Student Finance - Dealing with Debt
This section is not only useful to students who are currently in debt, but also for students who may have a limited amount of money available, and may be interested in understanding debt so that they can prevent getting into such a situation.
This section aims to provide some basic information on debt and guidelines for dealing with debt. It covers information on understanding debt, prioritising debts, financial analysis and negotiating with creditors.
Dealing with Debt
- Maximising your income
- Calculating your expenditure
- Organising your debts into a priority order
- Negotiating with your creditors
Step 1: Maximising Your Income
Step 2: Financial Analysis of your Expenditure
The most effective way of doing this, is by taking your total weekly income and deducting the total weekly expenditure. Do not include the amount you owe to creditors, as these are debts that will need to be negotiated. The calculation will tell you how much you have available. Alternatively, your expenses may exceed your income. In this case, you will need to identify by how much you need to increase your income to break even. You can use the Calculator to assist you.
Having calculated how much you have available, you need to make a list of the amount you owe to each creditor.
Step 3: Prioritising Your Debts
With these types of debts, it is crucial that they are dealt with promptly. So if you are threatened with disconnection, court summons, eviction orders, etc, it is important that you contact the creditor immediately and negotiate a plan that is right for both of you.
Non- Priority Debts
Non-priority debts include personal unsecured loans; debts; rent arrears from a previous tenancy; debts to the ; or .
Having established the risks involved with each debt and the prioritisation order it is important that you start contacting the various companies to negotiate a suitable re-payment plan.
Step 4: Dealing with Creditors
Please remember that any repayment plan will have to include not only outstanding payment but also maintain any new bills accrued.
Credit Debts - Having come to an agreement with the priority debt creditors, you now need to review any other money available for other non-priority creditors to arrange a repayment plan. It is useful to create a Financial Statement that includes:
- Weekly income
- Weekly expenditure
- Repayment plans made with Priority Creditors
- What you can offer them
Although the above information provides some general advice, it is important that you follow the basic rules outlined below for dealing with creditors.
Basic Rules when dealing with creditors:
- Take immediate action
Do not try to ignore the problem. It will not go away. The earlier you make contact with your creditors to advise them of your financial difficulty, the more lenient they will be with you in arranging a suitable re-payment plan with you.
You can make contact either by telephone or in writing. In either case it is important that you state how eager you are to sort out the debt. However, if you do make telephone contact, remember to take the representative's name and ensure that you follow up the conversation in writing to avoid any later complexity. If you do write to the creditors, always quote their account reference number and keep a copy of the letter for future reference.
- Do not make promises that you cannot keep
If an agreement has been made, make sure that you keep it. Check that with your income and expenditure you can afford it. Once you have started the repayments, keep them up on time with the correct amounts. If there is a likelihood that you can not make one payment advise them before the occurrence.
- Regular payments
It is better to make smaller regular payments rather than occasional large payments, as it is harder to plan and manage bigger amounts. The additional benefit is that if regular payments are maintained the creditors will be kept happier.
It is illegal for creditors to harass debtors.
Although the law gives authorisation to creditors to re-claim their money, there are also provisions made to protect the debtor. For example, you cannot be evicted from your accommodation if you miss one rent payment and have full intention to pay it back. Formal channels and processes need to be followed. If you are concerned of the legalities, please contact your local who will be able to give specialised advice to your circumstances.
However, in addition to the four steps outlined above, there are some basic rules that you can follow in any situation.
- Do not ignore the mounting debts or hide them - they do not go away.
- Never leave bills and unopened
- Once you have realised that you can't cope, ask for advice before the situation deteriorates.
- Most creditors will talk to you and will be prepared to accept a realistic plan of debt repayment.
- Do not get into more debt to pay other bills. Seek advice first.
- Resist paying more demanding but lower priority creditors large amounts from , , or other income. There is a danger that you will not have enough to cover future expenses such as food and rent, which might take you back into debt.
Alternative information and advice on dealing with debt can be obtained from visiting your local or telephoning the National Debt-Line on 0645 500 511. Not only do both of these organisations provide free and confidential advice but they also provide free handouts on self-help debt management guides.
Please note that the above information is only provided as a general guide and it is recommended that with any debt situation, you seek detailed advice from relevant sources as suggested above.