Getting in control of your debt – a step by step guide

If you’re struggling with your finances, the idea of trying to get back into control might be one that fills you with dread.

You’re not alone in your situation though, millions of people face debt problems and trying to get on top of them can be daunting. However, when you do – you’re virtually guaranteed to feel better.

Knowing where to start is sometimes a problem – debt can be overwhelming. Follow our step by step guide and, usually in a matter of hours, you’ll start to feel better and have a more in depth understanding of where you stand.


Step 1. Do you need some support?
Step 1 - Getting in control of your debt – a step by step guide

Talking to companies about your debt can feel intimidating – people often feel like they’re going to be ‘told off’ or face harsh criticism when they talk to the organisations they owe money to.

Firstly, we can reassure you – this isn’t going to be the case. It’s in no one’s interest for you to be spoken down to when you’re on the phone. Generally, organisations want an open line of communication between themselves and you, so being unkind isn’t the way to go.

If you’re still a bit unsure, people like to have a friend or loved one on hand when they’re looking through paperwork and making phone calls. If you think it would be useful, invite someone you know you can trust around and put the kettle on – it’s always good to have some moral support.

If there’s no one you know that might be able to help – you can book to talk to someone at the Citizen’s Advice Bureau – you can sometimes us a room there too.


Step 2. Collect all your financial information together
Step 2 - Getting in control of your debt – a step by step guide
It’s useful if you can make a list of every company you know you owe money to. This might include banks, loan and credit card companies, insurance providers, the companies that supply your utilities, TV or mobile phone contracts – as well as companies who you’ve bought things on credit with.

If you’ve borrowed money from individuals – friends, family or other people you know, add them to the list too, you might not have a formal agreement in place with them, but it’s important to get a full picture of where you are.

If possible, find contact numbers and your account reference numbers for each company. You’ll usually find these on letters or emails you’ve been sent.


Step 3. Prioritize your debt
Step 3 - Getting in control of your debt – a step by step guide
If there’s more and one person or company you owe money to it’s vital that you deal with the most important ones first.

The most serious consequences come from falling behind on payments for the following:

  • Rent
  • Mortgage or a loan secured against your home
  • Court fines
  • Child support or maintenance payments
  • Income tax and national insurance
  • VAT
  • TV licence
  • Gas and/or electricity bills
  • Council tax
  • Fixed penalty or penalty charge notices from the police

If you owe money for any of these things you should consider these your priority debts. These are the companies or organisations you should speak to first.


Although all debt is serious, there are less severe consequences for not paying the following:

  • Money borrowed from friends and family
  • Credit cards and store cards
  • Overdrafts
  • Parking tickets from private companies
  • Penalty charge notice or fixed penalty notice from the council
  • Unsecured loans (including payday loans)
  • Tax credit and benefit overpayments
  • Water rates
  • Phone, TV and internet packages

Of course, this isn’t to say you shouldn’t talk to these companies or people too, you will need to – but they can be the calls you make after the priority debt calls.


Step 4. Work out how much you can afford
Step 4 - Getting in control of your debt – a step by step guide
Working out a budget at this stage is helpful. It doesn’t have to be in depth, as it might need to change to account for your priority debts.

You’ll need to know how much money you bring in each week or month. You should also work out what your essential living costs are, as well as what your current expected payments are to each of your creditors.

If you earn a variable amount each month add up the last 3 months and divide the amount you get by 3. This will give you an average month’s earnings and a good guide for your income when you talk to creditors.

At this stage you might have a figure in mind you’d be comfortable to pay going forward. Note this down too, as it’s likely they’ll ask.


Step 5. Talk to priority creditors
Step 5 - Getting in control of your debt – a step by step guide
When you talk to the companies or organisations you own priority debt to you should explain to them exactly why you’ve been unable to pay. Honesty is always the best policy – and gives them the information they need to come to an arrangement.

Explaining to them that you’re working through your debts systemically in an attempt to get some financial control back is good, it shows you’re taking responsibility and is a good indication you’ll keep new payments up.

Always note the name of the person you talked to and when the call was. If possible, confirm what you’ve agreed by letter or email – and keep a copy of your correspondence.

Try to make a payment as soon as you can, even a small one is an indication you’re taking the debt seriously. Now you’ve started talking to priority creditors – work through them all as soon as you can to avoid any further charges or action being taken.


Step 6. Talk to non-priority creditors
Step 6 - Getting in control of your debt – a step by step guide
It’s likely that non-priority creditors will chase you more often than those you owe priority debts too – however, do make sure you get the priority debts in order before you move on to these.

Now you’ve made contact with the most important creditors – you can take the amount you’ll be paying them and add it to your essential outgoings in your budget.

Once again, talk to the companies and organisations you owe money to, explain that you’ve got arrangements in place for your priority debts but that you’re keen to cover everything you owe. Ordinarily you’ll be expected to talk a creditor through what you’re paying out and coming to an agreement about how much you can afford.

Be careful not to over commit to the first company you speak with if you owe more than one lower-priority debt, you should act fairly and try to pay an equal amount to each.

Once again, record who you’ve spoken to and any agreements made.


Step 7. Show your working out if necessary
Step 7 - Getting in control of your debt – a step by step guide
You might find the companies you’re talking to want to know how you’ve come to the figures you’ve offered. This is fine – if they request bank statements or payslips it’s simply to make sure you’re paying things off or catching up as quickly as is possible.

Remember, priority debts should always be handled first – with other debts after that, even if you’re advised otherwise.


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