Making an action plan for debt

If you’d prefer to not even think about your debt you’re not alone.

Almost all UK residents are in some kind of debt – and for 1 in 6 people, that debt is considered to be at a ‘problem’ level, meaning just getting from month to month with enough money for the essentials is hard – or impossible.

Checking your account balance can be painful – and when the phone rings and you know it’s people chasing late payments, it’s tempting to just pretend your debt doesn’t exist.

The problem is – your debt won’t go away by itself, so making an action plan for how to get on top of it should be your priority. The good news is, you don’t have to be a financial expert to do this – and when it’s done, we can almost guarantee you’ll feel much better about your money.

We’ve put together a 5-step guide on how to find your financial feet…

  1. Gather all your paperwork

The most important first step is working out where you are with the money you owe. To get a good idea of your current financial picture you should collect together:

  • any reminders or bills you’ve been sent in the last couple of months – or anything older than you know you’re not paying
  • bank statements that cover the last 2-3 months

It might be tempting at this stage to just ‘forget’ about one or two things you’ve fallen behind on or feel you’ve got a bit of breathing space with – but if you do, they’ll only weigh on your mind, it’s better to sort them now instead of leaving them for another day.

Also – make sure you note down any money that you owe to family and friends here too. They might not be chasing you like the energy, credit card or loan companies do, but if it’s outstanding it’s well worth trying to get in control of.

  1. Grab a pen and paper

For each lender, note down:

  • their name
  • what the debt is for
  • the amount you owe
  • your account/reference number
  • their telephone number

Some of the debt may have been passed to credit collection agencies too – so if you’re calling someone who’s collecting the debt on another company’s behalf, make sure you’ve got all their details to hand too.

  1. Make a priority list

Now, you might think that all your debt is a priority – and to some degree that’s true – but there are certain types of debt that come with more serious repercussions or penalties if you don’t deal with them – so these need to be given priority attention.

Take for example your mortgage or rent payment – not paying either of these could result in the loss of your home, a much more serious issue than having a credit card stopped.

The types of debt that should be considered a priority are:

  • Mortgage or loan secured against your property
  • Rent
  • Council tax – referred to as ‘rates’ in Northern Ireland
  • Magistrates court fines – referred to as a ‘criminal fine’ in Scotland
  • Child maintenance
  • Tax, VAT or national insurance
  • County Court judgements (CCJs) – referred to as a ‘decree’ in Scotland or a ‘money judgement’ in Northern Ireland
  • Gas and electric bills
  • TV licence
  • Hire purchase or loan taken against your car
  • Phone bill

If you have any of these debts on your list, you should put a star next to them or run a highlighter through them – whatever you can do to pick them out as being the most important amounts to handle first.

Lower priority debts include:

  • Credit cards
  • Television or internet subscriptions
  • Gym memberships
  • Hire purchase agreements on household items
  • Unsecured loans or paydays loans
  • Water bills
  • Loans from family or friends

It’s important to understand that lenders also know this information – and lenders of these lower priority debts might chase you more than those who’ve whose debt is a priority. The reason is simple – any court or debt consolidation company is going to prioritise the money that needs to be paid toward the priority debts, so you might find the low-priority lenders send more letters or make more phone calls, trying to keep the money you owe them at the front of your mind.

  1. Remember that debt isn’t something to be ashamed of

At this stage you should give yourself a pat on the back, you’re doing more than a huge amount of people do – and you’ll sleep easier as a result.

At every step of this process you should remember that debt isn’t something to be ashamed of. Debt doesn’t discriminate, so it doesn’t matter who you are, what you do, where you’re from, the colour of your skin, the language you speak, the qualifications you have or anything else that you feel defines you in any way.

Debt impacts the life of everyone from celebrities and top-flight footballers through to everyday people standing at the bus-stop – and remember, even if people seem to have a carefree lifestyle that they talk about or put pictures on social media of, the chances are they’re facing some debt issues too.

  1. Make some calls

The next step might feel intimidating but is always much easier than people think it will be.

You’re now going to need to make some calls to the companies you owe money to – and you should start with the priority debts you’ve highlighted.

If you’re nervous about doing this you might want to have a friend or loved one sit with you while you make the calls. The people who answer the phone aren’t going to be intimidating or angry, in fact, they’re likely to be extremely understanding – but it doesn’t sometimes feel easier if you’ve got someone ‘on your side’ – but we can guarantee the first words to them when you finish speaking to the first company will be “that wasn’t as bad as I thought it would be”!

When you talk to each company let them know that you’ve made a list of priority debt and you’re contacted them first. This shows that you’re approaching your debt in a measured way – doing it properly.

They might ask you how much you think you can pay – and remember, there’s no harm in getting or suggesting some figures then going away, working out how much you can pay, then calling them back.

They might ask for a payment right away – and if you can do that then it’s a positive gesture. Don’t worry if you can’t though, just ensure that you make an agreement that you can stick to moving forward.

James Jones

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