Chapter 2 - Managing Debt

If you are in an emergency for example, you have been told you will be evicted or you are about to have your fuel supply disconnected call one of the organisations on page 49 for advice about your rights and what you can do.

Drifting into debt?

Having to meet all your family’s expenses when you have a low income can mean you are likely to drift into debt. 31 per cent of lone parents have at least one debt and it is mainly household bills that cause the problem.

However disciplined we are, it can be hard not to end up living just up to, or just beyond our means. This can seem ok until something unexpected happens. It may be that you haven’t been affected by financial difficulties, and this is good news, but look at the following questions and ask yourself how your family would cope if faced with a major financial challenge.

• Do you always pay your credit card bill or catalogue payments on time?
• Do you know the total amount that you pay when you buy through a catalogue with weekly instalments?
• Do you know, without looking it up, the total of all your financial commitments?
• Do you have fewer than two credit and store cards?
• Does your bank account pay interest when in credit?
• Do you save any money?
• If you had a windfall of £3,000, would you be able to save it?

Every ‘no’ is a potential problem. If you answered ‘no’ to several questions, you could be drifting into debt without realising it.

Managing your debt

1. Acknowledge the problem

If you are afraid to open letters, answer the phone or open the door, it is time to get help. Ignoring the debt will make you feel the situation is out of control and may also make you dread what tomorrow might bring.

Facing up to the problem can be a frightening thought but it is the first step towards doing something about it.

2. Get advice

You will need to contact your creditors, but you should speak to a specialist money adviser first. Contact one of the organisations for free expert advice. They will not judge you and can help and support you through the following steps. Whatever you do, don’t go to any organisation that charges you for its advice.

3. Check that you are liable to pay the debt

A specialist money adviser (see above) can do this. You should especially get advice if a debt is not in your name or is a joint debt with an ex or deceased partner or if you have not paid the debt or contacted the creditor within the last six years.

4. Maximise your income

See chapter 6 to check that you have claimed all the benefits and tax credits your family may be entitled to. You may wish to start work or increase the hours you work or perhaps rent a spare room to increase your family’s income. Always get advice first about whether this will make you better off overall and how it may affect the amount of your debt repayments. The organisations mentioned above can advise you about benefits and tax credits including whether you are likely to be better off in work or by increasing the hours you work.

5. Draw up a budget

See chapter 3 for how to do this. This is a crucial step to help you manage your debt and plan for the future. It will also show you and your creditors how much money you are able to pay them.

6. Make savings on your spending

This may seem impossible when you are already on a tight budget but look at the section on managing your spending and money-saving ideas. Go back and look at your budget sheet again. Can any of your expenses be reduced?

7. Prioritise your debts

Some debts are more important to pay than others. The debts that are most urgent are those where non-payment could lead to imprisonment, you losing your home, or the disconnection of an essential utility. A specialist adviser will help you identify which debts you need to deal with first.

8. Negotiate repayment of your priority debts

After you have taken advice, you should contact all your creditors and make an offer of repayment. Your completed budget will show you how much money you have left and you will now have to decide how this will be divided.

A specialist money adviser will be able to help you work this out and can negotiate with creditors on your behalf, providing them with your budget or financial statement to show that the amount you are offering is reasonable. Creditors may also send you their own budget form to complete.

9. Negotiate repayment of your non-priority debts

As with your priority debts, you may be able to negotiate a repayment plan that is suitable to your needs – a specialist money adviser can help you with this. It may be possible to have interest and other charges frozen for a certain period of time.