Many people encounter debt during their lives, and this can seem worse during your time in education due to having limited income and a long time to wait in between grant / loan instalments. When you have outstanding debts it can be very stressful and upsetting, sometimes causing you to have feelings of fear and despair.
The sooner problem debts are dealt with the less likely they are going to turn into a crisis situation. The nature of financial products means that interest compounds over time and so financially the situation will only get worse.
The best way to deal with debts is to be aware of the problems and consequences and to manage debts so that you are in control, rather than the debt situation controlling you.
One - Don't panic
There is a lot you can do to sort out debts yourself. If you get stuck, you can get help from the Student Financial Support service, Student Advice Centre, Citizens Advice Bureau or another independent advice service. Don't borrow any more money without getting independent advice first.
Two - Don't ignore letters
Debts won't go away. The longer you leave it, the worse it will get. As soon as you realise you can't make a payment, seek help and tell the person you owe money to. If you let them know why you can't pay, they might be able to help. Tell them you are having difficulties and are taking steps to sort it out. If you ask, creditors may agree to freeze interest and charges, although they don't have to.
Three - Open and keep all correspondence
Ignoring letters won't make the problem go away. Keep all paperwork in one place. If you are not sure how much you owe, write to your creditors for the outstanding balances. Make sure you keep copies of your letters and make a note of any telephone conversations you have. If any of your creditors have started court action or you don't think you owe the money, get independent advice.
Four - Make the most of your income
Check you have received all of the student loan / grant you are entitled to. Can you maximise your income e.g. by getting a job?
Five - Work out a personal budget
It is essential that you work out a realistic budget so you have enough money to live on and you don't have to borrow or go without essentials.
Six - Don't just pay those who shout the loudest. Tackle your priority debts first.
Your priority should be debts that can affect your welfare if they are not dealt with (e.g. you may lose your home or services to your home). If you have a priority debt, please seek independent advice. Priority debts and the sanctions that can be imposed are:
- Mortgage / rent arrears, secured loan arrears - repossession and / or eviction
- Income tax arrears - imprisonment and / or bankruptcy
- HP arrears - repossession
- Council tax arrears, fine default, maintenance arrears - imprisonment
- Electricity / gas arrears, telephone arrears - disconnection.
Priority debts must be dealt with as a first. If you don't, you may risk being cut off, having the bailiffs sent round or even losing your home. If you're having difficulties and are a home student, you may be eligible for help from the Access to Learning Fund. Pick up an application form from the Student Services Centre or contact them by calling +44 (0)115 848 2621 or emailing Student Financial Support.
Seven - Deal with your non-priority debts
These are debts which do not affect your general welfare:
- bank / building society loans (unsecured)
- bank / building society overdrafts (unsecured)
- credit cards
- charge cards
- credit sale
- store cards.
Once you know how much money you have left to pay towards your non priority debts, you can work out how much to offer each of your creditors. Don't worry if the offer seems small. It is better to offer a regular small amount you can afford rather than a larger offer you won't be able to keep paying. Ask your lender to stop adding interest and to refund any charges.
Write to each of your creditors with your offer along with a copy of your budget. While you are waiting for a reply, start paying what you have offered. If you have no money left in your budget, get advice about what to do. Try not to default or miss payments but ensure priority payments such as rent and utilities are paid first.
Eight - Don't give up
Don't give up. Keep paying what you have offered to pay. There's still plenty you can do to persuade your creditors to accept your offer.
Nine - What happens next?
Make sure you keep to the agreed payment plan. If your circumstances change, contact your creditors to explain or change your agreement. After a period of time, your creditors might want to look at your situation again. Don't worry, just work out your offer again and send it to them. If your situation has not changed, they should let you keep to your agreement.
Ten - Get advice
Don't make yourself ill worrying about financial problems. If you're having difficulties, speak to someone who can help. The worst thing you can do is ignore the problem, it won't go away. The quicker you get help, the easier it will be to sort out.