Debt

Fact
Borrowing money
Getting into debt
Pressure to borrow money
Repayments
Consequences of debt
Priority debts
Non-priority debts
Reminders
Debt collectors
Court action
Bailiffs
Credit rating
Credit reference agencies
Credit repair agencies
Bankruptcy
The effects of bankruptcy
Dealing with debt problems
How to deal with debt
Dealing with priority debts
Check that the debt is yours
What can you afford?
Consolidation loans
Sources of help

[1]

Debt

[2]

Fact

In November 2004 the Bank of England announced that the amount of money borrowed by UK consumers had reached £1 trillion.

That’s: one million million pounds.
This is the equivalent of every man, woman and child in the UK owing £17,000.

[3]

Borrowing money

As soon as you borrow money you are in debt – until you have paid it back in full including interest.

The problems start when you cannot meet the agreed repayments.

We live in a society were borrowing money is considered normal. Credit companies push borrowing by offering you more and more credit. Often they don’t consider whether you can pay it back.

Debt problems can affect your ability to borrow money in the future, eg debts could prevent you from being able to get a mortgage.

[4]

Getting into debt

The media often portray people being in debt as a result of careless spending and buying too much on credit.

Sometimes this is true.

There is a lot of influence from advertising and pressure from other people to wear the right clothes, to have the latest gadgets and to keep up with the latest trends.

[5]

Pressure to borrow money

Pressure to borrow money can lead to problems if you don’t know exactly what you’re doing.

Statistics show that well-off people use the most credit.

People with less income usually face the most debt problems because often they are charged more to borrow money.

[6]

Repayments

Easy access to credit is not the biggest cause of debt problems.

More often, unexpected changes in circumstances make it difficult to keep up repayments.

This could be because income has gone down or because expenses have gone up.

This can be caused by unemployment, redundancy, ill health, accidents, relationship breakdown, pregnancy and death.

This unit looks at the consequences of debt.

It also considers ways of dealing with debt problems.

[7]

Consequences of debt

Some debts can have serious consequences and can affect your liberty or everyday living.

These are priority debts such as:

• rent or mortgage
• gas and electricity
• council tax.

It is important to deal with these debts as soon as possible. They should also be paid in priority over other debts.

[8]

Priority debts

• Rent arrears can lead to eviction and result in homelessness.

• Mortgage arrears can lead to your home being repossessed and also result in homelessness.

• Non-payment of gas or electricity bills can lead to your supply being cut-off.

• Non-payment of council tax can lead to court action and even imprisonment.

[9]

Non-priority debts

All other debts such as credit cards and unsecured bank loans are of lower priority.

However there can still be serious consequences if these debts are not also paid.

[10]

Reminders

If you miss a payment you should receive a reminder letter after a couple of weeks. This is usually written in red ink. Such letters are known as red letters.

• A reminder gives you a second chance to pay within around seven days.

• If you pay the required amount within this time no further action should take place.

[11]

Debt collectors

After sending you a reminder some debts will be passed to a debt collection agency.

• They will write to you demanding payment and they will charge you each time they write, adding to the amount you owe.

• Debts collectors may visit you to discuss repayment.

• They must not harass or intimidate you. If they do you can report them to the Office of Fair Trading www.oft.gov.uk

• You may be able to agree a repayment plan with the debt collectors. If not they may take further action through the courts.

[12]

Court action

• If you do not pay a debt after the reminder you can be summoned to court.

• The court can decide to take certain measures to instruct you to pay the debt, either in whole or in part.

• You may be issued with a County Court Judgement (CCJ) against you which states what you have to pay.

• County Court Judgements can be used by a bailiff to recover money owed.

• County Court Judgements will also affect your credit rating, making it more difficult to borrow money in the future.

[13]

Bailiffs

• Bailiffs have authority to recover money owed after a court judgement has been made.

• They will usually visit you at home to arrange repayment.

• They have the right to enter your home in certain circumstances.

• If you are unable to agree repayment with them they make take items of your property and sell them.

• The money raised will be taken off your total debt.

[14]

Credit rating

When you apply to borrow money from a bank, building society or other lender they check your credit rating to see if you are an acceptable risk.

You credit rating is a score that allocates points to various pieces of information such as your age, occupation, if you are a homeowner, as well as your credit history.

If you have a poor credit rating you may be refused when you apply to borrow money. This may prevent you from obtaining credit or a mortgage.

It can also affect your job prospects, as some employers will enquire about this information.

Failing to pay back money borrowed can result in a poor credit rating.

[15]

Credit reference agencies

Lenders don’t have to explain why they refuse credit. But they should say if it is because you have a poor credit rating. They should also tell you which credit reference agency they have used.

Your credit rating is held by one of three credit reference agencies. It is vital that the information they hold is correct you have the right to have a copy of your file.

There is a small charge for receiving this. Details on how to correct any inaccurate information on your credit record will be sent to you with your file.

The credit reference agencies can be contacted at:

Callcredit Ltd
Consumer Services Team
PO Box 491
Leeds
LS3 1WZ
Tel: 0870 060 1414
www.callcredit.co.uk

Equifax Plc
Credit File Advice Centre
PO Box 1140
Bradford
BD1 5US
Tel: 0870 010 0583
www.equifax.co.uk

Experian Ltd
Consumer Help Service
PO Box 8000
Nottingham
NG80 7WF
Tel: 0870 241 6212
www.experian.co.uk

[16]

Credit repair agencies

You may see adverts for companies who offer to repair a bad credit rating.

You can sort out your credit report yourself or with expert help free of charge. You do not need to pay for credit repair advice.

You start this process by contacting the credit reference agencies.

If you have a County Court Judgement against you, you can apply for the judgement to be set aside.

For further advice visit your local Citizens Advice Bureau for free confidential help.

[17]

Bankruptcy

If debts get out of control and cannot be repaid this can result in bankruptcy.

Bankruptcy is a decision made by the court to hand over control of your finances to a trustee.

You can apply for bankruptcy yourself or your creditors (the people you owe money to) can apply.

[18]

The effects of bankruptcy

• You lose control of your assets including your house if you are buying it.

• You may be publicly examined in court.

• You cannot borrow over £250 without permission from the lender.

• You cannot act as a company director or take any part in a limited company without the permission of the court.

You may not be a:

• chartered accountant
• lawyer
• Justice of the Peace (JP)
• Member of Parliament (MP)
• member of the local authority.

For many years after the bankruptcy has ended you may find it difficult to obtain credit.

[19]

Dealing with debt problems

• If you are finding it difficult to make your monthly repayments you should act as soon as possible.

• If you ignore the problem it won’t go away. It will only make matters worse.

• The important thing to remember is don’t panic.

[20]

How to deal with debt

• Start by contacting the people you owe money to and explain that you are having difficulty meeting your repayments.

• You can do this by phone or in writing.

• Your aim is to agree repayments with them that you will be able to afford.

• Ask them for an up-to-date figure of what you owe.

[21]

Dealing with priority debts

Make sure you deal with the priority debts first:

• rent or mortgage
• gas and electricity
• council tax.

The consequences of not paying these can be very serious.

[22]

Check that the debt is yours

• You are not responsible for someone else’s debts.

• If you didn’t sign an agreement to borrow money the debt is not yours.

• Check whose name the agreement is in.

• Make sure you are liable for the amount owed before going any further.

[23]

What can you afford?

• Work out what you can afford.

• Complete an income and expenditure sheet to find out what money you have coming in and how much you are spending.

• You can use your disposable income to work out how much you can pay towards your debts.

[24]

Consolidation loans

If you are thinking about borrowing money to pay off your debts and leave you with one amount to repay such as a consolidation loan – be careful.

Often this kind of borrowing makes the situation worse.

Take advice before doing this.

[25]

Sources of help

The Citizens Advice Bureau offers free, confidential advice and can help you get to grips with your debts.

If you have any questions or require some assistance or advice for dealing with debts contact or visit your local bureau www.citizensadvice.org.uk

Direct Debtline telephone 01323 635999 www.directdebtline.com

National Debtline telephone 0808 808 4000 www.nationaldebtline.co.uk

Financial Services Authority www.fsa.gov.uk

Office of Fair Trading www.oft.gov.uk

Financial Ombudsman Service www.financial-ombudsman.org.uk

UK Credit Repair www.ukcreditrepair.co.uk

Debt
End