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10 steps to sorting out your debts

You owe money to the catalogue company, your rent is overdue, you owe Council tax arrears, your credit card is at the limit, and they're all asking for money - now!  What do you do?

Step 1. Don't panic!  

No matter how desperate things seem, there are ways to manage your debts. If you feel totally swamped, and don't know what to do, go to an advice agency. But there are some things you can do yourself.  

1o steps out of debt


Step 2. Check you actually owe the money  

Are you responsible for the debt? 

If you are responsible ('liable') for a bill, it means that you can be taken to court or have bailiffs come round to try to take your stuff to pay the debt. Despite popular belief, husbands, wives, partners, and family members are not normally responsible for each other's bills. In most cases the person who is liable will be named on the bill. However, in some cases it's not so simple. For example:

  • If you live with other people, they may be responsible for gas or electricity they used, even though their name is not on the bill. If you are being chased for a debt that somebody else (perhaps an ex or a flat mate) helped build up, tell the company concerned.
  • Credit agreements are not enforceable against people under 18, even if they’ve lied about their age to get credit.
  • Debts normally die with the person who owed them. Surviving partners and relatives do not have to pay them off. However, the people who are owed money can make a claim on the money and possessions left behind (the ‘estate’).
  • Many debts expire after six years (or 12 years for a mortgage).
  • Some credit agreements are not enforceable if they are very unfair. For example, if you did not have the chance to read all of a contract or cancel the agreement. If you think your agreement was unfair it is worth checking with lour local Trading Standards Office.

10 steps out of debt


Step 3. Are the amounts they claim you owe correct?  

Check their sums, and check that they've received all the payments you've made. 

Step 4. Prioritise the debts 

Some types of debt need sorting first, because they can cause you serious problems if you don't pay them. The most important debts are called 'priority debts'. 

Priority debts include:

  • Rent or mortgage - if you do not pay them you could lose your home.
  • Loans secured on your home - if you don't keep up the payments, you could lose your home.
  • Council tax - if you do not pay, you could end up with a bailiffs visit, which will increase the amount you owe, and could mean your belongings are taken away to pay the debt. You could even be sent to prison.
  • Gas and electricity bills - if you don't pay your bills, you could be disconnected.
  • TV License - if you refuse to pay, you could be fined or even sent to prison.

Other debts are called non-priority debts. You should deal with these after you have dealt with any priority debts, because the result of not paying them is less serious. Creditors can take you to the county court (this is different from the criminal court, you won’t be handcuffed or sent to jail). The court will look at how much you can afford to pay towards your debt each month. As long as you keep to the payments that the court orders, the creditors can't take any further action against you. Non priority debs include:

  • credit cards and store cards
  • debt with water companies 
  • book club abd catalogue orders
  • gym and health club memberships
  • unsecured loans.

10 steps out of debt

Step 5. Do the 'firefighting'  

This means take steps to stop 'creditors' (the people you owe money to) from taking immediate action against you. Firefighting action gives you a chance to work out plans to pay off your debts. You may need to make emergency phone calls if a creditor has threatened legal action against you. When you make the call, the creditor may agree to hold action for a certain period of time, to allow you to work out a repayment offer, or give time for you to take money advice etc. This is sometimes called a "holding agreement". Back up any holding agreements by a letter, fax, or email. Get advice immediately if the fire fighting fails. 

Step 6. Maximise your income 

Check that you are receiving all the benefits that you are entitled to. There are many types of benefit you could get, depending on your circumstances, including Housing Benefit, Council Tax Benefit, Tax Credits (if you are working or if you have children), disability benefits, Income Support or income-based Jobseeker's Allowance. An advice agency should be able to tell you which ones you might be able to apply for. 

Step 7. Draft a financial statement 

This means working out your regular income and reasonable outgoings (spending), without taking into account debt payments. Creditors aren't very sympathetic about costs for cigarettes, socialising, cable TV, and high allowances for, for example, phone calls and food for pets. It's best to allow a modest figure for extras and emergencies. Calculate your 'disposable income' - the amount of money you have left over to offer creditors, after your basic needs have been paid for. If the figure turns out to be zero, don't panic - but get advice. 

Step 8. Negotiate with creditors 

Once you have worked out your disposable income figure, you can work out how much to offer each creditor. The priority debts come first. You can contact the people you owe money to at any time and offer to pay some money - even if you cannot pay it all. The sooner you do it, the better. If your disposable income figure isn't enough to cover the priority debts, get advice straight away. Contact your local Capitalise free debt advice centre or National Debtline for more information.

10 steps out of debt

Step 9. Put all agreements in writing 

Send your creditors a letter confirming what you have each agreed. Keep a copy. 

 10 steps out of debt

Step 10. Check your payment progress from time to time 

If your income drops, review your payments, but write to the creditors before you change how much you pay them. If your income increases, consider increasing payments, so that you'll be debt-free quicker. 

For more help and advice, call the Toynbee Hall Debt Advice Centre on 020 7392 2953