Do you have problem debt?
Jamie Carmichael, Insolvency Practitioner of Scottish Debt Help, takes a look at our relationship with debt and what to do if it becomes an unaffordable problem.
Recognise if you have problem debt…
Not all people recognise whether they have problem debt. They’ve been in a cycle of debt for so long that it’s become normal to balance payments every month. Most clients we speak to refer to the ‘borrow from Peter to pay Paul’ effect, we call this the debt cycle.
A Debt cycle is easy to spot:
We get paid. We pay household bills – gas, electricity, rent, council tax, TV license and all these wonderful things. We maybe even pay the minimum payments on our credit cards and loans… then, by week 2 or 3, we’re flush out of cash.
Sound familiar? If so, you have problem debt.
It’s often hard to admit, but once you recognise the cycle you’re in, you can do something about fixing it.
Signs of problem debt
- Running out of available cash within a week or two of being paid and having another 2 or 3 weeks to go ‘til payday.
- Borrowing money from friends and family.
- Paying for essential expenditure on credit cards (such as a food shopping).
- Going to payday lenders.
- Gambling to try to get yourself out of debt.
Help with debts is available
Now, more than ever, struggling with debt can be particularly worrying. Coronavirus and its impact on social norms, the job market and life in general has left many Scottish people with debts and the worries that come with them.
However, a variety of actions have been taken by the Scottish Government and the banks to provide financial help to people facing difficulties during the pandemic.
Mortgage payment holidays
In March, all the banks, building societies and other mortgage lenders agreed to offer all existing customers a three-month mortgage payment holiday to help those struggling with debt because of coronavirus.
This has now been extended to six months and you’ve got until the 31st of October to apply for one. If you’ve already applied for and are in a three-month payment holiday, you can also apply for this to be extended. It’s also worth noting that, should you take a mortgage holiday, you might pay more in interest over the remaining period of the mortgage. Your mortgage company will also look for you to make up these payments and could increase the amount of your monthly payments to do so. This is the sting in the tail that’s not in the small print.
Remember, you must speak to your lender to arrange this – don’t just stop paying. If you stop paying without agreeing this with your bank, it’ll be classed as a missed payment by your bank and credit agencies.
Protection from eviction for private tenants
The Scottish government, as we covered in our recent blog about Pre-Action Requirements being extended, has agreed to extend eviction action until March 2021 and apply stricter rules, giving private tenants more protection from eviction.
Credit card payment holidays
Like mortgage lenders, credit card providers agreed to provide three-month payment holidays to those affected by coronavirus related debt problems. These haven’t been extended to six months, and you’ve got until the 31st of October to apply for one.
If you take, or have already taken, a three-month payment holiday with your credit card providers and need to extend this, although they’re not obliged to agree, you can request another one.
As with mortgage payment holidays, however, remember that if you take a payment holiday with your credit cards, interest and your missed payments will still be added to your balance and will need to be paid once the holiday completes; likely increasing your monthly payments.
New overdraft rules
As of the 31st of October, the new rules that came into place freezing overdraft interest rates and allowing banks’ customers to apply for interest free overdrafts of up to £500, for an initial three months, then extended by a further three months if needed and applied for, will come to an end.
Make sure you apply for a further three months before the end of October if you need it, or, speak to your bank to see how they can help you with any financial difficulties you’re facing.
Temporary relief from debt chasing actions
Most formal actions to chase outstanding debts are currently withheld. As a result, it’s likely that banks and councils aren’t chasing debts as enthusiastically as they were before. However, this doesn’t remove the debt problems you may have, so remember to use this time to speak to somebody about how best to deal with your debts and put a plan in place to help you recover your financial situation.
Apply for a moratorium (breathing space)
Breathing space, or a moratorium, provides protection for people being served action by sheriff officers. Applying for breathing space ensures that all debt recovery action is stopped for six months. We can help if you want to apply.
If granted, it’s advisable to use the time to speak to somebody about how best to deal with your debts and put a plan in place to help you resolve your issues with debt.
Time to take a look at the detail…
During the current situation, with coronavirus leaving many people with financial difficulties and debt problems, although these will be stressful, it’s the right time to use the tools available to you to give yourself some breathing space (not just in the moratorium sense), take stock of your situation and take steps to resolve your debt problems.
Get a plan together:
- Work out your money – do a spreadsheet of your income and outgoings and get a good understanding of what money you actually have available to you for food shopping, payment of debts etc. Once you see it all in black & white you may get a surprise….
- Make sure you know how much you owe, and to whom – list all your debts, so you know exactly the situation you’re in.
- Make sure you communicate with your creditors; they can’t provide any support if they don’t know your situation and they don’t have any communication from you.
- If you don’t want to communicate with your creditors, or you are suffering from some confidence issues, speak to us and we can help.
- Check whether you’re entitled to any benefits, or additional benefits, that could help ease the strain on your finances.
- Decide if applying for a statutory moratorium is a necessary option for you – so you can gain an additional six months to plan and act upon your plan.
- Take advice and discuss your options with qualified people. There are more options than you think; most people have heard of Bankruptcy, but bankruptcy isn’t the only solution available.
Your debts and your creditors won’t go away. Act now to get some breathing space and begin the task of dealing with your debts.
Talk to us, we can help. With the right help and advice there are options available that can:
- Reduce your debt repayments.
- Freeze interest & further charges on the money you owe.
- Allow you to write off unaffordable, unsecured debts.
If the worries that come with being in debt are all too familiar to you, get the advice you need. Take our 30 second survey, or call us today, to see if you qualify for help with your debts.