1. Address the issue and talk about it
If your debt has become unmanageable, it’s important to accept that it’s a problem before you can do anything else. Share your worries with someone you trust, or a debt counsellor. Just starting with this can help you feel better about your situation.
2. Get a handle on what you owe
Draw up a list of exactly how much you owe and you who owe it to. Attach any reminder letters, loan agreements or statements together and keep them safe.
Urgent court papers or letters need to be acted upon quickly. Set these aside to deal with first. If you don't then your creditors won't know you're having financial difficulties and will assume you don't plan to pay. This could result in a court order giving bailiffs permission to take your goods.
3. Make a budget and check your benefits
Creating a budget is the first step towards taking control over your situation. It will help give you an oversight of where your money is going and can be a handy tool when contacting your creditors.
4. Contact your creditors
Being in debt can be frightening. You might receive some scary calls, letters and bills from companies threatening legal action. Speaking to them might be the last thing you want to do, but they will often be willing to work with you to help repay your debt. Try to be open about your circumstances – this will help them to understand.
Have your budget to hand – it should tell you how much you’re realistically able to put towards your debt. Offer to send your creditors a copy and make them an offer to pay what you can afford. Reduction in repayments can sometimes be negotiated, although be mindful that this will affect your future credit rating.
Legally, creditors aren’t allowed to harass you. They cannot contact you several times a day or at unreasonable hours, threaten you verbally or imply legal action can be taken when it can’t. They also can’t pressure you to pay off large amounts in one go or tell someone in your family about your debts.
5. Tackle urgent debts
Some debts are more urgent than others. These are known as priority debts and should be paid off first. This is because the consequences of not paying them can be more serious than other forms of debts, including losing your home or having your gas or electricity cut off. They include:
- Council Tax
- gas and electricity
- court fines for traffic offences
- Child Maintenance
- Income Tax or VAT.
Some debts, such as Council Tax or Child Maintenance may be taken out of your benefits or wages via the Department for Work and Pensions.
Non-priority debts are still important, but you can't be sent to prison for not paying them. Another example is that you can't have your water cut off because of not paying your water bills. Non-priority debts include:
- credit card debts (including overdrafts, loans, hire purchase, credit card and catalogues)
- benefit overpayments
- local authority parking fines
- water and sewage charges
- other loans (including student loans)
- money borrowed from friends and family.
If you don’t make any offer to pay off your debts, your creditors can still take you to court. This can then result in a visit from the bailiffs, who will sell your goods to pay for your debts. You may also have to return any goods where you have failed to keep up with any hire purchase payments. So make sure you pick up the phone and talk to them before it escalates.
6. Work out your priorities
Although some debts are more important to pay off first, you need to decide how some debts might affect your life. For example, if you need a car to get to treatment, it's important that you sort out any repayments as a priority.
Ask your creditors to explain what type of agreement you have, the balance owing, terms or repayment and interest or penalties, your debts and any insurance policy attached to the agreement.
- ask them if they can freeze any interest on your debts
- ask them if they will agree to you paying a smaller amount over a set period of time
- get any agreements in writing and keep a copy of any letters or emails you've received or sent
- try offering your creditors a full and final settlement where you pay a lump-sum instead of the full balance you owe on the debt. In return, the creditor agrees to write off the rest of the debt.
- give away your account details and reference details to anyone other than the creditors
- agree to pay an amount that isn't realistic and that you can't afford
- hand your property keys back to the lender
- send any payment before it's agreed (especially in terms of a full and final settlement)
- borrow more money, known as debt consolidation loans – they may help you in the short-term, but could end up getting you into more serious debt.
7. Deal with court orders
If you do have to go to court try not to miss your hearing if you are able to go. Take your financial statement, or copies of letters that are relevant, with you.
If you can't make a hearing because you have planned treatment or are not well enough to attend, you need to let the court know as soon as possible. This way you can be excused from attending and another date can be set.
8. Get support
For more information and advice you can contact your local authority or get advice from the following organisations:
- Contact your local Citizens Advice Bureau
- Call National Debtline on 0808 808 4000
- Call Step Change Debt Charity on 0800 138 1111.
- The Debt Counsellors provides free, independent confidential and impartial advice to support people in England and Wales with financial difficulty.
- Talk to someone now. Our welfare advisors are on hand to talk things through and give you practical advice
- Make a budget and get a better handle on your incomings and outgoings
- Need to cut some costs? Here's our guide to spending less
Updated July 2017, next review due 2018.