Dealing with debt
Protect your money
For example, if you have defaulted on your loan and credit card repayments but still have your current account with that same bank, the bank could take money from your current account to be paid towards the card and loan.
There are rules that govern set off, however, to be on the safe side it’s always best to open an account with another bank you have not debts with. When choosing a bank, bear in mind that some banks trade under different name for historical reasons, but are still part of the same group. Ideally you should chose a bank that doesn’t belong to any group you have debts with.
If you have taken out payday loans, they’d have obtained your debit card details. Payday lenders have been known to raid debtors’ bank accounts when they don’t pay back on time as agreed. This can leave you without enough money to cover your priority debts.
If you have taken out a payday loan you will not be able to pay back on time, you need to make sure your bank cancels your continuous payment authority. See continuous payments.
Deal with priority debts first
Priority debts include:
How to deal with priority debts
It is important to contact your priority creditors as soon as you find yourself in difficulty. Explain your situation and ask for more time to pay, get them to agree to allow you 14 or 28 days to sort out your finances.
Even though other creditors may put more pressure on you to pay, that doesn’t make them more important. For example, councils normally send just two reminders per year, then proceed to issue summons. Debt collectors (DCAs) and payday lenders may ring constantly and/or write numerous letters, that doesn’t make them a priority.
Draw up a budget sheet to determine how much you can afford to pay towards your priority creditors. Once you have your budget, you should get in touch with your creditors with your repayment offer, backed by your budget sheet.
Understand your creditors’ communications
Anything important has to be put in writing and sent through the post, not discussed over the phone, by text or even email. If you receive something in the post, you should open the item immediately and read it carefully.
Letters that creditors are required by law to send, such as default notices, notices of sums in arrears, termination notices and notices of assignment should be sent by post.
Payday lenders usually communicate by email, text or phone rather than sending letters in the post. Make sure you keep a copy of every email sent and received and avoid discussing matters over the phone or by email.
Creditors often send letters threatening a number of things, home visits and legal action being the most common. Most of the time, they don’t carry out such threats, but it’s important not to ignore their correspondence.
Are you liable for the debts?
This may sound like an obvious question, however, debt collectors often contact the wrong person, for example, someone who used to live at the same address or someone with the same surname. The alleged debt could be:
If a debt collector writes to you out of the blue for a debt you do not recognise, or you are in doubt, you should write to the debt collector, asking them to prove the debt. See prove it letter below.
See Statute barred debt for more information.
Keep it all in writing and keep copies of everything you send and receive
Get yourself some folders and assign one to each creditor, or use an accordion file. Whenever you receive a letter, staple it to the envelope it came in.
It is important to keep on top of your correspondence. Many people are afraid of the post and don’t open the letters they receive, this is a bad idea, because you can’t deal with your problems unless you know what they are.
When you receive an item through the post, you should do the following as soon as you can:
- Open item carefully.
- Read it thoroughly, don’t let things like red writing or threats intimidate you.
- Staple together all attachments (if any) to the letter and envelope.
- Write down on the envelope the date when you actually received it. If you were away, make a note of the days/weeks you were away.
- Establish whether a reply is appropriate. It’s important to keep the lines of communication open, however, some items, such as default notices, notices of sums in arrears and statements, do not require a response.
- Update your own records and file their letter with your response, if any. Print off a copy of the letter you sent and attach it to their letter. Having a copy on your computer, memory stick or google docs is not enough, in 4 or 5 years time you may not be using the same system and it will be 6 years before the debt is statute barred.
- Get yourself a suitable filing system and use it just for your creditors. You could choose one of the following:
Assess your debts
Some debts are more important than others, some are also easier to deal with than others. You may be able to challenge some of them. Once you have your priority and any secured debts under control, any unsecured debts can be dealt with in various ways:
Draw up a budget
Even if you do not submit an I&E form to your creditors, it’s always useful to fill one in for your own records, in order to determine how much you can realistically afford to pay every month. See budgeting for reference.