Dealing with debt can be a challenging and stressful experience, especially if you’re struggling to make ends meet. It’s important to understand which debts to prioritise, and which debt solutions could help you deal with unaffordable debt.
Managing your financial situation effectively can not only help you become debt-free but also reduce the impact of debt on your mental health.
Understanding your rights as a debtor
Your lenders have the right to chase you for payment because you owe them money. This can be through phone calls, letters, emails or even visiting your home.
However, they still have to follow the rules set out by the law – especially if you’re vulnerable. Most lenders will fall under the Consumer Credit Act, which sets out what your lenders can and cannot do. Failure to stick to this will put them in the firing line instead of you.
If you believe you have been treated unfairly, you can make a complaint both to the lender in question and to the Financial Ombudsman Service.
They are required to investigate this for you and take any needed steps to help you.
Which lenders should I pay first?
When dealing with debt, it’s important to prioritise your payments to ensure that you’re covering the most important debts first.
This involves distinguishing between priority debts and non-priority debts.
Priority debts vs non-priority debts
Priority debts are those that carry serious consequences if you don’t pay them, such as losing your home or having your energy supply cut off. Examples of priority debts include:
- Rent or mortgage arrears
- Council tax arrears
- Gas, electricity or water arrears
- Court fines
- Income tax or VAT arrears
It’s important to prioritise these debts and make arrangements to pay them off as soon as possible to avoid further financial problems.
Non-priority debts are those that do not carry the same consequences as priority debts. While it’s still important to pay these personal debts, you can afford to prioritise them lower down the list. Examples of non-priority debts include:
- Personal loans
- Credit card debts
- Catalogue debts
It’s important to note that some non-priority debts, such as energy bills, can become priority debts if you don’t pay them and they result in a disconnection or court action.
If you’re struggling with debt, it’s important to seek advice from a debt advisor who can help you prioritise your payments and find a suitable debt solution.
How do I find out which creditors I’m in debt to?
Sometimes, when you’re dealing with debt problems, you lose track of all the people you owe money to.
This can be for a number of reasons; maybe you haven’t heard from a lender in a while or life has gotten in the way.
It’s important to know who your lenders are to help you get a better idea of your situation as a whole. So, if you’re unsure of who you owe money to, there are a number of ways to find out.
The best way to do this is to check on your credit file and report. It’s designed to hold details about all your debts and any county court judgements or insolvencies that you may be subject to.
How to check you credit file
You can access this easily online for free to help you make a note of everyone you have credit with and any outstanding balances you have.
Hard copies are available on request, but these will take longer to get to you, and you may have to pay for it.
If there are any accounts that aren’t on your report, you can check your emails and post to see if there are any records of accounts you’ve maybe forgotten about. There’s also the option of contacting lenders directly, but this may end up flagging your debt to the company in question.
For possible debts to HMRC, councils or benefit overpayments, you’ll need to check this with them directly.
How to know when you’re being scammed
These days, getting scammed is becoming more and more of a problem. With scammers finding more and more ways to cleverly steal money from unsuspecting people.
It’s hard to know when you’re being scammed because they often make sure they cover everything to convince you it’s real. Below are some things to look out for:
Be wary of cold calls
Watch out for cold calls from your bank, about pension schemes, PPI or the good old “accident that wasn’t your fault”.
These are usually fake, so never give them any details when they call. Instead, hang up and contact them yourself for confirmation.
Avoid phishing emails
One other common scam tactic is the “phishing” email. These look like they come from a legit company, and will usually ask you to click a link or fill in some details to ‘stop your account from being closed’, and for the most part, these will look very convincing.
However, if you check the email address the message was sent from, you’ll usually find this is full of random numbers and letters or from a completely unrelated source.
The emails will also sometimes contain mistakes in their spelling or grammar, a major red flag as most companies have their emails checked before being sent.
Make use of helpful resources
If you’re worried about being scammed, there are companies out there to help. Friends Against Scams is an organisation created by National Trading Standards to help people across England and Wales who have been victims of postal, telephone or doorstep scams.
If you live in Scotland, Counter Fraud Services work in partnership with the NHS to offer people advice and guidance to those who have been scammed.
How do I deal with debt collectors?
When it comes to debt, dealing with debt collectors can be stressful, but there are steps you can take to manage the situation effectively.
Here’s a five-step guide to dealing with debt collectors:
Don’t ignore the debt
Ignoring, whether it’s utility bills or unpaid council tax, will not make it go away. In fact, it can lead to more serious consequences. Acknowledge the debt and take steps to address it.
Know your rights
Debt collectors must follow strict rules and regulations when collecting debts. Educate yourself on your rights and what debt collectors can and cannot do.
Communicate with the debt collector
Contact the debt collector and explain your financial situation. Be honest about what you can afford to pay and make arrangements to pay off the debt.
Keep a record of all correspondence with the debt collector, including letters and phone calls. This can help you if there are any disputes or misunderstandings in the future.
Seek professional advice
If you’re struggling with debt, it’s important to seek professional advice from a debt advisor who can help you find a suitable debt solution. They can also liaise with the debt collector on your behalf and negotiate a payment plan that works for you.
Dealing with debt collectors can be intimidating, but by following these five steps, you can manage the situation effectively and find a way to pay off your debts.
Reducing or writing off debt
The easiest way to reduce your debts is to try and pay them off as quickly as you can. Understandably though, this is often easier said than done.
With the cost of living rising, and more and more people are turning to credit as something to rely upon to help them.
However, when payments then become too much, reducing payments can seem like a good solution.
This, however, can mean paying them back will take twice as long and you’ll still have to pay interest.
In these instances, many of us will turn to debt advice, which is where getting debt written off comes into play.
Getting debt advice isn’t something everyone wants to do. But by finding out your options you could find a way to deal with your debts that’s not only affordable but quick too.
Which debt solutions allow me to write off unaffordable debt?
If you’re dealing with a level of debt that you can’t afford to repay, don’t panic. There are solutions available in the UK that can help you write off debts you can’t afford and rebuild your finances.
Individual Voluntary Arrangement (IVA)
An IVA is a legally binding agreement between you and your creditors to repay a portion of your debts over a set period, typically five or six years.
At the end of the agreement, any remaining debts are written off, and you become debt-free.
Debt Relief Order (DRO)
A DRO is a form of insolvency that allows you to write off unaffordable debt, provided you meet certain criteria.
It is designed for individuals who have little or no disposable income and assets, and debts under £20,000. A DRO typically lasts for 12 months, after which any remaining debts are written off.
Debt Management Plan (DMP)
Debt Management Plans (DMPs) do not allow you to write off unaffordable debt, but they can help make the repayment process more manageable by consolidating your debts into one monthly payment.
DMPs are not legally binding, so your creditors are not obligated to freeze interest or accept the repayment plan, but they may be more willing to work with you if you are making an effort to repay your debts.
Where can I get free debt advice and guidance on my finances?
If you’re struggling with debt and need free advice and guidance on your finances, there are several places you can turn to for help:
StepChange Debt Charity
StepChange is a debt charity that provides free debt advice and debt management solutions. They offer a variety of services, including debt management plans, IVAs, and DROs, and can help you work towards becoming debt-free.
National Debtline is a free, confidential debt advice service that provides impartial advice on managing debt. They offer a range of services, including debt management plans, bankruptcy, and debt relief orders.
Specialist debt adviser
Specialist debt advisers, such as those provided by your local authority, can offer tailored advice and support for your specific situation. They can also help you understand your legal rights and obligations when it comes to debt.
Debt solution providers
Debt solution providers can also offer tailored advice and support. They’re experts on debt solutions like IVAs and DROs, and can help you work towards becoming debt-free.