Dealing with debt

All debts are important, but some are more pressing than others. Some debts carry severe penalties and should be dealt with first; these are priority debts. The list here shows what may eventually happen if debts are not dealt with.

Mortgage	Repossession of your home; eviction
Second mortgage/secured loan	Repossession of your home; eviction
Rent	Eviction from your home
Council tax	Distraint/distress*; deductions from wages/benefit; imprisonment
Gas/electricity	Supply disconnected
Unpaid magistrates' court fine	Distraint/distress*; deductions from wages/benefit; imprisonment
Unpaid maintenance/child support	Distraint/distress*; deductions from wages/benefit; imprisonment
Income tax/VAT/National Insurance	Distraint/distress*; bankruptcy
Telephone	Disconnection
Hire purchase (not normal credit)	Repossession of HP goods
Unsecured credit card debts	County court judgement; impaired credit rating

* Distraint/distress is the seizure of some of your goods by bailiffs.

Don't delay!

The worst thing you can do when you owe money is to ignore the problem, hoping it will go away. The earlier you contact your creditors, the more flexible they’re likely to be in coming to an agreement with you. Decide which debts are priority debts and which are not. Write to your creditors, or phone, and indicate that you want to work out an arrangement to reduce and clear the debts.

If you make any arrangements over the phone, ask the name of the person you speak to. Write down what was said and then follow up with a letter to confirm the arrangement. Remember to quote your account reference and to keep a copy of all letters you send.

Don’t make promises you can’t keep

Don’t be bullied into agreeing to repayment arrangements which you cannot keep. Arrange a rate of repayment that you can afford to keep up. The aim is not just to solve the immediate problem, but to get things organised so you can afford to pay your creditors and meet your other expenditure for the foreseeable future.

Make regular payments

Many firms are computerised and their systems are programmed to send reminders and warnings automatically if payments are missed. It is better to make regular payments, however small, than large occasional payments.

The law is on your side

Although the law gives creditors the power to take action to recover the money you owe, it also makes them go through fixed procedures before the final action can legally be taken. So the law also gives you protection. For example, you cannot legally be evicted from your home without the creditor having been to court and obtained the necessary authority.

Don’t be unduly intimidated

Harassing people in debt is illegal; if you are harassed by creditors seek advice immediately.

The Financial Services Authority has a useful website regarding money matters which gives details of the different types of credit available and lists some of the things you should be aware of when taking out any credit. Visit http://www.moneymadeclear.fsa.gov.uk/