Debt is when you owe money to someone. Debt and money issues can be split into two categories, money management problems and debt problems.
A money management problem – this is where you do have sufficient income to cover your essential expenditure (food, travel, rent/mortgage etc.) and credit commitments but you basically spend too much on non-essential items. In these circumstances, you require budgeting advice and need to reduce the amount you spend on discretionary items such as clothes, eating out etc. See our budgeting section for more info.
A debt problem – this is where you do not have sufficient income to cover both essential expenditure and monthly credit commitments. In these circumstances, you will need to seek advice (see the list below), who will recommend the most appropriate solution for your situation (whether that be Administration Order, Debt Relief Order, Debt management, Bankruptcy, Equity Release or Individual Voluntary Arrangement for example – it’s very complicated and the correct solution for you depends on how much you owe, how much you have available to pay back to your creditors each month and whether you have any assets you wish to protect, such as your home).
Most people will find themselves in debt at some point in their lives. However, it only becomes a problem if you find yourself owing money that you can’t pay back. If you are in debt that you cannot repay, the most important thing is not to panic and not to ignore the problem – it won’t go away. If you have problems with debt, you must talk to someone and address the problem as soon as possible.
There are people who can help you and plenty of ways to help you reduce your debt. It might help to tell a family member or friend who could help you or you could talk to the Citizens Advice Bureau for free and confidential advice. See below a list of organisations that can help if you find yourself in debt.
There are different types of debt, depending on their priority to pay the money back.
Priority debts are the debts that the creditors (the people you owe the money to) can take the strongest legal action against you if you don’t repay the money. These include:
- Mortgage repayments – the mortgage lender can take court action for possession of your home
- Rent – the landlord can evict you if you owe rent
- Income tax and VAT – you can be made bankrupt or imprisoned for non-payment of income tax or VAT
- Fines, such as magistrates court fines for traffic offences. If these are not paid, the court can use bailiffs to repossess your goods. If, after this, you still have arrears unpaid, you can be sent to prison
- Maintenance, child support or, council tax or rates. If these are not paid, a court can use bailiffs to repossess your goods. If, after this, you still have arrears unpaid, you can be sent to prison
- Gas, Electric and oil debts – if these bills are not paid you can have your supply disconnected
- Hire purchase (sometimes called ‘conditional sale’) will be a priority debt if it is for an essential item, for example, if you have bought a car on HP and need the car to go to work
- It is important to pay off any priority debts first before any non-priority debts
Non-priority debts include:
- Credit card and store card arrears
- Catalogue arrears
- Bank overdrafts and loans
- Benefits overpayments
- Hire purchase (sometimes called ‘conditional sale’) will be a non-priority debt if it is for non-essential goods like a TV
- Money borrowed from family or friends
- Although the creditors for non-priority debts can take court action against you if you do not pay and may send in the bailiffs, you cannot be sent to prison
The Money Advice Service has excellent information on debt and borrowing including:
You can contact the Money Advice Service on 0300 500 5000 (or 0300 500 5555 for Welsh) Mon – Fri 8am-8pm, Sat 9am-1pm. There’s also an online chat function on their site.
You can contact Meic for free via online chat, text (84001) or phone (080880 23456).