Managing debt

If you've got money problems, it's better to sort them out sooner, rather than later. Take some straightforward steps to help you sort things out.

Creating an action plan

Remember, if you have debt problems they'll only get worse if it’s not dealt with quickly. If it does get to the point where you’re having money problems, you should consider the following to help you get things under control.

Take steps to deal with your debt

If you have any existing debts or your borrowing is getting out of control, there’s no better time to tackle this situation than right now. With an action plan and determination, you can get your debts under control:

List your debts

The first step is to take stock of everything. Think of it as a financial M.O.T. By writing down all your debts, large and small, you can get a clearer picture of what you owe - it’s time well spent.

Prioritise your debts

Make sure you have your recent bank statements, loan statements and credit card bills to hand. As you're making your list of debts, write down the interest rate you're being charged for each and then prioritise with the highest first.

Move existing debts from expensive interest rates to lower rates

Once you've worked out which debts are costing you the most, you might want to think about transferring any store cards and high-interest credit cards to lower interest credit cards or a personal loan. Just make sure you watch out for any balance transfer fees with credit cards.

Talk to your creditors

Don't put off talking to the people you owe money to - this includes your bank. By letting them know as soon as possible that you’re struggling to make your repayments, they may be able to help you manage them better.

Check if you're better off saving or repaying your debts

Some people like to have some savings even when they’re in debt. Check whether you're actually better off saving first or whether it's better to repay your debts.

To do this, compare the interest rate you're paying on what you owe with what you stand to make on any savings. Remember, you may pay tax on the interest you earn on savings.

Consider a personal loan

One way to approach your debts could be to put them all together in a single personal loan. Not only could doing this make your repayments more manageable by spreading them out over a longer period of time, but it could also help you stay on budget. But, remember, taking out a personal loan could mean it takes longer to pay off your debt and could cost you more in the long run. You’ll also need to be sure you don't rack up any more debt while you’re paying off this loan.

Set the date

There's nothing like a deadline to help keep you on track. Once you've worked out how much debt you owe, you'll have a good idea of how long it will take you to clear that debt. Set yourself a realistic deadline and commit to paying off what you owe by then.

Potential options

The legal options available for you to consider should things become too difficult to sort out on your own depend on where within the UK you live. For more information click one of the following links:

Options in England, Wales and Northern Ireland.
Options in Scotland.

Your credit rating

What you need to know about credit score ratings

Credit scoring - or rating - is one way that banks, credit card companies and other lenders make decisions on whether or not to lend you money. A good credit score can help you get better rates when you apply for a loan or mortgage. Lenders then use this to determine whether they’re going to lend to you and on what terms.

Many of us will need to borrow money at some point in our lives, whether to tide us over until payday or to buy a home. However, it is important to borrow sensibly and not let debts get out of control. If you over-stretch yourself and do not repay your debts on time, you will damage your credit rating.

The information used to create your credit rating comes from several sources such as public records, court records and lenders who often share credit rating information among themselves.

How to check your credit rating

Get hold of your credit file from any of the three main credit reference agencies Experian, Equifax or Callcredit, so you can correct any mistakes. For instance, if you have ever lost your wallet or had it stolen, someone may have attempted to take out credit in your name.

A credit report only costs a few pounds but is well worth it. When companies reply, they’ll explain what the information means and tell you how to get it changed if you can show them that it’s wrong.

And remember: being financially linked with someone with bad credit can affect your rating, too.

Common types of borrowing

Credit cards

When you apply for a credit card from a bank or a shop, they will allow you to spend a certain amount of money using the card. This amount is your credit limit, and the lender determines how high it will be based on factors such as your credit history and how many other outstanding debts you currently have.

Both credit cards and store cards will usually charge you interest on any outstanding money you still owe at the end of every month. They may also charge interest or a fee if you've used the card to get cash out, or transferred a balance from another account or card. You should also be aware that charges for taking out cash using a credit card can be higher than the charges for standard payments on the same card.

You will need to make a payment every month to pay off the outstanding money that you owe, however If you're unable to pay the full amount that you owe each month, then you should at least pay off the minimum amount so that your credit rating won't be damaged.

If you've reached the limit on your card or are struggling to keep up with your payments, you should stop using it while you start paying the amount you owe. To make sure you don't miss a payment, set up a direct debit for at least your minimum payment each month.

If you are having problems meeting even the minimum payments on any of your credit or store cards, make sure you contact each bank or shop that issued you with a card (your creditors). Your creditors would rather you paid even a nominal amount each month toward your debt rather than have you end up not paying anything back. But, keep in mind that an agreement you negotiate with your creditors won't free you from your debt entirely – you'll still have to pay what you owe, but you may have a longer period of time in which to do it.

Personal loans

There are two types of personal loans: secured and unsecured. A secured loan such as a mortgage is attached to something you own such as a property. If you can't repay the loan, the lender has the legal right to sell your asset to get their money back. An unsecured loan such as a personal loan doesn't require you to provide security against the money you're borrowing. But, you're still legally obligated to repay the money you borrow.

With either type of loan, you borrow a fixed amount and then must pay it back, with interest, over a certain period of time (the term of the loan). You should also make sure you know about any early repayment charges or late payment fees associated with your loan.

As with credit cards, if you find you are having problems meeting your monthly loan repayments, you should contact your lender. You may be able to extend your term and reduce your monthly payments. Or, you may be able to take a 'repayment holiday', where you skip a monthly payment. Be careful when doing this, however, as you could wind up paying more toward your loan than you originally thought. You may find it better to cut back elsewhere to find money to meet your loan payment.

Bank overdraft

Your bank may offer you an overdraft facility on your current account. If you decide to use this, you’ll need to agree an overdraft limit with them in advance. This authorised limit or agreed overdraft is the maximum amount you can take out, over and above what's already in your account. The amount you are overdrawn is similar to any type of borrowing and must be paid back. You may also need to pay fees or interest on any amount you are overdrawn. And, if you go over your agreed overdraft limit, you could be charged a fee.

If you haven't agreed an overdraft on your current account and you go over the amount you have in that account, this will be considered an unauthorised overdraft. You could be charged a fee or higher rate of interest for doing this and this tends to be higher than any fee or interest that you pay for an authorised overdraft'.

Still, an authorised overdraft facility can be useful if you just need some financial flexibility from time to time. But, if you find yourself overdrawn on a regular basis, you should re-visit your budget to see where you could make further cuts. And, if you haven't made a budget yet, then make sure you check out the 'Budgeting' guide for help getting started.

Resources

For more advice about debt management, the following organisations and websites can help:

Call our Money Management Team on 0808 145 0397 (Lines open 8am - 9pm Monday - Friday and 8am - 5pm on Saturdays). This is a free service that can help you work out how to repay your debts and give you information on how to approach the people you owe money to.

Stepchange Debt Charity

Stepchange Debt Charity is a registered charity offering free, confidential advice and support to anyone who is worried about debt. Their free counselling and debt advice can help you get back in control of your money and move forward with your life.
Stepchange Debt Charity website 

Financial Conduct Authority (FCA)

This is a government organisation that offers impartial help to consumers on all money matters.

Go to the Consumer section of their website and look for the link to the Money Advice Service or try their Consumer Helpline on 0800 111 6768, between 8am and 6pm Monday to Friday, or Typetalk on 18001 0800 111 6768.
Financial Conduct Authority website.

Citizens Advice Bureau (CAB)

The CAB provides free, confidential, impartial information and advice on a wide range of debt and benefits issues face to face.

Check your local phone book or Yellow Pages for your nearest Citizens Advice Bureau, or visit the Citizens Advice website for your area.
Citizens Advice Bureau: England and Wales.
Citizens Advice Bureau: Scotland.

The National Debtline

This is a national telephone helpline for people struggling with debt. National Debtline can also send you a free debt advice pack that includes guidance on completing a personal budget as well as answering legal questions connected with debt.

Call National Debtline on 0808 808 4000, 9am to 9pm Monday to Friday and 9:30am to 1pm Saturday. Or visit the National Debtline website.

Other useful services

adviceUK

This network supports free advice providers and can give details of your nearest debt advice centre. Call adviceUK on 020 7407 4070, 8:30am to 5pm Monday to Friday. Or visit the adviceUK website.

Your local council may offer debt advice services.

Jobcentre Plus is a good place to enquire about benefits.

Your bank may even be able to help. Remember, it’s in their best interest to help you.

Related links

Halifax is not responsible for the content of external websites.

At a glance

Dealing with your debt will give you peace of mind and financial stability. Here's how to get started:

  • Face facts. Be honest with yourself about how much you’re currently spending.
  • Budget, budget, budget. Stick to your budget so you spend less than you earn.
  • Develop good money habits. Lots of little changes to your lifestyle can make all the difference.
  • Don’t ignore debt. The longer you leave it, the harder it will be to sort out.
  • Talk about it. There's lots of free advice available and your creditors really do want to help you manage your debts.
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