How to Deal with Debt for Free
Many people today have gotten into trouble with credit cards, loans and payday loans, me included, and there are lots of companies out there who offer a service to help, for a fee. But you can do it yourself for free and there are lots of organisations and charities who can help you for free too.
I will guide you through the process and provide letter templates to send to your creditors and you can start sorting out your debt problems today. I have been there myself and know the worry, stress and sleepless nights debt can cause and I want to help you.
Everyday you ignore the problem the worse it will get with interest racking up daily and the threatening letters coming through the door.
The process described on this page is not bankruptcy, an IVA, consolidation loan or getting your debts written off. It involves talking to your creditors and reducing your monthly payments to sometimes just a few pounds a month.
Ignoring debts does not mean they will go away, action can be taken against you in your absence and you might have bailiffs turn up at your door one day with a legal right to take your possessions to recover the debt. Deal with the problem before it gets to this stage, it can be as simple as making a phone call.
So lets get started.
Debt Collection Agencies (DCA)
After a number of missed payments your creditor/s will start threatening to pass your debt on to a debt collection agency, this may seem like a bad outcome, but let me let you in on a little, unknown secret which the banks won't tell you.
This may actually be a GOOD thing! (I do not encourage anyone to ignore their debts, this is just advice based on personnel experience).
If your debt does get 'sold' to a debt collection agency you will negotiate with them directly and not your original creditor (bank/credit card company).
Now lets imagine you owe £1000 on a credit card and the bank gives up on trying to recover the debt from you, they will 'sell' your debt to a debt collection agency, sometimes for just pennies in the pound, ie they might 'sell' each £1 of your debt for just £0.05! This means the DCA will double their money if they only manage to recover £0.10 for every £1 you owe!
This essentially means they are happy to recover just a fraction of your original debt, they still make a profit and you avoid being taken to court, being made bankrupt or receiving a County Court Judgement (CCJ), both of which stay on your credit file for 6 years. Being made bankrupt or receiving a CCJ may prevent you from obtaining almost any type of credit such as a mobile phone contract, home TV/phone/Internet services, a bank account with an overdraft or even utilities such as gas and electricity.
In my experience debt collection agencies are actually fairly understanding of your situation, when you speak to them on the phone they are usually friendly, helpful and non threatening. Just be honest with them, explain your situation. They will most likely ask about your financial incomes and outgoings and work out an amount you can afford to pay each month, this can be as little as £1.
Your credit file/report will show this as a 'partial' payment, it will still have a negative effect but it is much better than being made bankrupt or having a county court judgement (CCJ) registered against you as these stay on your file for six years.
Lenders will see that by making a 'partial' payment you have at least attempted to sort out your debt instead of just ignoring it.
The bottom line is, don't ignore your debts, talk to your creditor/DCA, work out a payment plan, it can save your credit file. Even if you ignore a small debt of just a few hundred pounds it can effect you years later.
Step 1 - Assess The Situation
You have probably not been opening the credit card/loan statements and putting them away in a draw, ignoring the problem will not make it go away. Open those letters, bin the threatening letters unless they are from debt collection agencies, bailiffs or the Courts and get your most recent statements.
Add up the total amount you owe as you will need this figure when you contact your creditors.
I was shocked when I saw how much I owed, I thought "what on earth did I spend £XX,XXX on?"
Anyway it's done now, no point in worrying about, let's focus on getting the problem sorted.
Step 2 - Monthly Income & Expenditure Form
Before you contact your credit card companies you should workout your income and expenditure, the amount of money you have coming in and going out each month. Most of your creditors will ask for this when you contact them so it makes things easier to get it done first, if you write it on the computer you can use that as a template to send to all your creditors who you are having trouble paying.
Below is just an example and not a complete list, you should add all your income and outgoings.
If you are spending £50 a month on cable TV your creditors may say this is not essential so you should review your spending before submitting this form and try to reduce unnecessary spending.
Step 3 - Contact Your Creditors
You need to contact your creditors, I suggest by phone, if you can find an 0800 number and ask to put through to right department as 0845 numbers are very expensive to call.
You just need to tell them you are having trouble paying your bills and need to talk to someone about it, be polite and they are usually happy to help, I was surprised at how helpful and understanding they were. If they are not helpful and you feel you are not getting anywhere you can ask for an address to send a letter to and end the call.
If the debt has been passed to a debt collection agency you should contact them directly.
Here is an example of what you can say when calling your creditors.
"My name is your name, my account number is your account number.
I am financially over committed and am having trouble making the full payment each month, could you please consider reducing my monthly payments or arranging some form of payment plan?
After my priority payments (rent/mortgage/food) I can afford to make a payment of £X.XX per month until my financial situation improves.
I greatly appreciate your assistance in this matter."
They might even start the process straight away on the phone, freezing interest which means they will put the account on hold and stop adding interest and charges. But they will most likely ask you to send them a letter and fill out an income and expenditure form (which I will provide below).
Once they agree a payment plan you must not use the cards again and make sure you cancel any recurring payments, if a charge is made to the card the agreement will be broken, I suggest cutting up the cards.
Step 4 - Sent a letter To Creditors
Sometimes your creditors may setup a payment plan over the phone but they will usually want something in writing.
You can use this letter template along with the income and expenditure form to send to your creditors, I would suggest a low payment offer, between one and five pounds a month as this will give you an opportunity to get back on your feet and increase the payment amount at a later date.
Your Name
Your Address
Your Post Code
Date
Your Credit Card Account No. xxxx xxxx xxxx xxxx
Dear Sir/Madam
I am in financial difficulties and not able to meet my normal monthly payments. I will make a monthly payment of whatever I can afford until more money is available.
I have enclosed my monthly budget and a list of creditors. After paying my household bills, I can pay you £XX.XX & I will pay this each month and inform you when my circumstances change.
Please consider reducing or stopping interest or any other charges on my account to help me during my financial difficulties.
Yours Faithfully
Your Name
Step 5 - Set Up Direct Debits for Monthly Payments
Once your creditors agree to a payment plan you should cancel all existing Direct Debits to the credit cards as they will often give you a different sort code and account number to make the agreed monthly payments to. It is very important that you make this payment each month, you don't have to do it with Direct Debit but it will ensure the payment goes out each month on time so that you don't break the agreement.
Conclusion
So after following these steps you should be in a much better position with your debts.
You will notice a reduction in the number of threatening letters and phone calls everyday and hopefully feel your stress levels falling. The reduced amounts you have to pay will give you some room to breath and you can focus on a long term plan to resolve your debt issues.
