A 220 page introduction to all things consumer related by our own BankFodder.
Includes energy companies, mobile phone providers, retailers, banks, insurance companies,debt collection agencies, reclaim companies, secondhand car sellers, cowboy garages, cowboy builders and all the rest who put their own profits before you.
Non-priority debts are usually credit debts such as unsecured loans, credit cards, overdrafts and catalogues. These debts are usually the ones which are the easiest to get affordable arrangements with. The reason credit debts are known as non-priorities is due to the fact that the creditors are relatively limited in relation to the powers that they have to recover money from you. The creditors cannot remove something from you as a ploy to get their money. As an example, if you don’t pay your mortgage you could face repossession; if you don’t pay your gas bill the supply could be cut off. Non-priority creditors have nothing tangible that they can take away from you to get paid. Well, that isn’t *strictly* true; they could place late payment or default markers on your credit file which could have a knock-on affect on your credit score. If you are keen on getting your debts sorted you MUST be resigned to the fact that your credit score is going to head south for a while. Your creditors are very likely going to raise the point that they can use legal proceedings to recover their money, this should only be as a last resort. If you ever receive a county court claim-form you should seek further advice as soon as possible. The majority of debt situations are sorted prior to legal action ever happening, you do need to be proactive and act promptly.
As I’ve mentioned in step 3, a personal budget is a hugely important cornerstone in dealing with debts. Once you’ve calculated how much money you need to live on you can see if there is any left for the debts. If you have priority debts you’ll need to negotiate affordable instalments prior to addressing your credit debts, once they are sorted any subsequent money will be then used for your non-priorities. The figure that you are left with is often referred to as ‘your surplus’, it should be the amount that you can realistic afford to pay your creditors without scrimping on what you need to live on. Many folks with debt problems soon realise that their surplus isn’t high enough to meet their minimum payments, instead reduced payments should be offered.
If you have surplus money:
This money should be divided up amongst the creditors on a pro-rata basis. This means that the biggest creditor will get the greatest share, and those that are owed smaller amounts would be offered smaller amounts in comparison. Here’s an example:
Creditor A equates to 50% of the total debt, so should be offered £50 per month.
Creditor B equates to 30% of the total debt, so should be offered £30 per month.
Creditor C equates to 20% of the total debt, so should be offered £20 per month.
To work out your pro-rata payments, you should divide each debt amount by the total debt amount. You then multiply that figure by the amount of your surplus. Since you are offering a fair and reasonable amount your creditors should seriously consider your offers. The best way to negotiate is ALWAYS in writing, this way you get to keep a copy of the negotiations and also you can enclose a copy of your budget sheet. You should also ask the creditors to consider freezing your interest and charges to stop the debt growing any bigger. You might need to be persistent, it could take several attempts before your creditors agree. You must also ensure that all creditors are included in your offers, you cannot unfairly prejudice one creditors against another – for example you cannot make pro-rata offers on all of your credit cards whilst keeping up with a loan payment.
If you have no surplus
If it transpires from your budget that you have no spare surplus income you should offer your creditors a token payment of £1 per month or so.
You can find some template letters on the National Debtline website:
USING INDUSTRY CODES OF PRACTICE TO YOUR ADVANTAGE
When negotiating with your creditors you may wish to remind them of their obligations to you. There are a couple of handy publications that you can quote from. The Office of Fair Trading’s debt collection Guidance outlines all of the unfair practices that wish creditors not to undertake, it has recently been updated and makes clear the type of behaviour that lenders and debt collection agencies should not undertake.
If you feel that your creditors are flouting their obligations you should request a copy of their complaints procedure, once you have exhausted their internal complaints processes you can take a complaint further to the likes of the Financial Ombudsman Service and Trading Standards.
DEBT COLLECTION AGENCIES
It is often the case that debts get passed on to debt collection agencies, they have no further powers to collect money from you – they are not bailiffs and have nothing to do with the legal system. Often these agencies are in-house to the original lenders; for example:
Mercers = Barclaycard
Metropolitan = HSBC
Blair, Oliver & Scott = Halifax / Bank of Scotland
The rule of thumb is to treat these agencies in exactly the same way as the original creditors, with the same offers of payment. If they threaten to send someone to visit you they are not bailiffs, they cannot come in (unless invited!) and they cannot take anything. It’s best to send them on their way – ONLY COMMUNICATE WITH CREDITORS IN WRITING!
The key to getting reasonable arrangements sorted with your creditors is to be persistent, it might take several letters before your creditors agree to accept your offers of payment. Please also be resigned to the fact that reduced payments will have a significant effect on your credit rating, this will not be forever as defaults and late-payment markers will fall off your file after six years.
If you would like some online support to help you deal with your debts, take a look at the new My Money Steps system: