Advantage Loans - Credit Problems

This page offers advice on what to do if you think you may have borrowed too much. 

Firstly, 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.

• What are your debts?
• What are you spending?
• What is your income?
• Balancing the books?
• Making an action plan

If you feel you are getting deeper into debt, don't just do nothing and hope things will get better - they won't. Get free, confidential and independent advice - see our Debt FAQ .

Do:

• Contact the people you owe money to and tell them you have a problem
• Plan a budget to help you take control of your finances
• Get free help and advice from the experts.

Don't:

• Just borrow more money to get yourself out of debt - it may be tempting but it can get you into deeper trouble. Before you borrow more, get some expert advice
• Ignore or throw away letters or demands for payment
• Make promises about repayments that you can't keep.

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What are your debts?

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. Think about each of the following:

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.

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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.

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What are you spending?  

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.

Use our budget planner, or write down what you spend each week, month or quarter on:

• your home - rent or mortgage, gas, electricity, telephone, etc
• food and clothes - don't forget take-away meals and any clothes you buy for work
• travel - list all the costs of running a car or motor bike, if you have one
• financial commitments - include the repayments you should be making on loans or credit agreements
• other things - don't forget occasional items like haircuts, shoe repairs or video rental. And do you have any pets? A mobile phone? Do you do the lottery?

Be honest! This can only help you if you make it as complete as possible.

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What is your income?  

Now add up all the money you have coming in, including:

• wages/salary/pension - include the money from any casual work you do
• benefits - don't forget child benefit, if you receive it
• maintenance - record what you actually get, if your ex-partner does not pay what they should
• contributions from other people in the household - do you have a lodger? Do any of your children pay towards their keep?
• student loan - if you have a loan, do you also get parental contributions?
• other - do you have any other money coming in regularly, or occasionally?

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Balancing the books  

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.

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.
Can you spend less?

You will have to find ways of spending less money, for example:

• can you save some money by spending less on entertainment?
• are you buying anything on credit that you could return?
• can you cut back on presents to friends and family?
• do you really need that mobile phone? If you do, have you got the cheapest tariff?
• are you spending more than necessary on clothes?

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 it is more expensive.

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Can you increase your income?  

You might be able to get more money coming in, either regularly or as a one-off. For example:

• are you receiving all the benefits you are entitled to? Ask the Citizens Advice Bureau or the Benefits Agency
• are you getting all the maintenance you should be getting? If not, go to the Child Support Agency, or the Citizens Advice Bureau for advice
• are you paying too much tax? Ask your tax office to check
• do you own anything you could sell to raise some cash? (Don't sell anything you still owe money on!)
• if you are a student, can you get a larger student loan or an emergency payment? Ask at the students' union or student services office.

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?

If you are stuck, be sure to get some help. Remember that your debts will only get worse if you do nothing.

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Making an action plan   

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.

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Don't be put off

If you get a poor response at first, don't give up:

• make the payments you have offered, even if the creditor says it is not enough
• keep copies of all the letters you send and the replies you receive
• make notes about any phone calls with the date and the name of the person you spoke to. If they are unhelpful, ask to speak to someone higher up
• if you agree something on the phone, write a letter setting out what you agreed, so you and the company have a written record.

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.

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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 Debt FAQ . 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.

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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:

• phone you late at night
• keep phoning you at home or at work
• park a vehicle marked 'debt collectors' outside your home
• contact your employer or place of study.

If you think you are being harassed, tell the trading standards department at your local council, the police or an advice agency.
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.

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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:

• don't panic - you will be treated fairly
• fill in the forms you have been sent and return them as quickly as possible to the court or creditor, as instructed. Get help if you need it.
• if you think your credit charges are extortionate, the court might re-open your original agreement
• if you are going to the small claims court, you can have a 'lay representative' to speak for you, that is someone who isn't a lawyer. Some Citizens Advice Bureaux offer this service;
• you might be able to get legal aid and be represented in court. Look in the phone book for solicitors who take legal aid cases or look at Community Legal Service Direct website.

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.