Repayment
What to do first when the payments stop being affordable
The order matters. Priority debts have consequences that credit card arrears do not.
Comparisons of unaffordable debt usually pick a winner. This one picks the circumstances, which is more useful.
The difference in one place
- Priority debts are those whose non-payment costs you your home, liberty or essential services.
- Free debt advice is available in most jurisdictions and is better than commercial alternatives.
- Contacting creditors early usually produces better outcomes than defaulting silently.
Not all debts are equal
Rent, mortgage, energy, council or local taxes, and court fines carry consequences that unsecured credit does not. Losing a home or an essential utility is a different order of harm from an adverse mark on a credit file. Paying these first, even at the cost of arrears elsewhere, is the standard and correct advice.
Work out the actual figures
A full income and expenditure statement is the basis on which any creditor negotiation happens. It is also usually the first time the size of the gap is visible, which is unpleasant and necessary. Advice services use standard formats that creditors recognise and accept.
Contact creditors before defaulting
Most lenders have hardship processes, and many will freeze interest, accept reduced payments or agree a payment holiday. These are far easier to arrange before arrears accumulate than afterwards.
Explaining early is treated very differently from silence followed by default.
Free advice beats paid
Debt charities and statutory advice services provide the same negotiation and formal solutions that commercial firms charge for. Commercial debt management plans take a fee out of payments that would otherwise reduce the debt. Anyone charging an upfront fee for debt help should be treated with suspicion.
Formal solutions exist
Depending on jurisdiction, options range from informal arrangements through to statutory insolvency procedures. Each has different consequences for assets, employment in certain professions, and duration on a credit file. Choosing between them is exactly what an adviser is for, and the choice is consequential enough to warrant one.
Side by side
| Consideration | What it means in practice |
|---|---|
| Not all debts are equal | Priority debts are those whose non-payment costs you your home, liberty or essential services. |
| Work out the actual figures | Free debt advice is available in most jurisdictions and is better than commercial alternatives. |
| Contact creditors before defaulting | Contacting creditors early usually produces better outcomes than defaulting silently. |
The takeaway
Pay the debts with the worst consequences first, and call a free adviser before you default.
The version you keep doing is the version that works.
Questions readers ask
Will asking for help make things worse?
Contacting creditors early generally improves outcomes. Arrangements may be recorded, and so is defaulting, which is worse.
Should I take out a consolidation loan?
Only if the rate is genuinely lower, the term is not extended indefinitely, and the borrowing stops. Otherwise it converts unsecured debt into a longer commitment, sometimes secured on your home.
