Debt During Coronavirus

Coronavirus has impacted many of our jobs and if you weren’t in debt already, it’s more likely that you will be in the coming months. Here’s my replies for those of you that asked a question on Twitter (don’t forget to follow!)

What happens if I ignore my credit card payments?

If you ignore your credit card payments the creditor will likely take you to court and lodge a CCJ against you and then the courts can force you to pay. This CCJ will appear on your credit record for 6 years and make it harder for you to get a loan, credit card or mortgage in the future. I have a full article on CCJs here.

How can I ensure that my credit score isn’t damaged?

First and foremost you need to make sure you pay your bills on time. If you’re unable to pay, call up your creditor and explain your situation. During this Coronavirus crisis, many lenders are putting in place special payment plans to support you when you’re tight on funds. If a payment plan or payment freeze is put in place, this won’t impact your credit report.

Consider registering with the electoral role to further boost your credit score.

By the way, a recent law means you can now get your credit score for free. I recommend Experian’s free credit report as this is what most lenders use to assess your credit-worthiness. Don’t worry, checking your score doesn’t impact your score in any way.

I’ve lost my job, how should I prioritise my debts?

Focus on things that keep a roof over your head. Things such as rent or mortgage, electricity and gas, council tax etc. Only once you have these covered, then move on to ‘non-priority’ debts like loans and credit cards. StepChange has a good article on priority debts vs non-priority debts.

Check out my debt options post for detailed guidance on how to get out of debt.

I’m coming up short every month, how can I make some extra cash?

I could write a book on this subject, in fact, there’s a short summary post here. There’s two ways to improve your finances. Make money and save money. Think outside the box when making money, what can you sell and what quick and easy things can you do online to make a few extra quid. When saving money, there are bill switching services like Look After My Bills which will save you hundreds, but also think about the simple things like reducing your mobile phone bill.

What support is available from lenders?

Most lenders are now offering some sort of payment arrangement to support you in these hard times. For example some credit card and loan companies are giving payment breaks of up to 3 months, or offering to reduce the monthly payment.

Other lenders are also helping by increasing your credit limit if you need a little extra to make ends meet. Careful with this one, as you’ll have to pay it back eventually!

What debt options do I have?

The five main debt solutions

There are five main debt solutions:

Snowball Method – if you can afford to make the minimum payments on your debt, then this method to become debt-free is almost definitely your best option. The great thing about the snowball method is that it actually improves your credit score, whereas the other options will damage it.

Debt Management Plan (DMP) – this solution has you paying less than the minimum every month and the lenders stop charging interest. Ideal for a short period if you have, for example, lost your job.

Individual Voluntary Arrangement (IVA) – this solution works well if you owe over £6,000 and need to protect your house from being repossessed.

Debt Relief Order – is suitable if you have debts of less thank £20,000, have barely any income and don’t have a house.

Bankruptcy – is for many people the fastest way to way to hit the reset button. Don’t be put off, there’s a lot of stigma around the word ‘bankruptcy’, however, it could be the right thing for you to do.

Further resources:

I’ve covered just the top of the iceberg here. For more in-depth debt help analysis I recommend Debt Camel’s article and the StepChange guide on Coronavirus debt.

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