Eastbourne Citizens Advice Bureau Financial Literacy

1. Eastbourne Citizens Advice Bureau Financial Literacy DEBT sponsored by Debt

2. Fact: In April 2013 the Bank of England announced that the amount of money borrowed by UK consumers had reached 1.4 trillion pounds. That’s:1.4 million million pounds That’s the equivalent of every man, woman and child in the UK owing £22.53! Debt

3. As soon as you borrow money you are in debt – until you have paid it back in full including interest. The problems start when you cannot meet the agreed repayments. We live in a society were borrowing money is “the norm”. Credit companies push borrowing by offering you more and more credit. They don’t often consider whether you will be able to pay it back. Debt problems can affect your ability to borrow money in future including preventing you from being able to get a mortgage. Debt

4. The media often portray people being in debt as a result of careless spending and buying too much on credit. Sometimes this is true. There is a lot of influence from advertising and peer-pressure to wear the right clothes, have the latest gadgets and keep up with the latest trends. Debt

5. Pressure to borrow money can lead to problems if you don’t know exactly what you’re getting yourself into. Statistics show that better-off people use the most credit. People with less income usually face the most debt problems because they are often charged more to borrow money. Debt

6. Easy access to credit is not the biggest cause of debt problems. More often, unexpected changes in circumstances make it difficult to keep up repayments. This could be because income has gone down or because expenses have gone up. This can be caused by things like unemployment, redundancy, ill-health, accidents, relationship breakdown, pregnancy and death. This unit looks at the consequences of debt and ways of dealing with debt problems. Debt

7. PRIORITY DEBTS • Some debts can have serious consequences and can affect your liberty or everyday living. • These are things like: • rent or mortgage • Gas and Electricity • Council Tax. • It is important to deal with these debts as soon as possible. They should also be paid in priority over other debts. Debt

8. Rent arrears can lead to eviction and result in homelessness. Mortgage arrears can lead to your home being repossessed and also result in homelessness. Non-payment of Gas and/ or Electricity bills can lead to your supply being cut-off. Non-payment of Council Tax can lead to court action and even imprisonment. Debt

9. Non-Priority Debts All other debts such as credit cards, unsecured bank loans etc are of lower priority. There can still be serious consequences to non-payment as we will see on the following pages. Debt

10. Reminders If you miss a payment you should receive a reminder letter after a couple of weeks. This is usually written in red ink and are known as “red letters”. A reminder gives you a second chance to pay within around 7 days. If you pay the required amount within this time no further action should take place. Debt

11. Debt Collectors After sending you a reminder some debts will be passed to a debt collection agency. They will write to you demanding payment and they will charge you each time they write, adding to the amount you owe. Debts collectors may visit you to discuss repayment. They must not harass or intimidate you – if they do you can report them to the Office of Fair Trading. You may be able to agree a repayment plan with the debt collectors. If not they may take further action in the court. Debt

12. Court Action If you do not pay a debt after reminder you can be summoned to court. The court can decide to take certain measures to instruct you to pay the debt, either in whole or in part. You may be issued with a County Court Judgement against you which states what you have to pay. The County Court judgements can be used by a bailiff to recover the money owed. County Court judgements will also affect your credit rating making it more difficult to borrow money in future. Debt

13. Bailiffs Bailiffs have authority to recover money owed after a court judgement has been made. They will usually visit you at home to arrange repayment. They have the right to enter your home in certain circumstances. If you are unable to agree repayment with them they make take items of your property and sell them. The money raised will be taken off your total debt. Debt

14. Credit Rating When you apply to borrow money from a bank building society or other lender they check your credit rating to see if you are an acceptable risk. You credit rating is a score which allocates points to various pieces of information such as your age, occupation, if you are a home owner, as well as your credit history. If you have a poor credit rating you may be refused when you apply to borrow money. This may prevent you from obtaining credit or a mortgage. It can also affect your job prospects as some employers will enquire about this information Failing to pay back money borrowed can result in a poor credit rating. Debt

15. If you are refused credit the lender does not have to tell you why but they should say if it is because you have a poor credit rating. They should also tell you which credit reference agency they have used. Your credit rating is held by one of three Credit reference agencies. It is vital that the information they hold on you is correct and you have a right to have a copy of your file. There is a small charge for receiving this. Details on how to correct any inaccurate information on your credit record will be sent to you with your file. Debt

16. Credit Repair Agencies You may see adverts for companies who offer to repair a bad credit rating. You can sort out your credit report yourself or with expert help free of charge. You do not need to pay for credit repair advice. You start this process by contacting the credit reference agencies, contact details shown on the previous page. If you have a County Court judgement against you can apply for the judgement to be set aside. For further advice visit your local Citizens Advice Bureau for free confidential help. Debt

17. Debt Management Plans A debt management plan is an arrangement with your creditors to pay back the debt by regular instalments. A Debt Management Company (DMC) will speak to your creditors for you. You will make only one payment direct to the DMC and they divide the payment fairly between all your creditors Usually you have to pay for this service although there are some DMCs who will do this for free, such as StepChange Debt Charity (www.stepchange.org) and Payplan (www.payplan.com). These can only be used for non priority debts Debt

18. What are the effects of a DMC: • most DMCs charge an upfront fee and an administration fee which can be quite high. • some DMCs take all of the first month's payment as a fee. This puts your account into arrears by a month or more. These arrears will be recorded on your credit file • DMCs only deal with non-priority debts and you will have to deal with the more important priority debts yourself • most DMCs do not give benefits advice or financial advice so you may lose out on important information about your finances Debt

19. Debt relief orders A debt relief order (DRO) is an order that you may be able to apply for if you can't afford to pay off your debts. It's granted by the Insolvency Service and is a cheaper option than going bankrupt. Debt Relief Orders are only available in England and Wales It usually lasts for a year and during that time, none of your creditors can take action against you to get their money back. At the end of the year, you are free of all the debts listed in the order. Debt

20. Who qualifies for a DRO? You qualify for a DRO if you meet the following conditions: • you have debts of £15,000 or less • you have spare available monthly income of £50 or less after paying your normal household bills • the things of value you own (your assets) and your savings are worth £300 or less. This does not include your car as long as it is worth less than £1,000 • you have not recently been made bankrupt or gone through another sort of insolvency procedure You can only apply for a DRO through an authorised adviser. Debt

21. What are the effects of a DRO? • you cannot get credit over £500 without telling the lender you have a debt relief order • some debts cannot be included in a DRO – eg student loans , court fines • You will have to pay a fee of £90 to apply for a debt relief order • Your debt relief order will remain on your credit file for six years. This may affect your ability to get credit in the future. • You may find it difficult to open a bank account once you have a debt relief order. Debt

22. BANKRUPTCY If debts get out of control and cannot be repaid this can result in bankruptcy. Bankruptcy is a decision made by the court to hand over control of your finances to a trustee called the Official Receiver. You can apply for bankruptcy yourself or your creditors (the people you owe money to) can apply. Debt

23. What are the effects of bankruptcy? • it can cost you up to £700 to go bankrupt • whilst you are bankrupt, you can't apply for more credit • if you own your own home, it might have to be sold. • some of your possessions might have to be sold. • some professions don't let people who have been made bankrupt carry on working • if you own a business, it is more than likely that the Official Receiver will close down your business, dismiss your employees and sell off the assets • going bankrupt can affect your immigration status • you can't keep your bankruptcy private • even when you are no longer bankrupt, there are some debts such as court fines and student loans that will never be written off. • You will find it more difficult to obtain credit for years after the bankruptcy has ended Debt

24. DEALING WITH DEBT If you are finding it difficult to make your monthly repayments you should act as soon as possible. If you ignore the problem it won’t go away – it will only make matters worse. The important thing to remember is: DON’T PANIC Debt

25. Start by contacting the people you owe money to and explain that you are having difficulty meeting your repayments. You can do this on the phone or in writing. Your aim is to agree repayments with them which you will be able to afford. Ask them for an up-to-date figure of what you owe. Debt

26. Make sure you deal with the priority debts first: Rent or mortgage Gas and Electricity Council Tax The consequences of not paying these can be more serious. Debt

27. Check that the debt is yours. You are not responsible for someone else’s debts. If you did not sign an agreement to borrow money the debt is not yours. Check who’s name the agreement is in. Make sure you are liable for the amount owed before going any further. Debt

28. Work out what you can afford Complete an Income and Expenditure sheet to find out what money you have coming in and how much you are spending. You can use your disposable income to work out how much you can pay towards your debts. Debt

29. If you are thinking about borrowing money to pay off your debts and leave you with one amount to repay such as a consolidation loan - be careful. Often this kind of borrowing makes the situation worse. Take advice before doing this. Debt

30. PAYDAY LOANS Payday loans are short-term loans for small amounts of money. They are available from high street shops and internet sites. Payday loans can be easy to get but interest rates are very high. There may be other ways for you to sort out your short-term money problem so think about the alternatives before you borrow. If you are having problems paying back the loan the lender may offer you longer to pay. This is known as a loan extension or deferral. Beware of doing this. If you extend the loan you will have to pay more interest and there may be extra fees. Debt

31. Sources of Help The Citizens Advice Bureau offers free, confidential advice and can help you get to grips with your debts. If you have any questions or require some assistance or advice for dealing with debts contact or visit your local Bureau. Debt