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Late in Paying a Debt? Here are Your Options

late in paying a debt uk

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

Facing a late payment? Don’t Panic. It may not be as bad as it seems.  

Once you learn about all available options, you’ll see that all is not lost yet. 

In this guide, I’ll share some best practices and available options regarding being late in paying a debt, and also answer some FAQs to help you out.  

Let’s begin.

What Qualifies as Late in Paying a Debt?

First of all, how do you know that you’re late in paying a debt? 

Well, to put it simply, a late payment is the amount of money a borrower repays to a lender either after the due date has passed or after the specified grace period for the amount is over. 

In commercial terms, you’re late in paying a debt when it’s 30 days past the specified date to pay public authorities and 60 days past the specified date when it comes to a business payment.

How Bad Can it Get? – Interest & Additional Costs

Truth be told, there’s a number of things that can go very wrong, very easily, when it comes to being late in paying a debt. You need to be aware of the potential consequences you may face if you consistently mishandle your late payment situation.

For one, individuals and businesses are allowed to charge you recovery costs on late payments. This is troublesome, because then not only do you have to pay a fixed amount of money to the involved party as recovery, you can also be charged interest on a late payment.

The interest you may incur is referred to as “statutory interest”, and if you’re concerned about the specifics, you’ll incur 8% interest and the base rate for business transactions as specified by the Bank of England.

What’s worse is that your creditors aren’t legally required to inform you if they’ll be claiming interest on late payments or other compensation costs. 

Legally, you’re vulnerable and may incur a lot of financial damage via interest and other problematic add-ons.

payment terms

Identify Your Current Financial Situation

One of the most essential ways you can deal with being late in paying a debt is to be comprehensively aware of your current financial standing. If you can accurately assess where you stand and what you can afford to do, the sooner you’ll be able to get back on your feet.

With that in mind, here are some simple steps you can follow to identify your current financial situation.

  1. Determine your current net worth and analyse whether it’s likelier to go up or down.
  2. Keep close track of how and where you’re spending your money, and if more is going out that coming in. 
  3. Check how your investment plans measure up to your current priorities: Are you investing in the right place? Are you putting all your eggs in one basket? 
  4. Keep an eye on how much interest you owe.

Late Payments Options 

By now, you must be thinking:

“Okay, what options do I have to manage interest and recovery payments? How do I make sure that an unpaid debt doesn’t end with me having to face possible court action or some other unpleasant outcome?” 

Well, here’s a list of options you can consider in such a situation.

1.   Pay in Instalments (Debt Management Plan & Other Options)

You should consider informal arrangements with your creditor, such as paying the amount over a specified period with interest or forgiving debt recovery costs.

You can also discuss and agree to debt management plans with your creditor, which makes sure that you can keep paying the sum over time without having to face legal consequences or payments like added interest or debt recovery costs.

There are a few options you can enlist when you’re late in paying a debt, but most of them involve long-term agreements with creditors that can go very wrong if you keep failing to make your payments, such as a hit to your credit rating, added interest, or other legal consequences.

2.           Request Creditor for Payment Extension or Lower Interest

As you’ve probably noticed, a lot of your options involve individual agreements with your creditor. This, of course, means that the entire process is not linear, efficient, or always likely to turn out in your favour. 

With that in mind, one thing you can do is request your creditor to extend the deadline of your payment or reduce your interest.

You can make unofficial requests to a creditor via a hardship letter, which the creditor has the full right to refuse. Bear in mind that refusing to pay or being uncooperative can have serious consequences, just like outstanding debt on a credit card can.

3.           Bankruptcy

One more option you can look to avail under extreme duress is to declare bankruptcy. For a bit of background information, when you declare bankruptcy, you’re legally investigated and it is determined if you possess the assets required to pay off any money you owe.

If you don’t possess the required assets, your interest and the outstanding amount may be forgiven. Any possessions you have may be used to pay off what you owe. 

The bad news is that being bankrupt comes with certain financial restrictions, such as an upper limit on the amount you can borrow without having to tell the lender that you’re bankrupt or added interest on future loans.

If contacting your creditor and requesting them for an extension or an instalment plan doesn’t work, you may have to consider declaring yourself bankrupt.

4.           Try to Cut Costs & Increase Income

Keeping track of your living costs and your income and trying to establish a healthy fiscal balance in your life should be one of your top priorities. We often underestimate the importance of cutting costs, saving, and generating income from multiple sources.

Take a close look at your spending and target areas where you can easily cut some costs without having to remove any essential item or service from your lifestyle. Take a look at utility bills, groceries, and other expenditures, and try to opt for cheaper options.

One more thing you can do, if you’re looking to avoid being late in paying a debt, is to sign up for national insurance. You’ll get access to certain benefits for a longer time than most.

When you’re late in paying a debt, every penny counts. You need to have a good idea about credit management. Try some of these ideas, and you’ll be surprised how fast you make progress.

FAQs – All You Should Know if You’re Late in Paying a Debt

Can I be taken to Court for a Late Payment?

Yes, you can be taken to court in such a situation. If you agree to pay at least some part of the whole, your creditor may choose to not go to court. 

Creditors are likely to take you to court if you fail to pay the amount, even if it’s for a small debt recovery.

Do I have to Pay Additional Costs?

Yes, in most cases, you have to pay additional costs if the creditor wants you to. Payment legislation is pretty clear in this regard. This is primarily because creditors are legally entitled to ask for interest and costs in cases where you’re late in paying a debt.

How to Convince Creditors?

If you want to convince creditors to accept a lower payment than you originally owe, make a phone call or two, and try to offer a lump sum amount, if possible. For long-term plans, you often end up paying more than you originally owed, usually as interest, especially if you owe money to business owners.

You can convince creditors by knowing your facts, writing hardship letters, being genuine, and assuring them that you intend to pay at some point.

Can I Get Out of Debt Without Paying at All?

No, you can’t usually do this without paying anything at all, especially when you’re late in paying a debt. 

There are ways you can get close to doing so, one of which is declaring bankruptcy. But bankruptcy, along with most other options to get away without any payments almost always involve significant harm in the long run.

If you have a non-recourse debt, whatever asset you put up as collateral will be seized but your creditor cannot ask you for further payment afterwards even if the asset does not pay back your debt completely.

Can I Get Rid of Debt Collectors or Creditors at least Temporarily?

Yes, you can avoid a debt collection agency and creditors who are chasing debts, at least temporarily. Debt collectors basically help us collect money from those who owe us. You can avail legal options when you’re late in paying a debt, such as challenging the amount within a specified period after first contact with collectors.

If you’re having trouble with debt collectors, you may want to seek advice from an independent debt charity such as National Debtline or StepChange.

Wrapping it Up

I understand how frustrating it can be to find yourself in a situation where you’re late in paying a debt. It’s very important to be aware of your options and know what you can and cannot do.

I hope this guide helped you understand how to deal with late payments and excessive interest. If you need any more help, you can reach out to us through our email address and other contact details I’ve listed, and I’d love to help.


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