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What to do if you’re in arrears

Man struggling with debt

The majority of people (almost half) who contact us for help are worried about money, with many people struggling with debt, poor housing and low income. So you’re not alone.

Whilst it might be tempting to bury your head in the sand, it’s a lot easier in the long run to find a solution now rather than letting the debt spiral further out of control. Be proactive – if you know you’ve missed a payment, explain your situation to your creditor before they have to contact you.  They might be able to help. If you avoid your lender’s attempts to contact you they are more likely to take you to court.

Make a budget

When managing arrears it’s important to make a budget to work out what you can afford to pay back each month. We have a great budgeting tool you can use.

Check to see if there are any savings you could make in your general expenditure by following this excellent money saving expert guide and make sure you’re maximising your income using this handy checklist. Once you know exactly where your money is going each month and how much you have left over you can create a plan to pay off your debts.

Prioritise your debts

Priority debts, such as rent or mortgage payments, should always be paid for above things like credit card or store card debt. These are the debts that have the highest consequences if you don’t pay them – such as losing your home, receiving a court summons, being visited by bailiffs, facing bankruptcy or having your electricity or gas cut off.

Rent arrears

  1. If you are struggling to pay your rent, first check your tenancy agreement to find out your rights – different tenancy agreements give different protections against eviction.
  2. Make sure you know how much rent you owe and check that this matches with your landlord’s records. It’s important that you are in agreement about the amount.
  3. Follow the steps in this article about dealing with rent arrears by National Debtline.
  4. Contact your landlord to organise paying back what you owe. Show them your budget to assure them that you are paying back as quickly as you can.
  5. If your landlord is trying to evict you, get advice from your local Citizens Advice Bureau by visiting its website.

If you have rent arrears from a previous property then these can usually be treated as non-priority, unless you are facing legal action. You cannot be evicted due to arrears on a previous property so always prioritise your current rent.

       Mortgage arrears

If you’ve gone into arrears on your mortgage or a secured loan it’s vital to take quick action otherwise you could have your home repossessed. The term ‘secured loan’ refers to any money you borrow against the value of your home (or sometimes other types of assets).

  • If you are out of work and have Mortgage Payment Protection Insurance, use it.
  • Speak to your mortgage provider to see if you can reduce your monthly repayments. Options include switching to an interest-only mortgage, extending the mortgage term or taking payment holiday. For more information visit Stepchange.
  • You can also enquire about capitalising your arrears – paying them off over the lifetime of your mortgage.
  • If you have other loans in arrears check to see if they are secured or unsecured. If they are secured loans then treat them as a priority along with your mortgage as lenders can take possession of your home if you do not pay.
  • If you have a spare room you could take in a lodger to raise extra cash and earn up to £7,500 tax free. Remember to check any conditions first however – you could lose your qualification for council tax discounts and will likely need prior approval from your mortgage lender.

If the worst comes to worst and you can’t find a way to pay off your mortgage arrears you should consider selling your property and moving somewhere cheaper. You might be able to get help from your lender through an assisted voluntary sale scheme. This is preferable to surrendering your property to your lender as they will often sell at auction which won’t secure the best price. If you are in negative equity and the value of your home isn’t going to be enough to cover your mortgage then speak to the Citizens Advice Bureau.

For more detailed advice on mortgage arrears read this great guide by the National Debtline.

Non-priority Debts

Non-priority debts include: credit card debts, unsecured loans (loans that are not secured against your home), payday loans, overdrafts, water bills and loans from friends. 

  • If after budgeting your priority debts you still have money left over, divide it up between your remaining creditors to make a pro-rata offer of payment or combine your payments in one Free Debt Management Plan
  • If you have no money left for non-priority debts explain your situation to your creditors and see if they will grant a ‘moratorium’ i.e. freeze action on your arrears until your situation has improved
  • Other options you can explore for clearing your debt include: bankruptcy, debt relief orders (DRO), individual voluntary arrangements (IVA) and administration orders. For more advice on these schemes contact the National Debtline or the Money Advice Service.

We’re here for you
If you’re struggling with money, you can always turn to Ben. Call our free, confidential helpline on 08081 311 333 or use our online chat. We are open Monday to Friday, 8am to 8pm.

Read about how we helped Katie when she had rent arrears and was struggling with money.

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