Dealing with Debts
Below is some general advice on how you might go about managing your debts. However, we strongly advise that you seek professional help with managing your money problems, especially if you feel the situation has got out of your control (e.g. if court action has been initiated). Your bank if they are student-friendly, or the Students' Union Advice Centre , should be your first port of call.
Tips for dealing with debts
1. Prioritise your debts. Ideally, you will be able to offer some monthly payment, however small, to all your creditors. But first of all, debts should be prioritised not on the basis of which are the largest, but based on the legal remedies open to creditors and the potential consequences of failing to pay certain debts. You should agree arrangements for paying all your priority debts first and then assess whether you are in a position to make offers to non-priority creditors.
Examples of priority debts include:
-Debts such as council tax, fines, maintenance payable under a court order, compensation orders and tax - should be prioritised because court action or seizure of goods and even imprisonment are potential results of non-payment.
-Rent arrears, loans secured on your home and utility charges (gas, electricity and water) are another group to be prioritised to prevent loss of your home or disconnection of supplies.
-Debts to LSE itself may also be a priority for you since your exam results or degree may be withheld until payment is made
-Debts to relatives, friends or other students may also need to be prioritised if you are hoping to rely on those people for future support, or, for example, if your debt will lead to serious financial problems for the person who lent you money.
If you are having difficulty deciding which debts are priority debts or persuading a non-priority creditor that another debt should be treated as a priority then contact the Student Union Advice Centre or aCitizens Advice Bureau
for advice.
2. Don't avoid contact with creditors. Inform them of problems as early as possible and be honest. They are more likely to give you time to pay if you do this.
3. Don't avoid contact with your bank. Banks are generally much friendlier if you approach them before you go over your authorised overdraft limit, and they begin to receive your bounced cheques. Remember they are the experts in money management, and some will even have special student advisers.
4. Keep copies of all correspondence. This means everything from bank statements to the letters you send yourself. If you make contact by phone, ensure you obtain the name of the person you speak to and note the date of the call.
5. If you feel those you have contacted so far have been unsympathetic, write directly to the senior in charge of debt collection. Remember that they are likely to be more sympathetic if a third party is involved (e.g. a welfare or bank adviser) since this demonstrates that you have been sensible enough to seek help.
6. If matters have already become serious, ask creditors to freeze interest at the point at which you make them a realistic offer of monthly payments (see the repayment guide above)
7. Keep your promises. Having drawn up a financial statement offering a certain amount every month, you must stick to it if possible! Creditors will lose any sympathy they might have had for you if you mess them about without good reason. If your circumstances have changed and you are no longer able to meet agreed payments you would need to explain this to your creditors, provide them with a new financial statement and ask them to agree to accept amended payments until your circumstances improve. If your circumstances have changed, remember to ensure that you have first made provision for paying priority debts.
8. Remember your rights.
A debtor cannot be sent to prison for non-payment except in the case of certain debts such as Council Tax, income tax, National Insurance, maintenance payable under a court order, child support and fines. Similarly, a debtor cannot be prosecuted in the Criminal Court (only in the County Court) except in the case of these and similar debts seek advice if you are not sure. Having said that, County Court Judgements have serious implications; they can affect your credit rating for many years, and if you are sued for a debt you will not only have to pay the debt with interest, but will also be expected to pay substantial court fees and costs. The company that sues you may also charge fees for their administration in issuing the original summons. All this means is that is makes even more sense to deal with your debts before things are taken this far.
-Harassment is illegal no matter what you owe. Harassment is defined as attempting to coerce a person to pay a debt by making demands which subject a person to "alarm, distress or humiliation, because of their frequency or publicity or manner" (Administration of Justice Act 1970, section 40).
Harassment includes actions such as falsely claiming court proceedings may be instituted or have been instituted, or that property may legally be seized in lieu of payment without the permission of a court. Harassment also includes making nuisance visits of phone calls or using abusive or threatening language in correspondence or conversation. Credit card and mail order companies etc. will often send numerous threatening letters to try and make you pay them because they know that a court will not consider them a priority debt. Don't be intimidated into paying more than you can afford
Sorting out repayments:
Here's one example of how you can begin to deal with your debts before things go too far. Again, this is best done with a welfare advisor, or a bank advisor to help.
1. Set a realistic budget for yourself, establishing how much you have available to pay creditors once you have allowed essential expenditure on food, travel and rent etc. (if you drafted a budget at the beginning of the year, this should be easy. If not, see our "general advice" page for help)
2. Remember that certain "ongoing" bills such as water, electricity and gas will need you to make sufficient payments to cover the charges you are still accumulating (i.e. the water, gas etc. you are still using) plus an amount towards the outstanding debt.
3. Contact all those you owe money to and find out exactly how much you owe in total.
4. After you have made arrangements to deal with your priority debts and have allowed for essential expenditure such as food, toiletries, travel costs and rent divide any remaining money you have available amongst your non-priority creditors on an equitable basis - this means working out each debt as a percentage of the total debt you owe to all your creditors. Then you should divide the amount of money you have available on the same percentage basis. For example, if your total debt was £200, and you owed one creditor £100, as a percentage that would be 50% of your £200 total. If you had £20 a month with which to repay your debts, you would offer 50% of that £20 to the creditor to whom you owed £100 - which would be £10 a month.
5. Draw up a financial statement that details all the figures you have worked out above: show income and essential expenditure, highlight exactly how much you have left for repayment of non-priority debts every month, and finally list the total you owe to each creditor and the amount you are offering to pay each month on the basis of equitable distribution.
6. This process may take some time, but it will allow you to demonstrate to each creditor that you are making them a realistic offer. Remember that a small but regular payment is better than none at all.
7. Send a copy of you financial statement to each creditor with a covering letter explaining the difficulties you have been experiencing, asking for interest to be frozen henceforth on the basis of the monthly payments offered in your financial statement. Ask the creditor to send you a paying in book or standing order form. Finally, advise your creditors that you will keep them informed of any changes in your circumstances. You could point out that you will make an improved offer in the event that your financial circumstances improve if you think this is likely to happen.
8. Keep copies of all correspondence with your creditors, and make notes of phone calls detailing the date and the name of the person you spoke to.
