What can a debt adviser do to help?
It’s Debt Awareness Week in the UK, a week aimed at de-stigmatising debt issues and helping people in problem debt get the help they need from an adviser.
One of the reasons we need this week is that people feel terrible about being in debt, but often don’t seek help before things reach a crisis point. This can be because of shame and fear of judgment, but it can also be because they don’t know how an adviser could actually help.
There’s a perception that budgeting is the only permanent way out of debt, as if once you’re in debt your only options are:
a) misery-misery-misery-bankruptcy
b) live on bread and water (also miserable) until everything’s paid off
I’m leaving out consolidation loans here because those aren’t a solution to debts, just a way to change the type of debt. All too often people who consolidate their debts into a loan keep over-spending and end up in worse trouble than they were before.
Before we go any further understand I’m talking about the advisers giving free advice at debt advice charities. I am not talking about fee-charging advisers. While some fee-charging advisers do give good advice, sadly many give biased advice aimed at pushing you to an unsuitable (but profitable) outcome. To find a reliable, free adviser go to one of the organisations listed here.
The thing is that debt advisers are actually legal experts specialising in the debt law. They know about the legal and regulatory frameworks surrounding lending money, enforcing payment of debts and the protections that people in debt have against being driven into unreasonable hardship. They also know the codes of practice lenders claim they stick to and can spot when they’re not doing that and hold them to accountable. That means that they can find solutions that you or I wouldn’t necessarily know about.
Let’s look at a few of those solutions.
Showing you don’t actually owe the money
Sometimes people are worried about a debt that they are not in fact legally responsible for paying. Some examples might be:
spouse’s debts - unless you signed the contract too, your husband or wife’s debts are often their problem. (There are a few exceptions like utilities, Council Tax and TV Licence for a shared home.)
inherited debts - when a person dies their debts must be paid out of the money and assets they leave behind (their estate), but if they don’t leave enough behind to pay off the debts, then the remainder of the debt dies with with person.
debts where the paperwork is incorrect - did you know that if a lender gets their paperwork wrong they forfeit the right to collect the money they lent you? Now you do!
All of these issues are more complex than the few sentences I’ve given you here, but they illustrate the general point. Sometimes you might not need to pay what you think you need to pay and a debt adviser can get the creditors to back off.
2. Getting interest and charges frozen, so it’s easier to repay
Actually you may be able to do this yourself. Instructions for how to go about it are in National Debtline’s How to Deal with Debt Guide. This is an early step in everyone’s debt advice journey. When you’re being drowned in late fees and interest on your interest, stopping that flow is vital.
Typically fees and charges would be paused for three to six months with a review at the end. The aim is to give you time to find a more permanent solution
3. Maximising your income
Many debt advisers are also familiar with the benefits system and know of grant-making charities that can get you money to help with some of your debts. For example there are specialist charities that can help with gas, electricity and water arrears. Helping you find income you didn’t know you could get is a part of a debt advisers job. They are also good at spotting insurances you may be ale to claim against. Or charges you should never have paid that could be reclaimed.
They may also be able to help you cut your costs in ways that would help you get your books better balanced.
4. Negotiating lower repayments
A debt adviser will be able to help you prioritise which debts need to be paid off first, based on the consequences of not paying. Then they can help you develop a repayment plan that is actually affordable while still leaving you money for a frugal but realistic lifestyle. This may mean that some lenders who have been bugging you for more money may actually be low priority and will have to suck it up and accept that you’re only going to give them a token payment of, say, £1 a month for the foreseeable future.
NB this can affect your credit rating, but you shouldn’t let that stop you. It’s usually better to take the hit in the short term and then rebuild, than carry on and miss payments leading to more stress and a worse mess.
5. Writing off all or part of your debt
Sometimes a debt adviser will be able to convince a lender that you will never be able to repay them in full. The creditor might then agree to write off all or part of the debt. If you have a pot of money (eg an insurance pay-out, some savings, the proceeds of selling something valuable etc) your adviser can negotiate with the creditors to share this out fairly between them and ask them to write off whatever’s left over. Since something is better than nothing many lenders will go for this.
Alternatively, the adviser could plead your case that you’ll never be able to pay and it’s costing the creditors more in staff wages trying to chase you than they’ll ever make back. This may convince the creditors to cancel the remaining debt.
Again these solutions will affect your credit record, but, in my opinion, they’re well worth it for the peace of mind. Also lenders are unlikely to accept either of these options unless you’re really struggling and things aren’t likely to get better, for example, if you’ve had to give up work due to an injury or sickness. If that’s your position, I’d suggest prioritising your wellbeing over your credit rating.
6. Suggesting the right formal solution
Sometimes insolvency is the right answer. That might be bankruptcy, an individual voluntary agreement (IVA), or a debt relief order (DRO). I’m not going to go into the difference between these solutions here but suffice to say if a debt adviser suggests one you should consider it carefully. People get scared of formal debt solutions but they’re a protection, not a punishment. It’s unreasonable for you to spend decades paying down debts. If the alternative is a DRO, bankruptcy or an IVA you should consider it.
Each solution has its pros and cons and terms and conditions attached. Read these carefully and make sure you understand what you’re doing and that it really does meet your needs before you sign up.
I hope this helps you understand what a debt adviser could do to help and why it can really help to speak to them as quickly if you’re struggling with debts.
If this post has helped you, have a listen to these two episodes of my podcast, Squanderlust:
Episode 11: Interview Money A + E - I spoke to two former debt advisers about how their own experiences of financial troubles inspired them to help others.
Episode 23: Debt Advice Avoidance - Why do people delay getting advice? We talk about the psychology and give an overview of what happens when you meet with a debt adviser.
If you’re not yet missing payments and you’re pretty sure your debts come from overspending, in other words you think you could pay them back with some lifestyle changes, here’s some inspiration from people who have done just that.