Cannot afford debt collectors? Check the debt and your options

When a letter from a debt collector drops through your door, it can be a shock. You might feel worried and wonder where the debt has come from. You might question if you have to pay for it. And you might worry about what to do if you can’t afford to pay. If this is you, don’t worry; we can help.

This guide explains how to check a collection demand and compare options if you cannot afford a valid debt.

In this article, we will help you understand:

• How to check if the debt collector is real.
• How to find out if the debt is really yours.
• What to do if you can’t pay the debt.
• How to set up a payment plan.
• Ways to write off some or all of the debt.

We know that dealing with debt collectors can be scary. But with the right advice, you can take control and find a way forward.

Let’s get started.

Is My Debt Valid? 

A demand may be wrong, disputed, time barred or unaffordable. These are different situations: none should be treated as an automatic write-off without checking the facts. For example:

• An old ordinary contract debt may be subject to limitation or prescription. The debt type, jurisdiction, starting date, payments, qualifying acknowledgements and any court proceedings matter. See related guidance.
• Coercion, misrepresentation or unfair terms may provide grounds to challenge an agreement, but the effect depends on the facts and law. Obtain advice before assuming the whole debt is invalid.
• If a lender failed to assess affordability properly, a complaint may lead to redress. That does not automatically cancel the principal or make every outstanding payment unenforceable.

Being an Additional Authorised Cardholder

In the case of credit card debt, if you were an additional authorised cardholder on someone else’s credit card account (for example, your partner or spouse), then the credit card company cannot ask you to repay their debts. These debts are always the responsibility of the primary cardholder. 

Being Under the Age of 18 

Liability for a contract made while young depends on age, jurisdiction and the type and circumstances of the agreement. In Scotland, general legal capacity normally begins at 16. Do not assume every phone contract or everyday purchase has the same enforceability rule; obtain advice about the actual agreement.

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What Can I Do if My Debt is Valid and I Can’t Afford to Pay it? 

If you’ve been contacted by a debt collection agency (or debt collection agencies) regarding debts that are definitely valid and you can’t afford to pay them, then you may have to start considering other options. 

Each option has eligibility rules, limitations and possible consequences for assets or credit records. Prioritise essential living costs and get free debt advice before committing.

Debt Management Plan (DMP) 

A Debt Management Plan is an informal arrangement to repay eligible debts through an affordable payment. Free providers include StepChange and PayPlan; PayPlan is a commercial free-to-client provider, not a charity.

If you go to a private debt management company, they will most probably charge you a fee for handling the plan throughout its entire duration. This fee is normally incorporated to be a part of the monthly payments you would make to your creditors. 

A DMP can reduce monthly payments, but may lengthen repayment. Creditors are not bound to freeze interest, stop contact or accept the proposal, and provider fees can reduce the amount reaching creditors.

While a debt management plan may seem like a great option, there are certainly some downsides to it as well that you should be aware of. 

Firstly, a debt management plan does not protect you from your creditors like an IVA or a DRO does. Your creditors may still contact you about your debt throughout the course of your debt management plan and this could be a source of great stress for you. This also means that they could take legal action against you regardless of your debt management plan. 

Reduced or missed contractual payments can affect your credit record. A DMP does not guarantee protection from default reporting or legal action.

Individual Voluntary Arrangement (IVA) 

An IVA is a formal insolvency arrangement supervised by an insolvency practitioner and subject to creditor approval. Contributions, duration and assets are governed by the proposal; it is not just an informal repayment plan.

Successful completion can release qualifying included debts under the arrangement. Excluded debts and the effect of failure need separate consideration; there is no guaranteed write-off percentage or complete ban on all necessary communication.

An IVA can involve substantial fees, asset or home-equity provisions and consequences for employment and credit. Compare alternatives with independent advice. See related guidance.

Failure to comply can lead to termination and renewed creditor action. An IVA normally remains on the credit file for six years from its start, and longer if it has not ended; it is not invariably removed one year after completion.

Debt Relief Order (DRO) 

In England and Wales, a DRO may be available where qualifying debts do not exceed £50,000 and the income, asset and other eligibility conditions are met. The former £30,000 limit is obsolete. Northern Ireland has a separate application system; DROs are not available in Scotland. See related guidance.

A qualifying applicant must satisfy the current restrictions on income and assets, including home ownership. During the usual 12-month moratorium, included creditors face statutory recovery restrictions; excluded and ongoing liabilities still need attention.

Qualifying included debts are normally discharged at the end if the DRO remains in force. This is not a universal prohibition on every letter or legal step, and circumstances must be reported to the official receiver. See related guidance.

A DRO is recorded on the insolvency register and normally stays on the credit file for six years. Report relevant changes in income or assets; the official receiver decides whether a review, extension or revocation is required.

Should I Give Money to Debt Collectors? 

If a debt collector contacts you or shows up at your house, you don’t need to give them money in cash during that point even if your debt is legit. It’s a much better choice to go over what options you have. After that, you can set up a payment plan with the debt collector at a later time after you’ve considered what you can realistically afford. 

Always remember that a debt collector does not have any extra-legal authority and he/she cannot strong-arm you in any way. If you do, at some point, happen to give money to a debts collector that showed up at your residence, be sure that you see their ID first and always get a receipt for your payment. Never let a debts collection agent pressure you into paying more money than what you can afford. 

Is the Debt Collection Agency Contacting Me Legit? 

This is the first thing that you should find out as impersonating a debt collector is a very common way in which scammers extort money from people. 

You may truly have a debt with a collection agency but it’s important that you confirm this to be true first. 

Ask for the creditor’s identity, an itemised balance, the basis of liability and the sender’s authority. Disclosure rights have limits and do not mean every internal document must be supplied on demand.

Verify the firm independently and check FCA permissions where the activity requires them. Companies House registration alone does not authenticate a demand or prove that a debt is valid. See related guidance.

Once you have verified the contact, address any dispute, deadline or affordability problem promptly.

Take the first step towards tackling your debt

Every day, our partner, The Debt Advice Service, helps people understand their options for dealing with debt. Their debt advice is free, with no obligation to proceed.

MoneyNerd introduces you to The Debt Advice Service. We do not provide debt advice or recommend debt solutions.

Natasha

Very helpful and informative thank you

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I’m in a Vulnerable Situation, Should I Let my Debt Collectors Know About This? 

Dealing with collectors can be a lot more challenging if you are in a vulnerable situation. Vulnerable situations can vary a lot in terms of severity. For example, you could be dealing with the loss of a loved one at the time or you could be dealing with a chronic mental or physical illness. Other difficulties may include general anxiety in regards to speaking over the phone or struggling with a learning disability. 

If you are suffering from any such difficulty when a debt collector contacts you, it’s important to let them know but without disclosing too much personal information. This will help them understand your situation so that they can better negotiate your repayments.