If you live in Scotland and are struggling with debt, try not to panic, there is always a solution to your problems, and facing up to your money problems is the first step in reaching that solution.
The first step in bringing your finances under control is to make a list of all your debts. The list should include all companies owed money to (creditors), and the exact amount owed (found on your most recent correspondence/statement).
If any creditors have started legal action, these need to be dealt with as a matter of urgency. If you are unsure how to proceed with this, your local Citizens’ Advice Bureau will be able to assist you.
When you gave finished compiling your list of creditors, you need to sort out the debts into priority and non-priority. Priority debts include:
- Mortgage/rent: if you do not pay any arrears, you may lose your home
- Utilities (gas/electricity/water): if these are not brought up to date, your supply may be cut off
- Council Tax: Although you cannot be imprisoned for council tax arrears in Scotland, the debt can be enforced in other ways – for example, your bank account or salary may be accessed, or your personal possessions seized.
- Fines: You can be sent to prison for non-payment of fines.
- Maintenance: again, you can be sent to prison for failing to keep up with maintenance payments.
- Loans secured on your property: your home could be repossessed if payments are not kept up to date.
- Car loan: if you cannot do without your car, for example if you live in a rural area or are disabled, then your car loan needs to be classed as a priority debt.
- TV Licence: it is a criminal offence to be without a TV licence.
Other, non-priority debts include credit cards, catalogues, unsecured loans, overdrafts, and any hire purchase agreements. These are referred to as ‘non-priority because you cannot be sent to prison for non-payment, but you still need to acknowledge these debts and work out a suitable repayment plan – otherwise, your creditors may take you to court.
The next thing to do is work out a weekly/monthly household budget. Firstly, all money coming into the home needs to be listed, including wages, any benefits, maintenance, and any monies from non dependants. Outgoings then need to be listed, including rent/mortgage, utilities, council tax, food, leisure activities, TV licence, telephone, travel expenses, clothing, and insurance – in short, everything you pay out.
Any money you have left over at the end of the month/week can be used to pay off your debts. You may also be able to generate extra income by claiming benefits you are entitled to, or take on a second job – if you have a spare room, why not rent it out? Any extra money you can put towards your debts means they will be paid off quicker.
If you have trouble drawing up a budget, your local Citizens’ Advice Bureau can assist you – there is also a handy budget sheet to print off on their website.
With priority debts, you need to get in touch with your creditors as soon as possible, explaining your financial situation. It is usually best to write to them, keeping a copy of any letters you send for your records – the Citizens’ advice has a handy section on their website that offers tips on negotiating with creditors.
You need to make an offer of payment to each creditor in order to clear arrears, based on your disposable income (send them a copy of your budgeting sheet).
It is pretty much the same with non-priority debts – if you have any spare money from your budget after negotiating your priority debts, this can go to paying off your non-urgent debt.
Cathie Campbell, Money Advice Manager for Citizens Advice Scotland, says:
“Often people leave problems to last minute, so our key message is to urge them to get in touch with us as early as possible when there is a problem with repayments (such as notice of losing job, an illness affecting future work prospects, or other change in circumstance) and before creditors take any summary action against them. It’s easier to negotiate and set up a realistic payment plan this way.
Also, the local authorities are becoming more active in taking court action for non payment of council tax, especially against householders with property.
We don’t as a rule class car loans as priority debt, but each individual’s circumstances are taken into account, as outlined above”.
With both priority and non-priority debt, you can negotiate with creditors yourself, or seek the help of the Citizens’ Advice Bureau or debt management company (be careful here, as some do charge a fee for their service, while others, such as Payplan, do not).
Creditors often do accept offers of fair payment, but usually agree to this for a limited period only; say, 6-12 months. After this time, they will want to know whether your situation has improved and you can pay more. However, creditors are not obliged to accept offers of payment and may take legal action against you.
If you do not have enough money to pay anything off your non-priority debts, there are a number of options open to you, ask creditors to wipe off the debt or apply for bankruptcy, especially if you are on a very low income and have no assets – see the Citizens’ Advice website for further details.