Learning to manage your money is a life skill that everyone needs to learn and develop. At some point in your life, it is likely that you will experience some level of debt. Debt becomes a cause for concern if you cannot keep up payments or if you struggle to pay other expenses such as rent or food as well as your debts.

Steps to gain control of your finances

  • Step 1: Don’t panic. There is always something that can be done.
  • Step 2: Don’t ignore the situation and pretend it isn’t happening.
  • Step 3: Work out a budget. See the Advice Centre link for a sample budget you can use to work out your income and expenditure. Take control of your expenditure. Make a list of all your debts.
  • Step 4: Can you increase your income? Is there part-time work you could do? Or are you due a tax refund from previous employment?
  • Step 5: Avoid further debt, especially to pay existing debts. This won’t help long term.

Agreeing repayments

Once you have worked out how much you owe to each creditor and how much available income you have, you can negotiate manageable repayments with each creditor. The Advice Centre can help you with finalising your income and expenditure and contacting creditors with offers of repayment. Alternatively, you can get started with the process yourself using one of the online charities helping people do this such as National Debtline or Step Change.

Not all debts are equal. It is important to identify priority and non-priority or secondary debts; this is done on the basis of what is likely to happen if they become overdue.

Jargon Explained

  • Arrears: The amount of money overdue.
  • Court Summons/County Court Judgement (CCJ): A set of forms that are sent by the county court enforcing payment to a creditor.
  • Credit Rating: This is what measures your level of risk to a future lender through your credit history. Debt problems can affect your access to credit for up to 6 years. This could means problems getting a phone contract, finance for a car or a mortgage etc.
  • Creditor: A person or business to whom money is due.
  • Debtor: The individual who owes the money.
  • Default Notice: This document must be served by a creditor before court action can start.
  • Deficit: If there is not enough money in your budget to manage monthly costs or pay towards debts.
  • Disposable income: The money left over after paying your regular expenses.
  • Financial Statement: A breakdown of your income and expenditure to see what, if anything, is left over.
  • Non-priority or secondary debts: Non-payment means your credit rating takes a hit and you could be taken to court e.g. credit cards, store cards, bank or payday loans but you wouldn’t lose the roof over your head.
  • Payday loans: A short term loan, usually for a lower sum of money at extremely high levels of interest.
  • Priority debts: These need to be paid first because of the consequences of non-payment e.g. rent or utilities which could lead to eviction or being cut off.