It's an awful feeling but try not to panic; there is help available. The most important thing is to take action as soon as possible. This page should help you take control of your finances with the following steps:
You can also get free, confidential help with this by contacting one of the organisations listed under Where to go for help.
Do:
Don't:
Some debts are more serious than others. Make a list of all the people and organisations you owe money to (they are called your 'creditors') and write down what you owe each of them.
You will need to sort out your priorities for repayment and the largest debt is not necessarily the most serious. This list will help you:
Rent or mortgage If you get into arrears and don't do anything about it, you could be evicted from your home. Even if you abandon your home, you will still owe the money. Tell your landlord or mortgage lender as early as possible if you are having difficulty paying and they will help you to work out a payment plan.
Income tax If you are self-employed and do not pay your income tax on time, the Inland Revenue will charge interest on what you owe. Eventually, if you keep ignoring their payment demands, you could go to prison. Tell the tax office if you can't pay and ask them for advice.
Court fines and court orders Tell the court or your solicitor if you can't pay money that a court has ordered you to pay. If your circumstances have changed, the amounts might be reconsidered. If you do nothing at all, you could be sent to prison.
Child maintenance Talk to the Child Support Agency if you are having difficulty with paying the amount you are supposed to for your children.
Council tax The council could take you to court for non-payment. Contact the council tax department and say you are having problems. Ask them to check that you are getting any discount you are entitled to.
Gas, electricity, water and telephone Contact your supplier as soon as you can, you will usually be able to negotiate payments that you can afford.
Credit or store card If you cannot even make the minimum monthly payments, stop using the card. Return it to the credit card company or store, or cut it up, so that you are not tempted to put anything else on it. Then agree a repayment plan.
Credit agreements If you are buying something on credit and can't keep up the payments, the store might be able to get a court order that allows them to take the goods back. Talk to them before that happens.
Loans If you tell the lender that you are having difficulty making the repayments, you should be able to get more time to pay. Ask the lender what this would cost you.
Getting help
If you talk to your creditors and tell them that you want to get things sorted out, you will probably find them sympathetic and helpful. After all, they want their money and it is in their interests to help you to pay, however long it takes. The earlier you let them know there is a problem, the easier it will be to get them on your side.
If you don't want to talk to your creditors yourself, you can get free help from someone who is used to doing this. They can also help you to decide which are your most serious debts. Contact one of the organisations listed under 'Where to go for help'.
Until you know where your money is going at the moment, you will not be able to work out how you can pay off your debts.
Write down what you spend each week, month or quarter on:
Be honest! This can only help you if you make it as complete as possible.
Now add up all the money you have coming in, including:
Now you need to add up all your outgoings and all your income for the week, month or quarter. You must be spending more than you have got coming in or you would not be in debt. Check that you have remembered to write everything down.
You now have to work out how you can get more money coming in than is going out. That is the only way you will be able to start repaying your debts.
You will have to ask yourself some hard questions and accept that you will have to make sacrifices.
Can you spend less?
You will have to find ways of spending less money, for example:
Look very carefully at all the things you buy that are not strictly necessary. Cutting back on essentials like food or heating is not a good idea unless you are spending more than you need. For example, take-aways and ready-made meals from the supermarket always cost more than cooking a meal at home. That kind of food may be convenient but if you are short of money, it is a luxury.
Can you increase your income?
You might be able to get more money coming in, either regularly or as a one-off. For example:
It is also worth thinking about any insurance policies you might be able to claim on - do you have any credit protection insurance? Do you have any loss of earnings insurance?
Once you have been through all of this, you should be able to set aside some money to begin to repay your creditors.
If you are stuck, be sure to get some help. See 'where to go for help'. Remember that your debts will only get worse if you do nothing.
Now you know what money you have coming in and going out, how much you owe and what debts you should tackle first. The next step is to work out what you can afford to pay to each creditor and when you will be able to make the payments.
Remember that it is better to make small payments regularly than to promise larger amounts and then not be able to keep them up.
Contact your creditors (or ask your advisor to) and tell them how you plan to repay what you owe them. Send them a copy of your budget planner and tell them what you are doing to reduce your spending and/or increase your income. They will want to see that you are doing the best you can to clear your debts.
If your situation is really bad, ask the company if you can stop paying interest and just repay the original amount borrowed.
Don't be put off
If you get a poor response at first, don't give up:
If you think you have been treated unfairly, you can complain. If the company belongs to a trade association (there should be a logo on the company's headed notepaper) contact the association. Or try your local trading standards department.
Do all you can to keep up the payments you have promised.
Don't just do nothing and hope things will get better – they won't. Get free, independent advice - see 'where to go for help'.
Borrowing to get out of debt
Beware of ads or mailshots offering loans to pay off your debts (these are sometimes called consolidation loans). You may pay out less each month, but you will carry on paying and being charged interest for years. And if you miss payments you could end up even deeper in debt.
Get independent advice - see 'where to go for help'. Some loan companies offer advice but they might charge you for it and it might simply be an offer of another, very expensive, loan.
If you have a house or flat and you put it up as security for a loan, you risk losing your home if you cannot keep up the repayments.
Harassment from creditors
Creditors may remind you to bring your payments up to date but they are not allowed to cause you alarm, distress or humiliation. For example, they must not:
If you think you are being harassed, tell the trading standards department at your local council, the police or an advice agency (see 'where to go for help').
Some lenders might try to frighten you by threatening to have you prosecuted in the criminal courts if you do not pay your debts. Don't worry, they cannot do this because being in debt is not a criminal offence.
They can, however, ask a civil court to order you to make payments.
Being taken to court?
Most creditors don't want to take people to court and only do it as a last resort. If you talk to your creditors, work out an action plan and then keep up with the payments you have offered, you are unlikely to be faced with court action.
But, if you do get a summons to appear in court:
If the court orders you to pay back a certain amount, you must do so.
Remember, you can be sent to prison if you don't pay certain debts, such as income tax or maintenance. If you can't pay, take legal advice as early as possible; don't wait for court action.
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