A Guide to Different Types of Debt
A Guide to Different Types of Debt
Credit Card Debt
Having a credit card can be a great way to spread the cost of living and can offer additional security when shopping online or abroad, but only if you can afford to pay off the balance at the end of each month or have a 0% per cent deal – but even these come to an end eventually.
The best thing to do is to make sure you can afford to pay the bill before getting out the plastic, but if you find that you are paying for bills and other essentials with your credit card to make ends meet, then you need to act sooner rather than later to reduce your outgoings; if possible, talk to your creditors and see if you can arrange a more realistic payment plan, or consider a Debt Management Plan.
Personal Loans
Before taking out a loan or any other kind of credit, it is important to first make sure that you can afford the repayments. However, if you are already struggling to keep up with your personal loan repayments, then you might want to consider taking out a consolidation loan, which can significantly reduce your monthly outgoings by combining them into a longer term loan that you only pay back to one debtor.
It can take longer to clear your loan debts with a consolidation loan because the payments will be smaller and therefore will take longer to pay back, accruing more interest at the same time, but if you are up against a mountain of growing debts, then it could offer a way out. Make sure you compare loans to get the best rate.
Council Tax Debt
If you are in arrears with your council tax payments, there are a number of things you can try. Firstly, get in touch with the council and tell them the situation; they will probably offer to set up a new repayment scheme for you to repay the arrears at the same time as your usual monthly payments.
Secondly, you might be able to get a reduction in your council tax bill if you earn below a certain amount, are living with an adult who is not working and not your partner, you are disabled or are living with someone who is disabled, or if you are a full-time carer.
Mortgage Debt
You could lose your home if you do not keep up with mortgage repayments, so it is vital that you seek help at the first signs of trouble. First, tell your lender that you are having difficulties and they might be able to help if you make small payments and show that you are making an effort. They might let you pay less until you can catch up, switch to paying interest only for a short time, or extend the period over which you repay your mortgage to reduce the monthly payments. You could also consider switching your mortgage to one which offers a more competitive interest rate.
If you are struggling to keep up with repayments then you need to try and increase your income. There are several ways you might be able to do this – check that you are receiving all benefits and tax credits to which you are entitled, check if you have mortgage protection insurance and if so make a claim on it, and think about taking in a lodger. Once you have devised a plan, write to your mortgage lender and offer them a realistic repayment plan.
If you are really unable to repay the arrears then you might have to consider selling your property, which would still be more beneficial than waiting for your lender to take possession and sell it themselves.
Child Support Arrears
Not keeping up with child support payments can have very serious consequences, so if your circumstances change and you think you may no longer be able to afford them it is important that you contact the Child Support Agency right away. The CSA will recalculate how much you should pay based on your budget, but it will never write off arrears for child support.
In extreme circumstances, the CSA can send bailiffs to your home to remove belongings for sale, the proceeds of which will then go towards paying off the arrears that you owe.
Rent Arrears
You could end up having to move out if you get into rent arrears, so it is important to get advice as soon as possible. Contact your landlord to let them know you are having difficulties keeping up with the rent. If the problem is short-term, for example because you've lost your job or your benefit hasn't come through, ask if you can pay a reduced amount for a certain time.
If your landlord does take legal action, ensure that the payments you have made have been recorded and the amount owed is correct. You may have been asked to pay rent a month in advance – has this been taken into account? Ensure that you are receiving all the welfare benefits you are entitled to; you might be able to get Working Tax Credit, Child Tax Credit, Council Tax or Housing Benefit to help pay the rent.
If your landlord wants to evict you, they usually have to get a court order. Seek advice from a housing officer if this situation arises.
Fuel Debt
If you're in arrears with your utility bills then there is a chance that you could get cut off and it could cost you more money to get reconnected, so it should be a high priority to solve the issue, above other debts such as credit cards, overdrafts, or catalogue debts. Contact your fuel supplier straight away and try to come to some agreement about paying off the arrears through a realistic repayment plan.
Work out how much you can afford to pay by making a list of your income and outgoings and drawing up a budget; do not agree to a payment plan you cannot afford, as when you go into arrears again you may be forced to have a prepayment meter installed.
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