Problem debt - Your questions answered

One in six people in Britain has a debt problem, which means that more people than you think may be grappling with the same issues as you. And the financial implications of the Covid-19 pandemic, such as a drop in income due to job loss or furlough, may have exacerbated debt problems for some, and pushed others into unexpected debt.

We answer some of the most common questions people ask when dealing with problem debt.

I am struggling with payments on two credit cards, an online shopping account and an overdraft. Which debt should I pay off first?
Laura, Solihull

According to the Money Advice Service, it is a good idea to prioritise debt. Priority debts are the ones with the most serious consequences for non-payment, such as court action, eviction or having services cut off. Click here for more info on how to prioritise debts. After you have addressed priority debts, it usually makes sense to start with the debts with the highest interest rate - but check there are no penalties for early repayment. And make sure you keep up minimum repayments on everything else.

I took out a loan to buy a van that is essential for my work, but a big repair bill meant I could not make this month's payment. What should I do?
Sanjay, Co Durham

If you are unable to meet repayments, speak to your loan provider in the first instance. It is important to let them know your situation. They may be able to help with measures such as a payment holiday, or interest freeze to help you get back on track. Make sure you check the terms of any repayment holiday as the length of the loan may increase meaning you'll be charged more interest overall.

In the longer term, try to budget for one-off costs such as repairs, and consider whether you can switch to a cheaper vehicle.

The pub I work in was shut for three months. I'm on a zero hours contract, and with  no money coming in, I ran up an overdraft and missed credit card payments. How will this affect me in future?
Katie, Bury St Edmunds.

Missed payments and unarranged overdraft balances will have an impact on your credit file, which affects your ability to borrow money or enter finance agreements such as a mobile phone contract or car lease.

Your credit report takes into account the total amount you owe, the percentage of available credit you are using, late or missed payments and if you have exceeded any credit limits. But don’t give up hope. Positive financial behaviour over time will improve your score - making regular payments, staying within credit limits, paying off loans and reducing overdrafts can all help.

You should also make sure you are on the electoral register where you live.

I have accumulated debt on four credit cards with different repayment dates throughout the month. It’s hard to keep track and I have missed a couple of monthly payments. Is a debt consolidation loan the answer?
Luke, Guildford

Taking out a loan to pay off multiple debts can make sense. It means you have one monthly payment, and interest rates on personal loans are generally lower than credit cards and overdrafts. But always make sure this is the case for you - and the rate you are actually offered matches those advertised and that the terms of the loan do not mean you will pay more overall. And remember, debt consolidation should be part of a longer term plan to get on top of your finances, rather than a quick fix.

I keep seeing ads online for debt management plans which make it sound as though they can get rid of my debts. I’m really struggling with how much I owe, so could this work for me?
Priya, Moston

A debt management plan is a major step that can have a long term impact on your financial standing, so you should seek free guidance from a debt advice charity before proceeding.

Debt management plans do not write off debt, but are designed to let you clear balances over a longer period of time. If creditors agree, a debt management plan lets you make a single reduced payment towards all debt included in the plan.

For some people, a debt management plan reduces stress, as your provider deals with creditors, and it offers a route to clearing debts. But, it can also have a longer term effect on your finances. Reduced payments will show on your credit file for six years after the debt is cleared, negatively impacting your credit score and ability to get a mortgage for example.

Some debt management plan providers charge a fee, so speak to a debt charity such as StepChange or National Debt Line for free, non-judgmental advice before proceeding.

Working closely with third party organisations such as Citizens Advice Bureau, TSB are committed to offering everyone the help and support they need to find a way forward with debt and ensure people feel more confident with their money, every day.

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