How to deal with DEBTA self help pack:

Visit www.luuonline.com/help for more info.

An Advisor’s story:

“Sarah came to see me in her fi nal year at university; she was worried she was going to struggle with her minimum repayments on her 2 store cards and credit card that she had taken out in he fi rst term at university.

We sat down and worked out her budget, it showed that after her general living expenses, such as rent, utilities and food, she only had a small amount left to pay to her credit debts. This worried Sarah, She was afraid of what the creditors might do and wasn’t sure what to do next.

I explained that she could start making reduced payments to her creditors with the money she had left, and we discussed the action creditors could, and couldn’t take. I explained that it would affect her credit rating but she couldn’t neglect her priority payments.

I gave Sarah letters she needed to send to her creditors explaining the situation and also advised she sent a statement of her fi nancial position. Sarah wrote to them with her reduced offers of payment and the creditors wrote back saying they would accept for 6 months and then they would reassess the situation again.

Sarah continued to make reduced payments to her creditors until she left University, but in that time she did manage to get a few extra hours at work so paid a little more.

Once Sarah left University she got a full time job and began to make much bigger payments to her creditors and was soon on the way to being debt free!”

• Page 1: The aim of this pack, how to get started

• Page 2: Different kinds of debt- Priority and Secondary debts

• Page 3: what can happen when you make reduced payments

• Page 4: How to reduce your payments. Token payments and Pro rata payments

• Page 5: Glossary of terms

Contents:

The fi rst step is recognising you have a problem and seeking help, it isn’t always easy to do and can often be embarrassing or frightening. Ignoring correspondence or denying you have a problem wont help. The problem won’t go away!

This pack will guide you through the steps you need to take to negotiate with your creditors successfully confi dently; we’ll give you all the tools and the lingo to need! Before you do anything I would suggest you take a look at the glossary (link) to familarise yourself with words and phrases you may hear from creditors and on these pages.

This pack is to be used if you are struggling to meet the minimum repayments on your credit debts. It can help you make token payments or just smaller repayments each month.

You do not need to use this pack if you can afford to pay

your minimum repayments comfortably. If you are struggling with priority debts please contact the student advice centre for help.If you are not sure if you need to make reduced payments, the best way to fi nd out is to do a fi nancial statement (you can download a planner to help with this from: http://www.luuonline.com/help/money/budgetingadvice.php)Use this to see if you have enough disposable income to pay the minimum repayments once your priority debts have been paid.

Be aware that creditors will not accept reduced payments if you are spending enormous amounts of money on socialising or clothing. Please see our cost of living and budgeting pages when fi lling out a fi nancial statement.

http://www.luuonline.com/help/money/costofl ivingleeds.php & http://www.luuonline.com/help/money/budgetingadvice.php.

The aim of this pack:This self help pack is designed to help you deal with personal debt and regain control of your situation.

There are a few positive steps you can take straight away:

2

Stay calm and try not to panic, this wont help!

Although creditors may be threatening you, there is

always something that can be done.

1

Don’t borrow more money to pay off existing debts.

This will not help in the long run

2

Although its scary, sit down and make a list of all your debts and how much you

owe them

3

Speak to a family member or friend if you can, it does

help to talk to someone

4

Look at ways of maximising your income, could you work part time?

Are you eligible for any benefits?

5

Different types of debt.Firstly you need to make sure you know the difference between Priority debts and secondary debts.

Priority Debts:Some debts have worse penalties than others when it comes to non payment.

The table opposite (figure 1) shows what are considered to be priority debts and what can happen if you don’t pay them.

Food and healthcare are also priorities –never go hungry or put yourself at risk for the sake of a credit debt!

Secondary DebtsNon Priority debts have less severe penalties but do always need immediate attention, figure 2.

What next?If you have completed your financial statement and you are going to struggle with the repayments, now is the time to take action!

The following pages will provide you with the following tools to correspond with your creditors

• Information on what it means to make reduced payments• List of creditors• Financial statement• Letters to send to and to negotiate with creditors

Type of priority debt

What happens when you don’t pay the debt

Rent, Mortgage Loss of homeCouncil Tax Attatchment of earnings, bailiff action, impris-

onment Magistrates fines Bailiff Action, imprisonmentGas/Electricity Disconnection, installment of a pre payment

meterWater Court ActionTV License Fine, imprionmentExisting CCJ’s Attachment of earnings, bailiffsUniversity Fees University can prevent you from enrolling for

next years studies.

Type of Secondary debt

What happens when you don’t pay the debt...

Credit cards County Court JudgementStore cards County Court JudgementUnsecured Loan County Court JudgementOverdraft County Court JudgementHire Purchase Loss of goodsCatalogue County Court Judgement

Figure 1: Priority debts

Figure 2: Secondary debts

What can happen if you make reduced payments?If you make reduced payments it does not mean that the creditors will immediately stop interest and charges or stop writing to you to asking for more money.

We do advise asking creditors to stop or reduce interest and sometimes they might, even if only for a short period. You will need to send them a list of your creditors, a financial statement and a letter explaining your circumstances. You may find the creditors will write back saying they don’t accept your offer, don’t let this put you off – send a ‘reconsidering the offer letter’ and keep sending the payment. After all -if its all you have available what else can you send?

Default NoticeIf you don’t pay the minimum repayment the creditors want this is called ‘defaulting’ on your account.

It is at this point the creditors can send you a default notice.This is a letter stating you have defaulted and has to be sent before the creditors can

commence with any legal action. A creditor may send one of these within a month of you making reduced payments or not at all if they are happy to accept your payments.

“You may find the creditors will write back saying they don’t accept your offer, don’t let this put you off”Although a default notice can look scary it is only a letter and if you are still struggling to pay, carry on with your reduced payments! You must be aware that a default notice does however sit on your credit file for six years.

Debt collection companyA creditor can also pass on or sell your debt to a debt collection company. These are not bailiffs. No matter what a creditor or collection company tell you they cannot enter your property and seize goods. It has been known for collection agents to visit people’s homes to speak to

them regarding the debt, but it is very rare, and the best advice would be to not answer the door if you don’t want to talk to them, or explain again you are sending reduced payments until further notice.

The collection agencies should be treated no differently to your original creditor. Simply send them your financial statement and reduced payment along with a letter of explanation.

County Court actionIf the creditors or collection agents decide they no longer wish to accept your reduced payments they can send you a county court form. This will include an ‘admission’ and ‘defence’ form. You will need to fill out the admission form and send details of an offer of monthly payment. Stick to the same offer you have been sending to your creditor. Just because you are sending the information to the court it does not mean you are obliged to pay more.You need to send your form back within 14 days or the amount will be decided without your circumstances being taken into account and the amount set could be high.

You can also lower your repayments to an amount you can afford. This is usually done by Pro Rata. This means you give the most money to the person you owe the most to.

This is worked out by doing a simple sum of:

INDIVIDUAL DEBT

TOTAL DEBTS

= Offer of payment

For example if you had two credit cards one of £1200 from Big bank Ltd and one of £500 from High Street Bank Ltd you would owe £1700 in total, imagine you had £20 disposable income a month.

The sum would look like this (we will do the Big bank Ltd debt as an example)

£1,200

£1,700

You can send your payment via cheque or postal order or set up a standing order rather than direct debit. That way you are in control of the payments.

So now you have all the information you need its time to start fi lling out your forms.

X DISPOSABLE INCOME

X £20 = £14 £1,200

£1,700X £20 = £14

If the offer is accepted you will receive a form marked ‘offer of acceptance, this shows when to start paying and how much. If the debt is less than £5,000 interest can also be stopped by the court. Sometimes having a debt that goes to court is the fairest and easiest way to sort out a debt. Remember, this will also stay on your credit fi le for six years.

You can also dispute the claim by sending back the ‘defence’ form but we would suggest taking advice on this from the student advice centre. This is also the case if you need more time to complete your forms or you cannot afford to make ANY payment to the creditor.

Reducing your payments: Token payments and Pro-rata paymentsents:Making reduced payments may seem like an odd idea but it is better to pay something even if it is only a token payment than nothing at all.

You must always inform the creditor of what you are doing and show them your fi nancial statement to explain why you have to make reduced payments.

When it comes to making reduced payments your are not asking the creditors but instead telling them of what you can afford. You have to be confi dent in what you are offering and only increase your payments if you can afford it, not if the creditor demands it or threatens further action!

Token PaymentsToken payment which is usually a payment of £1 or £2 a month to each creditor. This is in extreme circumstances where you only have a very small amount of disposable income left.

Pro-rata Payments

There are two types of reduced payments;

There are two types of reduced payments;

Each creditor needs:• List of creditors

• Letter with offer of repayment

• Financial Statement

You can download these documents from www.luuonline.com/help/debt.php

Lastly a few rules to remember• Only use the forms if you really need to

• Stay in touch with your creditors –if your offer changes, let them know

• Do pay the amounts to offer to creditors on time- even if they don’t write back straight away, or refuse the offer

• Don’t give in to pressure and pay more than your fi nancial statement says, creditors will take advantage this!• If you start to struggle at any time with the information here please contact the Student Advice Centre on 0113 380 1300 or advice@luu.co.uk

Remember when you fi ll out your forms that...

Glossary of Terms:

Priority debts Debts which need to be paid fi rst, such as rent, utility bills, council tax, water. These have serious consequences for non payment, i.e. eviction, dis-connection etc

Secondary debts These are debts such as credit cards, store cards, bank loans. Non payment of these debts can lead to court action but not the loss of your home or bailiff action.

Creditor This is who you owe money to, a credit card company would be the ‘creditor’

Debtor This is yourself. Creditors may refer to you as a debtor.

Financial statementThis is a breakdown of your in-come and expenditure. Doing one of these allows you to see what, if, any money is left over to pay the creditors once your prior-ity debts are paid.

Arrears An amount of money that is overdue

Defi cit If you have no money left for creditors once you have com-

pleted a fi nancial statement this is called a defi cit. For example if you earned £500 a month but spent £600 on priority debts you would have a defi cit of £100 and therefore no money for your sec-ondary debts

Disposable income This is the amount left over when you have taken your outgoings from your incomings. Or paid your priority debts.

Default notice This is a notice that must be served by creditors before court action can commence.

Court Summons/ County court Judgement A set of forms that can be sent by a county court (also known as a county court judgment or CCJ) these allow you to show the court how much you can afford to pay in the form of a fi nancial statement.

Minimum repayment The amount the creditors request you pay each month

Hire purchase A way of purchasing items (usually cars or furniture) where the item is legally still owned by the credi-

tor until the full amount has been paid.

Pro rata Pro rata payments mean that you pay each creditor a fair amount of your disposable income based on how much you owe them. The creditor with the biggest debt will get the largest amount.

Token payments These are usually small payment of £1 or £2

Credit fi le/credit rating Your credit fi le is a fi le held by companies (usually Experian or Equifax) which creditors look at to decide whether to give you credit. If you have missed pay-ments, defaults or county court judgments on your fi le it can pre-vent getting further credit.

Debt collection company This is a company who may take over your credit debt. They will ask for payment in the same way as your original creditor and should be treated the same.