When you are experiencing financial trouble, however temporary, it is important to divide your debts into priority and non-priority payments. Priority debts include mortgage or rent payments, utility bills, council tax, and arrears of tax or National Insurance contributions.
Other debts regarded as non-priority include credit and store card payments, as well as overdrafts and loans. Although still important, non-payment of this type of debt will not directly affect your standard of living.
So how do you get organised with regard to your debts, and what is the best approach to take when contacting creditors?
You need to work out how much you owe to each creditor by looking at demands for payment, and the original agreements if you have them. Before contacting creditors individually, you’ll need to know their name and address, plus your account or reference number.
Most organisations prefer to be contacted if their customers are struggling to keep up repayments, and may be willing to negotiate more time to repay, or even reduce the monthly amount for a fixed period to give you breathing space. You can also request a little more time to calculate how much you can afford to pay.
Make contact with your priority creditors by phone initially, as this will speed up any new repayment arrangements. You should keep a written note of the date and time of each phone call, and the name of the person you speak to. You may need to refer to it if a new payment arrangement is later questioned.
It is also advisable to write to each creditor confirming what was discussed, and the outcome agreed, keeping copies of all correspondence in a safe place. Let creditors know if you are experiencing any short-term issues that affect your ability to make repayments – if injury or illness has made you temporarily unable to work, for example.
To substantiate any offers you make to priority creditors, it is a good idea to include a budget sheet when you write to them. This will indicate your seriousness about repaying the debt, even if it is only by a small amount initially.
Budgeting does take a little time, but once done it can help you recover quickly from financial difficulties. Should you need to take professional financial advice, having a budget sheet will also help your Money Advisor to understand your situation, and be able to offer the most appropriate solutions.
Mortgage or rent
These are the debts that should take top priority, as if they remain unaddressed you may lose your home. By repaying arrears at an agreed rate, in addition to the usual monthly amount, you’ll be able to spread the cost over a longer period of time rather than having to make a lump sum payment.
If you are in receipt of benefits, you may be able to repay your mortgage or rental debt directly from these.
Gas and electricity
Falling too far behind with your energy bills could result in your provider insisting that a pre-payment meter is installed. If you contact them as soon as possible, however, they may agree to a revised payment plan that covers your debt at an affordable rate or over a longer period of time.
Don’t be tempted to pay too much each month though, as you need to make sure that no more payments are missed.
Local authorities often agree to spread arrears over the remainder of the year, on top of the regular payment, or even add it to the following year’s liability which would give you valuable time to improve your financial position.
Good communication with creditors is key to successfully negotiating your way out of trouble, and can make a big difference when trying to keep repayments affordable. Most companies appreciate being kept up-to-date by customers when accounts fall behind, and are more likely to react favourably if you let them know why you are experiencing these financial difficulties.
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