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Debt Advice: Finding and Making the Most

First thing to remember before researching and reading any amount of free debt advice, is to ensure the source of the information is impartial. This may sound obvious, but its amazing how many websites are offering free advice that ends up with the ‘offer’ of taking out a loan, or debt consolidation, these are actions that can often make your debt problems worse.

Before signing any ‘deals’ with companies, ensure your upto date with the latest financial news, ensure you understand whats happening in the markets that may affect your financial position, current and future.

1. Maximise income.

Make sure you are getting all the state benefits you are entitled to. In addition, you should check money your tax code is correct, or whether there might be any lump sums available to them such as grants or payments from charities.

2. Make sure you understand the extent of your debts.

This could take time, as many people are embarrassed to admit they are in debt and do not understand how much trouble they are in. Be prepared to explore the debt options quietly and sensitively you are sure of the extent of the debts.

3. Understand that debts can be solved, no matter what size they are.

As a general rule your aim is to get debt free. Simply being able to make affordable payments by budgeting is one way to deal with debts. There are government debt solutions such as bankruptcy or IVA (Individual Voluntary Arrangements) and Protected Trust Deeds (Scotland only) or private sector debt solutions such as Debt Management Plans and informal arrangements.

4. Differentiate between priority and non-priority debt.

Priority debts include rent, mortgage, where a person could lose their home, fuel and water rates (disconnection), council tax (attachment of earnings, bailiffs, prison). For other creditors, such as banks (for overdrafts and unsecured loans), store or credit cards, catalogues, the only action open is through the civil courts. Remember, the courts do take a debtor’s financial circumstances into consideration, and so will often accept very small payments. It is generally worth drawing this to the creditor’s attention when you are negotiating, although you may have to persuade them, by writing or telephoning them a number of times, so be persistent.

5. Draw up a financial statement or personal budget.

This is a statement of income and essential outgoings. Allow a little for ‘sundries’ or emergencies. Remember, if all expenditure is not included, the balance at the end will show more money available to pay debts than actually exists. This is not helpful. It can be revised as often as necessary, until you are satisfied it is accurate. Do not include payments to non-priority creditors.

6. Gather details of all creditors and debts.

Details such as creditors’ names, addresses and phone numbers, any collection agencies or solicitors involved, account numbers, amounts of debts, stages of debts (eg how many payments missed, final demand, County Court judgments, etc).

7. Negotiate with priority creditors.

As these creditors have other ways of recovering their debts, they will be less likely to accept unrealistic payments, and must receive their share first. However, bear in mind that it is of little use to creditors to agree an arrangement which is more that can be afforded.

8. Negotiate with non-priority creditors.

If there is any money left after all this, it should be shared out between all the non-priority creditors. This is called pro rata payments. Divide each individual debt by the total amount your owed, and then multiply the result by the total of their spare cash. In this way, however small the amount each creditor receives, they are getting their fair share of what can be afforded, and they also benefit because the person in debt more likely to keep to the payment plan if you have already worked out what can be paid. If accounts such as credit cards or overdrafts are attracting interest, it is important to ask for the interest to be frozen. Many will agree, although some may only do this once an offer has been made. If in doubt, call The UK Insolvency Helpline on 0800 074 6918.

9. What if there is no money left for non-priority creditors?

If there is little chance making a payment toward the debt then don’t be afraid to ask the creditor to write off the debt, or to suspend the account, taking no action for a period until things change, or until a benefit comes through, etc. The creditor may refer you to a collection agency. If this happens just make the same to them. If they can see you are telling the truth they may write off the debt or allow you to make miniscule offers.

10. Understand that you can call The UK Insolvency Helpline as many times as you want.

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