Manage your debt effectively

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Dealing with debt factsheet

Take practical steps to manage your debt. A good way of approaching this is to look at the whole picture, rather than dealing with individual problems as they arise. There are seven steps for dealing with debt:

Check that you are liable to pay each debt.
You should only be liable to pay debts that are in your name, but there may be exceptions to this. If a debt is in the joint names of you and an ex-partner, you are jointly liable for the full amount and either one of you can be asked to pay. This is known as joint and several liability. If you are having problems paying a joint debt you should, if possible, provide the contact details of your ex-partner and ask the creditor to seek payment from them too. If your partner has died their debts will be paid from their estate, as long as there are sufficient funds to cover them. Any outstanding debt will normally be written off although there are some exceptions to this. This can be a complex area, so you should seek advice from a specialist money adviser.

If you have not paid towards a debt or contacted a creditor within a six-year period, the debt may be legally unenforceable.

Always check with a specialist adviser before approaching a creditor.
Maximise your income.
Make sure that you receive everything you are entitled to. A specialist money adviser will be able to help you to do this. Make a list of all your current sources of income - you will need this to draw up a budget and repayment plan. Check that you are receiving all the benefits and tax credits your family are entitled to and that they are being paid at the correct amount. Also check if you are on the correct tax code and that you are receiving a Council Tax discount if you are the only adult in your household. If you are not receiving child maintenance, consider applying to the Child Support Agency for maintenance to be calculated and collected on your behalf.
Make savings on your spending.
Draw up a list of all of your regular spending, either monthly or weekly - you will need this to draw up a budget and repayment plan - to see if any of your expenses can be cut or reduced. For example, you can save money on fuel if your home is properly insulated, and you may be able to get a grant for this - see the EAGA listing in Further help and information. A specialist money adviser can look at your outgoings and may have other suggestions about how they can be reduced.
Prioritise your debts.
Some debts are more important to pay than others. The debts that are most urgent are those where non-payment could lead to imprisonment, you losing your home, or the disconnection of an essential utility. These include:
- housing (rent arrears, mortgage arrears, other secured loans);
- gas, electricity, telephone and water charges;
- Council Tax arrears;
- benefit overpayments; and
- unpaid court fines or Income Tax and National Insurance contributions.

A specialist adviser will help you identify which debts you need to deal with first.

Payments on unsecured credit agreements, such as bank, credit card and other similar debts, are not priority debts.
Draw up a budget.
It is important to do this as it will allow you to work out: - how much money you have coming in, such as wages/salaries, benefits and tax credits and any other payments made to you;
- how much you are paying out, for example, all your bills, money for food and clothing for you and your children, household and housekeeping expenses, travel and health costs;
- how much money you have left;
- how much you can afford to pay to your creditors; and
- how much you can spend in the future.

Work out your budget on a weekly or monthly basis and make sure the amounts are realistic and allow you to cover all expenses. Remember to include an allowance for irregular spending such as repairs and important family occasions like birthdays, as well as an amount to cover your weekly essentials. Budget sheets are available free from National Debtline or Citizens Advice (see Further help and information).
Negotiate repayment of your priority debts.
You should contact all your creditors and make an offer of repayment. Your completed budget will show you how much money you have left and you will now have to decide how this will be divided. A specialist money adviser will be able to help you work this out and can negotiate with creditors on your behalf, providing them with your budget or financial statement to show that the amount you are offering is reasonable. Creditors may also send you their own budget form to complete.

If you do not have enough money left over to make an offer of repayment, you need to explain this to your creditor. You could, for example, request to make no payment for three to six months, offer to make a nominal repayment of £1 per month to each creditor or spread your repayments over a longer period.
Negotiate repayment of your non-priority debts.
As with your priority debts (see above), you may be able to negotiate a repayment plan that is suitable to your needs - a specialist money adviser can help you with this.

It may be possible to have interest and other charges frozen for a certain period of time. This is especially useful if the amount you have available to pay to a non-priority debt is less than the interest being added each month. Take advice from a local advice agency or National Debtline if this request is refused.

If you have more than one non-priority creditor you will need to negotiate repayments with each company you owe money to. You will usually make larger payments on the debts where you have larger amounts outstanding. National Debtline produces information that explains in detail how to do this.


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