General debt questions

We’re sure you have many questions about being in debt, and at PayPlan we’re happy to answer all your queries.

Find below a list of frequently asked questions about debt in general. If you think you need practical debt help then feel free to call us on 0800 316 1833 or send us a Debt Help Request so we can call you back.

I am now living abroad, what will happen to my UK debts?

It may seem appealing to move abroad to escape UK debts, the person in debt can run but they can’t always hide. Creditors have been known to stop chasing those they can’t find, however moving abroad doesn’t always mean they can’t find the debtor.

Creditors use the following tactics to trace debtors, talking to neighbours at their debtor’s last known address and tracing their activity through using cash. In some cases creditors have relations with other credit companies in that country, making it easier for them to find you. Once the creditor knows which country you are in, they can trace you relatively quickly and start pursuing you for the debt.

So it may seem a good idea to move abroad and leave your debts behind, but the creditors can and probably will find you and demand the debt is repaid.

You should ideally establish a repayment agreement with the creditors before leaving the UK. There are many options to clear your debt, even if you no longer live in the UK, for example bankruptcy, IVAs or DMPs.

PayPlan can offer advice on all UK debts even if you no longer live in the country, however if you are abroad you should make it a priority to make a payment agreement with your creditors. If you fail to make a payment agreement your new life in a new county could be affected as your credit rating may result in you being unable to get jobs or a simple bank account.

Should I consolidate my existing debts?

PayPlan strongly advise against consolidating your debts, even though it seems to be the first debt solution people consider. Paying off existing debt with new debt can lead to numerous problems, including:

• Your level of debt increases because of high interest rates or by being persuaded to borrow more than you need. Many consolidation companies understand you can’t mange your debts so they exploit this and charge high interest rates (APRs)
• Securing your debts to your property. Many companies only consolidate for homeowners as they secure the debt to your property. Therefore if you don’t keep up with the contractual payments it can lead to them repossessing your property.

There are alternatives available if you are considering consolidation such as a Free DMP or an IVA, contact Payplan for further advice.

Should I secure my loan to my property?

Covering your debts by securing them to your property is rarely a good idea. For any secured loan the creditors can repossess your property if you fail to make the repayments. The future is very unpredictable and unforeseen events can sometimes make it impossible for you to make the payments on your debts, if the debt is secured and the situation continues you are at risk of having your house repossessed.

I am self-employed, am I liable for the business debts?

The liability for business debts depends on the type of business you are involved in.

For example

• A Sole Trader is responsible for all business debts, in exactly the same way as they would be for personal debts. If they are unable to pay they may be made bankrupt.
• A Partnership will have an agreement that defines the share of each partner; you will be liable for your share of the debt.
• A Limited Company is a legal form of business that exists independently of the people involved. The shareholders and directors aren’t held personally responsible for any business debts, unless they have acted as guarantor.
• Some businesses are run by Co-operatives, which are governed by the Industrial and Provident Societies Act and not the Companies Act. The profit made by a co-operative company is not distributed to its shareholders but goes back to the company. This type of company protects its shareholders from responsibility for any company debts.

Are there any organisations/charities who could help me with an emergency loan or grant?

There are charities, which may help people who are suffering financial hardship, but they all operate under strict rules to prevent abuse. Families who are suffering particular hardship and students are sometimes eligible for emergency loans or grants.

There are a number of loans that are given out depending on your circumstances.

• A budgeting loan
• A crisis loan
• Community care grants

For more information please contact your local free advice centre or Benefits Agency.

Am I able to claim Working Families Tax Credit, and where can I find out if I am eligible for any other benefits?

“Working Families Tax Credit” was introduced in October 1999, to replace the existing benefit “Family Credit”. The Inland Revenue administers it, but it is a completely separate system from Income Tax and should not be confused with Tax Allowances. Any family, whether the parents are married, unmarried or lone parents, who have one or more children living with them, work at least 16 hours per week, live in the UK and have savings of less than £8000 may be entitled to this benefit.

To see if you are eligible for Working Family Tax Credit or any other benefits why not carry out a Benefits Check-up.

For more information please contact your local Benefits Agency.

Can my mortgage lender take action if I am in arrears?

Yes your mortgage lender can take action to recover the property if you have failed to maintain the payments to your mortgage (or other loans secured to the property). You can try to negotiate an arrangement with them to repay the arrears but they can still proceed with court action and repossess the property. For more information see House repossession.

I am in arrears with the Hire Purchase on my vehicle, what should I do?

Firstly establish that the loan is in fact a Hire Purchase agreement and don’t get it confused with an ordinary personal loan. However if payments have been missed on a HP agreement the hirer may try to repossess the vehicle but this depends on how much you have repaid.

If you have paid more than a third of the debt

The creditor will apply to the court, which will issue you with a ‘Claim Form’, which gives you the opportunity to return the goods yourself. You will also receive an ‘Admission form’ which gives you the opportunity to make an new offer of monthly payment to the creditor, this form should be returned within 14 days. If the creditor agrees with the payment you offer you will be able to keep the HP item. However if they refuse the payment they will get a ‘Return Order’ from the court, this order forces you to return the goods.

If you have paid less than a third of your debt

Asking the creditor to agree new terms can prevent you losing the HP item, for example if you have missed payments but can now afford them and can pay a little extra towards the arrears, offer this to the creditor. Altering the length of the loan, the interest rate and/or the monthly payments could be achieved by asking the court for a ‘Time order’.

A Hire purchase loan is a priority debt, so these monthly payments (along with a mortgage and secured loan) should be made in full before you make your unsecured credit payments.

How can I pay off my debts quicker?

There are number of things you could do which include:

• If you are able to obtain new credit cards or loans with lower interest rates, you could merge as many of your creditors as possible. Some companies have an initial 6 or 12-month period where they will charge 0% interest during that time. Throughout this period you should try and pay off as much debt as possible. 0% Balance transfers are good, but ensure you cut up the cards as soon as they arrive, to remove temptation to spend more.
• If you are unable to obtain further credit (with a lower interest rate) and are unable to maintain even the smallest payment each month, you should contact PayPlan on 0800 316 1833.
• The simple way to pay off your debts quicker is by paying more than the contractual payment, but only if your income and expenditure allows it.
• Cancel your repayment insurance – for example a typical high-street loan for £10,000 over 5 years would cost you £11,673.60 to repay, based on an interest rate of 6.4%. But should you opt for repayment insurance you will need to pay an additional £2,576.40 for the privilege, which is more than a quarter of the amount borrowed and would take longer than 5 years to repay the loan and repayment insurance.

PayPlan strongly advice you not to take out consolidation loans, as they may not solve your problem. Do not be talked into a secured loan against your property.

NB – Before taking any other credit, please make sure that the contractual monthly payments can definitely be afforded.

I have taken out credit at an extortionate APR, what can I do?

There is no legal definition as to which levels of interest are extortionate. It really depends on your own circumstances.

It can be argued under the Consumer Credit Act 1974 that you have entered into an arrangement where the APR was unreasonable. The factors that will be taken into account are:

• Your age, health and experience.
• Any financial pressure you may have been under when you took out the loan.
• The risk which was accepted by the creditor.
• The interest rates current at the time of the agreement.
• The amount of the loan.
• Whether or not you were fully aware of the contract and its terms.
• If any independent financial advice was taken.
• If there were any inducements to enter into the agreement.
• If the lender entered into the agreement with the knowledge that you were likely to be unable to keep up the payments.

For further information on this subject contact your local Trading Standards Office.

More Information on debt

For definitions of all debt terms visit PayPlan’s glossary.

For immediate and free debt advice please call PayPlan free on 0800 316 1833 or use our Debt Help Form to submit your debt problem online.