I cannot afford to pay my Debts - What Options Do I Have?

Many people are now worrying that they “can’t repay Debts” and what debt solutions there are?

If you owe creditors, you can make alternative arrangements to pay your debts.

Your perfect debt solution will depend on the amount of money and assets you have.

Types Of Debts

There are many types of creditors you might owe money to.

Catalogue Debt

A non-priority debt is a catalogue debt. This implies you should not put it ahead of your essential payments, like your mortgage, household bills etc. If you have been unable to make payments, catalogue companies do not have the power to send bailiffs to your home.

If you fail to make minimum payments or miss payments altogether, the catalogue company will ask you to make up the difference. If you don’t pay them, your account may go into default and you may face the consequences. Your account with the catalogue firm will be closed, and you will be unable to purchase any more items.

Check out our in-depth guide if you are struggling to pay any Catalogue debts.

Credit Card Debt

Credit cards can be extremely beneficial when they are used properly. But if you are not careful, they can be an expensive way to borrow, especially if you can’t pay the balance and it takes a long time to pay it off.

Credit cards are covered by the Consumer Credit Act (CCA). If you are having trouble paying your credit card payments, your creditors must adhere to strict guidelines.

If you are worried about your credit card repayments, our debt specialists have provided more information for anybody who is struggling to pay their credit card debts.

Overdraft Debt

An overdraft is a type of consumer credit secured against a bank account. It enables you to spend more money than you have in your account, up to a certain limit. It is important to keep in mind that an overdraft must be paid back “on demand.”

If you have an overdraft and borrow more than the agreed amount, the bank can reduce or cancel your overdraft.

Payday Loan

A payday loan is a form of short-term borrowing in which a lender loans you money at a high-interest rate based on your income. Payday loans have high-interest rates since they are used for short-term credit. A payday loan is usually a percentage of your next paycheck.

Payday loans are problematic because they can trap consumers in a vicious cycle of debt. Due to the high-interest rates, payday loans are extremely risky. Many people find it impossible to pay them off, becoming trapped in a debt cycle.

Guarantor Loan

A guarantor refers to a person who agrees to cover a borrower’s debt if they fail to meet their loan obligations. Guarantors put their own property up as security for the loans.

If a guarantor fails to repay the loan when it is due, the lenders may pursue legal action. The lender might then seek a court order to recover the debt owed to them by the guarantor.

Personal Loans

When you take out a personal loan, you borrow a fixed amount from a bank or creditor and repay it in fixed amounts over a certain number of months or years. You need to take into account how much you must repay each month and how long you must make the payments.

For example, people may borrow a significant amount of money to pay for renovations, a new car or their dream holiday and then pay this back over a series of months/years. Interest will be charged on the majority of personal loans in the UK.

Failing to pay back a personal loan can be detrimental to your credit score. You are considered in default if your payment is late by 30-90 days (depending on the conditions of the loan). You will also be charged a fee when you miss payments and could be issued with a county court judgement (CCJ) against your name.

Bank Loans

A bank loan is a loan from a bank or credit union for a specific amount of money. The bank will provide you with a loan depending on your credit score and your ability to repay it. Both secured loans (attached to collateral such as a home or car) and unsecured loans are available from banks.

Bank loans are usually the cheapest option in terms of interest rates compared to overdrafts and credit cards.

If you do not repay your bank loan according to the agreed terms, you may be charged a fee plus interest for any missed payments. The failure to pay a bank loan will harm your credit score since lenders will report missed payments to credit reference agencies (CRAs). The lender will issue a county court judgement (CCJ).

Court Fines

Court fines are paid in weekly or monthly instalments and may be deducted from your wages or benefits. The court may also demand that you pay compensation and court fees in addition to the fine. When deciding on appropriate sentencing, the court will consider your financial circumstances.

If you receive a court summons for failing to pay a court fine, you must appear in court unless you have paid the amount in full before the due date. If you don’t, you could be arrested and imprisoned.

TV Licence

Enquiry officers may pay you a visit if they suspect you are watching live TV or using BBC iPlayer without a licence. They won’t be able to enter your home without your permission, but they can apply for a search warrant.

TV Licensing will work with the debt counsellor to ensure the customer is on the best payment plan possible to assist them in paying off their debt (arrears).

Although you can’t go to prison for not having a television licence, if you do not pay the fine, the court may take additional steps to collect it, including sending you to prison as a last resort.

Council Tax

If you haven’t paid your Council Tax, you are in arrears, which means you owe money to the council. In addition to your debt, you’ll have to pay court costs and maybe bailiff fees, which can add hundreds of pounds to your bill. Council Tax debts are classified as priority debt.

Bankruptcy or a debt relief order will erase council tax arrears (DRO). If you proceed with an individual voluntary arrangement (IVA), you may be able to incorporate your council tax arrears into your proposal and have them written off in the future.

Gas & Electricity Bills

Arrears on energy bills are a “priority debt”, which implies you must pay them before any other debts, such as credit cards. It is always essential to determine which debt to pay first if you have more than one.

A breakdown of the gas and electricity charges you’ve incurred can be found on your utility bill. Your energy provider sends you monthly or quarterly utility bills so you can see how much you owe and what payment options you have.

The only time a bill can be written off is if the debt is older than 12 months and the supplier made an error in the way your account was calculated.

Child Support

Failure to pay child support can have severe consequences. The Child Maintenance Services (CMS) has the authority to take arrears and ongoing payments directly from your earnings or bank account if you miss payments. They have a wide range of other powers, and if you refuse to pay, you could end up in prison.

Child maintenance is a priority debt, so you should pay this before paying any credit card debt.

Before the Child Maintenance Service writes off any unpaid child maintenance, the receiving parent may be given one more chance to assist CMS in collecting the amount from the paying parent. The loan will be cancelled if this does not work. In other circumstances, the debt will be written off automatically.

Income Tax, National Insurance & VAT

If you are unable to reach a payment agreement with HMRC, they will charge penalties.

You will be charged a penalty if you are 30 days late on your payment, then again at 6 and 12 months with added interest. The penalty is 5% of the original amount you owe HMRC.

If accepted, HMRC debts can be written off with the help of a debt solution like an IVA. As a result, you should be in a position where the solution finally gives HMRC more money than they would have gained through bankruptcy.

Hire Purchase Agreements

A Hire Purchase (HP) arrangement is a method of purchasing products by making monthly payments – whether it’s a car or a washing machine. An HP agreement is still regarded as a debt, and you don’t own the things until you’ve paid off the lender in full.

Your creditor will contact you if you fail to make payments on an HP arrangement. If you don’t pay the arrears within three months, your creditor will normally send you a default notice. They can take measures to repossess the goods after they’ve issued the default notice.

Debts to Family & Friends

If you have borrowed money from a friend or family member and cannot repay them, you should first speak with them to let them know your predicament. They might assist you by allowing you to spread your payments out or giving you some breathing room.

If all else fails, it is always worth speaking to an independent debt advisor who may be able to help your situation.

Personal Guarantees

If you have personally guaranteed a business debt then this becomes a personal debt matter, if the company cannot afford to pay the creditor.

Personal guarantee debts are growing in the UK with individuals not fully understanding the legalities of them guaranteeing the business lending.

Check out our comprehensive guide on personal guarantee debts.

Debt Solutions

You can pay your debts in instalments by setting up:

Debt Management Plan

A Debt Management Plan is a contract between you and your creditors that allows you to pay off all of your debts.

Debt management plans are typically used when you can only afford to pay a minimal amount to creditors each month. The DMP is an agreement with your creditors managed by a financial company.

If you have non-priority debts such as credit or store cards, overdrafts, or personal loans, a Debt Management Plan (DMP) may be the option for you. Your DMP provider will assist you in determining an affordable payment plan and communicating with your creditors.

You typically need at least £5 to pay each of your creditors, though this quantity varies depending on the supplier. You send one monthly DMP payment to your provider and they will pay your creditors.

If you’re having financial difficulties, you should speak with an expert today who will be able to assist in resolving your financial issues.

Fill in the easy-to-use debt checker to find out more.

Administration Order

If you have a county court (CCJ) or high court judgement (HCJ) against you and can’t pay it in full, you can get an administration order. This money is divided among your creditors by the court.

Without the court’s authorisation, the creditors mentioned in the administration order cannot pursue further action against you.

Receiving an administration order will have an impact on your credit score, making it more difficult to obtain credit. This will be the case with the majority of debt relief options.

An administration order is in effect until all debts and court fees have been paid. There will be a time limit on how long you can pay for a composition order, usually three years.

Individual Voluntary Arrangement

An Individual Voluntary Arrangement (IVA) is a contract between you and your creditors in which you agree to settle all or part of your debts. You agree to pay a certain amount to an insolvency practitioner, who will split the money among your creditors.

An IVA, rather than bankruptcy, can give you more control over your assets.

IVA’s can have a significant impact on both your personal and professional life, as well as your credit score. However, if properly managed, an IVA can assist you in regaining control of your finances.

An IVA will appear on your credit report for six years from the date it begins. So, if your IVA lasted five years, it will only be recorded on your record for another year after it expires.

Debt Relief Order

If you can’t afford to pay your debts, a Debt Relief Order (DRO) is one way to deal with them. It means you won’t have to pay particular debts for a set amount of time (usually 12 months).

You can apply for a Debt Relief Order or Bankruptcy Order if you cannot pay your debts because you do not have enough money or assets.

A debt relief order is a low-cost alternative to bankruptcy, and creditors cannot chase you for your debts during the next 12 months.
Although a DRO is a legal debt solution, it does not require you to appear in court.

Debt Repayment Programme

In Scotland, you can arrange a Debt Payment Programme from the Debt Arrangement Scheme.

Agreement With Creditors

You may also have the option of reaching an informal agreement with your creditors.

Summary

There are many options for your debt troubles and it is always best to speak with a debt advisor.

All phonecalls are no obligation and private for peace of mind.

Struggling With Other Debts

Here are some other debt guides if you are struggling with different types of debts: