How do I deal with all my creditors?
Summary: This article explains why it is important to keep in contact with creditors when faced with financial difficulty, as well as prioritising the debt repayments.
Why should I contact my creditors if I am struggling to repay?
While it can be a scary prospect to have to contact creditors, if they are not aware of the circumstances, they may assume the debtor is just trying to get out of paying their debt. This could lead to a court summons or the bailiffs. By explaining the situation, the creditors may be able to suggest a solution, such as reduced monthly repayments or a freeze on the interest.
Which creditors should I contact first?
The first step is to divide the debt into priority and non priority. Priority payments tend to include things like mortgage/rent, council tax, utility bills (gas and electricity), secured loans etc. If the consequence of not repaying a debt could be losing a home, being cut off from a vital service, or facing a prison sentence, it should be considered a priority debt and it is important that these are repaid before any other. If after the priority debts are repaid, there is not enough money left to repay the non-priority debts, then it would be worth contacting these creditors initially to try to come to an arrangement.
What are non-priority debts?
These could be any unsecured debt, such as credit cards, overdrafts, hire purchase and student loans. Also, water and sewage charges would be non priority as an individual cannot be cut off for non payment. However, while these may be considered non-priority, that does not mean they can be ignored, and the consequences of not repaying could still be quite significant, such as a CCJ even bankruptcy. Therefore, contacting them to explain the situation may help, and they could agree to freeze interest payments, or agree to a lower monthly repayment.
I have contacted all my creditors, and they have done as much as they can to help, but I still can't afford the repayments.
In this situation, it is likely the individual is insolvent (the monthly income and assets are no longer sufficient to cover essential expenditure and debt repayment). It is important that advice is sought from a reputable, licensed money advisor, or from one of the free advice services available, such as the Citizens Advice Bureau (CAB). There may be a solution available such as a Debt Management Plan (DMP) or Individual Voluntary Arrangement (IVA) that could help.