Personal debt management

Personal debt management

Related services

Dealing with debts

If you have debt problems, creditors (the people you owe money to) will often be willing to accept arrangements to pay the debt off over a period of time. Therefore, be proactive where you find that your debt has become too much for you to handle by taking the steps discussed below. If you ignore your creditors, they may start court proceedings or take other steps to recover the amounts they are owed. The consequences of action of this kind can be very serious.

There are various steps you can take to manage your debt and the first would be to create a budget listing all your debts, income and expenditure as discussed below.

List your debts

You should separate the debts into 'priority debts' and 'non-priority debts'.

Priority debts would include those where non-payment could result in you losing your home, amenities or even worse, being sent to prison, such as:

Non-priority debts generally include:

  • Benefits overpayments
  • Credit debts such as overdrafts, loans, hire purchase, credit card accounts and catalogues
  • Student loans
  • Money borrowed from friends or family
  • Parking penalties issued by local authorities.

You cannot be sent to prison for not paying these debts. However, that does not mean that you should ignore them. Your creditors may take you to court if you fail to pay. If you still fail to pay despite there being a court order against you, your creditors may take further steps. For example in England and Wales, by using bailiffs to seize your property to be sold to cover your debts, or in Northern Ireland, seeking enforcement of the court order in the Enforcement of Judgments Office.

Work out your income

Income will include:

  • Salaries (after tax) that you and your partner receive. If you do not receive a regular amount (i.e. it varies from month to month) then work out the average over the last 6 months.
  • Any social security benefits you receive, such as tax credits.
  • Other regular payments you receive such as for rent from tenants and child maintenance.

Work out your expenses

You may need to make some temporary changes to your life style in order to reduce your expenses which should generally include:

  • Food, toiletries, meals at school and work, cleaning materials, children's pocket money and pet food
  • Rent or a mortgage or any other loan secured against your property, buildings and contents insurance, service charges (for flats) and life or endowment insurance policies that cover your mortgage
  • Council tax (England and Wales) or Rates (Northern Ireland)
  • Energy, water and other utility charges
  • Travel expenses including both public transport and the cost of running a car such as road tax, insurance, and maintenance
  • Insurance
  • Childcare costs
  • Clothes
  • Any other essential expenses

Calculate your available income

You should now have enough information to calculate how much money you have available to pay off your debts. You should start by paying off your priority debts. If you cannot afford to pay anything towards these debts or if you need help making payment arrangements with your creditors, then you should obtain some advice.

Once you have paid the priority debts, you should then work out how to pay off the non-priority debts.

Where to get advice

Many organisations, such as the ones listed here, are independent and don't charge for guidance. Always get free, independent advice before using a commercial service.

National Debtline

National Debtline offers free, confidential and independent advice on how to deal with debt problems for people in England, Scotland and Wales. You can call their helpline or download free fact sheets from their website.

StepChange Debt Charity

StepChange Debt Charity offers a helpline, providing free, independent and impartial advice to people with debt problems for people in the UK.

Citizens Advice

Your local Citizens Advice will provide free information and advice on legal, money and other problems by phone, online or in person.