Can't repay my debt: What options do I have?
What are the risks if I stop paying my debt?
If you miss repayments on your loan, you may be charged a fee by your lender. Check your loan terms and conditions to see if this applies to you. In addition, you may be charged interest on the payments you have missed.
Your credit score could be damaged if you can’t repay debt on time. If you default on your loan - this usually happens when you miss a number of payments over a course of time - this will stay on your credit record for 6 years. A poor credit score may mean that you struggle to borrow money in the future.
If you miss a number of payments, the loan provider could instruct debt collectors to recover their money. You could also receive a county court judgement (CCJ) instructing you to repay the lender.
In the worst case scenario, if you can’t repay debt, you may be forced to declare yourself bankrupt.
If you have a secured loan, you could lose the items your loan is secured against. For example, if you do not make repayments on your mortgage, you could lose your house.
What are the options when I can't keep up with payments?
No debt is unsolvable. It is important to act quickly once you realise there is a problem.
First, take a really good look at your finances. Draw up a budget and see if there is any way you can reduce your outgoings to cover your loan repayments. As part of this, check if you are eligible for any benefits or government help.
Next, check if your debt(s) are priority debts or non-priority debts.
Priority debts are the ones that you should deal with first, as they have more serious consequences if you do not repay them. Priority debts include your mortgage and council tax. Speak with your creditors to try to arrange a mutually acceptable monthly repayment amount.
Non-priority debts include credit card debt and loans.
You may be able to arrange to pay these back in instalments through a debt management plan.
Debt consolidation, where you borrow money to cover all of your debts, may also be an option in some circumstances.
Alternatively, you could consider an Individual Voluntary Arrangement (IVA). This is where you make payments to an insolvency practitioner who then divides this amount between your lenders.
If there is no way that you can repay your debts, you may be able to make yourself bankrupt. If you owe under £20,000 and do not own your own home, you may be able to get a Debt Relief Order. Normally, your debts are written off after 12 months in this instance, if your situation has not changed.
If you find that you can’t repay debt and are struggling to cope, there are various debt charities which offer free advice, such as StepChange. They can advise you which route may be best for you.
Can a lender help me to resolve my debt?
If you need help with debt repayments, talk to your lender and explain your situation.
Make sure you understand exactly what you can afford to repay (by looking at your budget),
so you are ready to make them an offer.
You can ask them if they would be willing to freeze the fees or interest that are adding to your debt, while you make these repayments.
If you cannot afford to pay back any money, contact your lender and tell them you are going to get independent debt advice. Ask them to give you some breathing space while you do this. You can use National Debtline’s letter template do explain the situation to them.
Understand your rights
When pursuing you for the money you owe, creditors must act within the law. Loan providers are entitled to contact you by phone, letter or by visiting your home.
However, they should not call you during the night or call you at work if they do not have your permission.
Neither should they pressure you to pay off your debt by taking out another loan.
If you feel that your lender is harassing you or acting unfairly by not giving you the breathing space you requested, get in touch with a debt charity for free advice.
Finally, it is important to know that you can cancel Continuous Payment Authority (CPA) by contacting your bank.
What if I have multiple credit card debts?
Credit card debts are non-priority debts. First, deal with how you are going to repay any priority debts.
Then, talk to your credit card companies and explain how much you can afford to pay back each month. As credit cards are non-priority debts, you should share the amount you pay back to each credit card provider fairly.
Where can I receive legal advice?
Advice on how to keep up with loan repayments
If you do not already have a budget, make one now. This can help you to make sure that you are living within your means and enable you to plan your monthly/weekly spend.
Ensure you are not spending more than you earn or you could find yourself in more debt.
If you are struggling to pay back what you have borrowed, see if there are any areas in your monthly spending where you could make cuts.