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Debt Matters

It can be very hard to pay your bills and live the life you want when you’re managing on very little money.

If it’s your first experience of living alone and managing a budget, you may find you’re spending more money than you have. You might go overdrawn with your bank or fall behind with your bills, and have to borrow money to manage. This means you’re getting into debt.

There are different kinds of debt. If you’ve arranged with your bank to give you an overdraft or a loan then they’ll have set up a repayment scheme with you, working out how much you can afford to pay back each month, and your debt will feel manageable.

But if you start falling behind with your bills or repayments, or have to borrow money from other sources, then your debt can start to become very worrying.

If you have debts, do not panic but do not ignore them.

They won’t go away by themselves.

But remember, there are loads of people out there with money problems and just as many who are handling it wisely and not letting it control their lives. You're not alone and it is entirely possible to become completely free of debts!

Debt: Take Back Control

If you are in debt it can feel difficult, but if you take a few simple steps you can stop it getting too much for you to handle.

First – make a list of all the people and companies you owe money to (these are sometimes referred to as your creditors).

This might seem terrifying but if you push it to the back of your mind, things will only get worse. If you make this list, you'll feel more in control.

Second – find all the documents relating to the loans or debts.

Third – work out what the minimum repayments are.

Remember though – you don't have to tackle this on your own.

There are organisations out there that offer free help with debt and money problems.

Once you have organised your debts into what you owe, you need to look at who you pay back first. The debts you may have to pay back first, because they have worse consequences for not doing so, are not necessarily your biggest debts.

 

Priority debts

Some debts are more urgent than others because if you don’t pay the consequences are worse, like losing your home, having your electricity cut off, or even going to prison. These are priority debts.

Work out which are your priority debts and if you have any spare money, pay these first.

 

Priority debts include:

  • mortgage or rent arrears – if you don't pay these, you could lose your home
  • gas and electricity arrears – if you don't pay these, you can have your supply disconnected
  • council tax arrears – if you don't pay these, a court can use bailiffs to take your possessions. If, after this, you still have arrears unpaid, you can be sent to prison
  • court fines such as magistrates' court fines for traffic offences – if you don't pay these, the court can use bailiffs to take your stuff. If, after this, you still have arrears unpaid, you can be sent to prison
  • arrears of maintenance payable to an ex-partner or children – this includes Child Support you owe to the Child Support Agency. If you don't pay these, a court can use bailiffs to take your things. If, after this, you still have arrears unpaid, you can be sent to prison

 

Non-priority debts are debts that you cannot be sent to prison for not  paying. They include:

  • Bank loans and credit card bills
  • benefits overpayments
  • credit debts such as overdrafts, loans, hire purchase, credit card accounts and catalogues
  • water and sewage charges – you can’t be cut off for water debts
  • student loans
  • money borrowed from friends or family
  • parking penalties issued by local authorities.
  • benefits overpayments
  • TV licence arrears
  • water and sewage charges – you can’t be cut off for water debts
  • student loans
  • money borrowed from friends or family
  • parking penalties issued by local authorities.

 

Remember though, contact all those that you are in debt to, talk to them, and see if you can come to an arrangement to pay money back when you can. If you don't make any offers to pay, without explaining why, you could get taken to court by those you owe money to.

This could lead to bailiffs coming to take away your property to cover the debt. If a bailiff does take your possessions they will be sold tod to pay off your debt but you won’t get nearly as much as their actual value and so your £250 television could end up paying just £20 of your debt.

Avoid further trouble – set your budget

When you know exactly what you owe and who to, and which debts to pay off first, you’ll need to set yourself a realistic budget – that allows for your debt repayments – to keep your spending under control.

Use our budget tool to help you do this.

Further advice

If you really have no spare cash to start paying off your most important debts, you need to get expert advice. Click here for a list of organisations designed to help you manage your money and debt.