10 Steps you can take to help with your payment difficulties

Every person’s circumstances are different, but these steps should help most people with debt problems. We’ve added some tips and hints to help you. You may also want to read 10 Steps you can take to manage your money worries - although this is mainly for customers before they get into arrears, there are some practical solutions which you may find useful.

Be honest with yourself and acknowledge the problem

Don’t ignore post or messages from people you owe money to. If possible, explain your situation to someone who can give you emotional support whilst you deal with the problem.

• who can help you – friends, family, church, are first for many people
• if you don’t want to talk to someone who knows you, your trade union or employer may offer an anonymous and confidential service
• your local council may have a money advice team or contact the Citizens Advice Bureau
• check what other help is available

Contact the people you pay money to

Let your bank or building society know if you will not be able to make payments to them when they are due. Ask how they can help.

• talk to lenders who are expecting to be paid
• also talk to creditors who you may have paid this month but may not be able to pay next month
• include bills you pay less frequently, especially water, electricity, and gas
• and don’t forget bills paid automatically by direct debit or standing order

Work out your budget

Prepare a statement of your financial position showing your income, everything you spend, how much you owe and who you owe it to. Use our Income and spending form.

• income includes all wages / salary, overtime and commission, pensions and welfare benefits that you and your family receive
• spending includes direct debits, standing orders, spending by cheque, credit card and debit card as well as cash

Prioritise your financial commitments

Pay priority debts first such as your mortgage or rent, water, electricity, and gas bills, child support and maintenance payments, council tax, and if you are self-employed, income tax and VAT.

• first work out all the bills due before you next get paid or receive benefit, then put them in order of priority
• the payments mentioned above are priority debts
• other bills are non priority debts

Reduce what you spend

Cut out non essential spending.

• monitor your current account balance and payments to make sure you do not incur unarranged overdraft charges such as paid or unpaid item fees
• monitor your credit card to make sure you aren’t late with your payments, so you do not incur late payment charges unnecessarily
• write down everything you spend for a month – even the smallest thing – then add up how much you have spent other than your major bills. Ask yourself if you could have done without any of these or delayed buying them
• check when future payments are due and make a note. If you are paid monthly make sure regular bills are not due until after you have been paid
• if you are regularly incurring paid item fees, or want to avoid the risk of incurring them, you should consider “opting out” of having an unarranged overdraft. This means transactions will not be paid that would put you into an unarranged overdraft position, and you avoid any paid item fees. Whilst this can be beneficial for some customers there can also be drawbacks to consider.

Maximise your income

As well as employment opportunities, make sure you claim any benefits, tax credits, tax relief or insurance payments you may be eligible for.

• if your circumstances have changed you may be entitled to more benefits or tax credits. Look again at the guidance you received when you last completed a tax form or benefit claim
• if you are unemployed or unable to work due to illness, do you have insurance cover for accident, sickness, unemployment, or payment protection, you could claim on?
• do you have a spare bedroom you could rent to a lodger ? The Government Rent-a-Room scheme allows you to rent out a room in your house for up to £4,250 a year (for the tax year 2011/12) without having to pay tax on the income - this doesn’t include any rent you take from any of your working dependants.
• if your children are working, are they contributing to your household income

Agree a payment plan with your lenders

After paying your priority debts, review your budget to see what you can afford to pay towards your other debts.

• speak to your lenders to see if you can agree revised payments. If you have several companies to deal with, consider using a debt adviser – many offer free, independent advice
• you should aim to pay off the most expensive debts first – compare the APR – the higher it is, the more expensive it is
• consider also the possible penalties for late or missed payments

Stick to the deal

If you agree a payment plan, your lender will expect you to honour it. Only agree payment plans that you realistically expect to pay. If your circumstances change and you cannot keep up the arrangement, contact your lender immediately.

• firms have systems to monitor outstanding payments. Instead of waiting for them to chase you it is far better for you to tell them first
• update your budget with any changes and calculate the revised payments you can offer

Consider other options

If the previous steps do not offer a solution then you probably need expert help. Contact a free, money advice service and ask to speak to a specialist money adviser who should be able to help you.

• advice services can do much more than just give money advice. There are many help and support groups for people with a range of personal needs.
• money advice services can put you in touch with other groups that can help you with a range of matters such as:
  • welfare benefits
  • employment and redundancy
  • retirement and old age
  • medical support
  • children and family matters
• you can also use the internet to search for help

Do not borrow or increase your debts

You should only re-schedule, consolidate or transfer debts with the guidance of a specialist money adviser

• before taking out a loan to repay your existing debt, take independent advice
• you should also take independent advice before you agree to change the terms of your loan, eg, extending the term, or by adding any arrears to your loan
• many Debt Advice and Counselling organisations offer free, independent advice