for a loan,
you risk losing your home if you cannot keep up the repayments.
Harassment from creditors
Creditors may remind you to bring your payments up to date but they are
not allowed to cause you alarm, distress or humiliation. For example, they
must not:
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phone you late at night
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keep phoning you at home or at work
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park a vehicle marked 'debt collectors' outside your home
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contact your employer or place of study.
If you think you are being harassed, tell the trading standards department
at your local council, the police or an advice agency (see 'where
to go for help').
Some lenders might try to frighten you by threatening to have you prosecuted
in the criminal courts if you do not pay your debts. Don't worry, they
cannot do this because being in debt is not a criminal offence.
They can, however, ask a civil court to order you to make payments.
Being taken to court?
Most creditors don't want to take people to court and only do it as a last
resort. If you talk to your creditors, work out an action plan and then
keep up with the payments you have offered, you are unlikely to be faced
with court action.
But, if you do get a summons to appear in court:
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don't panic - you will be treated fairly
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fill in the forms you have been sent and return them as quickly as possible
to the court or creditor, as instructed. Get help if you need it (see 'where
to go for help')
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if you think your credit charges are extortionate, the court might re-open
your original agreement
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if you are going to the small claims court, you can have a 'lay representative'
to speak for you, that is someone who isn't a lawyer. Some Citizens Advice
Bureaux offer this service
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you might be able to get legal aid and be represented in court. Look in
the phone book for solicitors who take legal aid cases or look at
www.justask.org.uk
for information about the Community Legal Service.
If the court orders you to pay back a certain amount, you must do so.
Remember, you can be sent to prison if you don't pay certain debts,
such as income tax or maintenance. If you can't pay, take legal advice
as early as possible; don't wait for court action.
Other pages in this section
Source: The Office of Fair Trading, www.oft.gov.uk, 2003
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