Five of the most common debt questions answered

At the end of March, debt charity StepChange reported it had experienced the busiest days in its history over the previous three weeks, even busier than during the financial crisis. 

Britons are looking for help with their finances in record numbers as the coronavirus pandemic and the lockdown of the country has seen huge numbers of people furloughed or made redundant, and 1.4million people turning to Universal Credit.

We asked StepChange for five of the most common questions worried Britons have been asking, and the answers to them, in the hope this will help out many of our readers with similar questions.

All the questions were answered by Andy Shaw, debt advice coordinator at the charity, while it also has a page dedicated to the crisis.

1. I can’t pay my credit card/overdraft/personal loan this month, what can I do?

While we’d encourage you to continue paying your regular monthly payment if you can afford to do so, the Financial Conduct Authority has announced plans to order banks to offer further support to those with overdrafts, loans and credit cards.

This support includes:

• If you’re in Scotland, the Government has extended the moratorium period to protect those who are in debt from six weeks to six months. During this time, creditors aren’t able to take debt recovery action against you. The limit of one moratorium period per year has also been overturned.
• If you’ve got a debt problem you can apply for a moratorium at any time, although we recommend you seek debt advice first. It’s important to be aware that a moratorium does not freeze interest or charges, but stops court enforcement action. 

2. I was sent a letter earlier this year about my persistent credit card debt, will I still need to increase my payments?

If you have a persistent debt that your credit provider’s told you to increase your payments on, the FCA has relaxed these rules for the time being. 

The deadline for customers to respond to persistent debt letters has been extended until 1 October 2020. 

They’ve also been given more time to increase payments on any persistent debt.

Persistent debt is classed as someone paying more in interest, fees and charges than they’ve paid off their credit card balance over an 18 month period. 

FCA rules required banks to identify these debtors and encourage them to up their repayments, which could potentially have led to their cards being suspended if they did not.

However this has also been shelved due to the coronavirus outbreak. 

3. How will taking a payment break affect my credit file?

Credit reference agencies have confirmed that taking a payment break won’t affect your credit file if you’re currently up to date with your repayments to a mortgage or a loan.

However, if you’re currently in arrears on a mortgage or a loan, you’ll need to speak to your lender to find out how they’ll report any payment break to your credit file. 

Your credit rating may be affected, which could make it harder to remortgage or borrow more money in future.

4. I’m struggling to pay my utilities bills, what help is there available?

If you’re struggling with payments for a gas, electric or water bill, contact your supplier to let them know. They’ll discuss your options to help you repay the arrears. 

There are also other sources of help available such as grants and financial assistance schemes that can help you if you’re struggling to pay your energy bills.

In some situations, they’ll have further support available for customers who are struggling with money, although help varies between suppliers.

If you have a pre-payment meter, some foodbanks can also help by giving you a small top-up if you’re out of credit.

It’s important to contact your suppliers if you’re struggling, as gas, electricity and water bills are priority payments. This is because of the actions your suppliers can take to get you to repay arrears. If you miss payments to gas and electricity bills, your providers could cut your supply off.

5. Can I apply for a payment break if I’m already on a Debt Management Plan or IVA?

If you’re on a debt management plan you might be struggling to make your payment, and worried about what impact this might have. If you can afford to continue paying your regular monthly payment then we’d encourage you to do this.

If you’re seriously affected by coronavirus, you’re struggling to make your payment or if you’d like to make a reduced payment, you should contact your DMP provider. 

If you’re with StepChange it will, in most cases, amend your payment to reflect your situation. 

It’ll also talk with you about what you can do until you’re in a position to review your budget and make your monthly payment again.

If you’re on an individual voluntary arrangement we recognise that many people might struggle to make their payment, and what impact this might have.

Again, if you can afford to continue paying your regular monthly payment then we’d encourage you to do this. 

If you don’t think you’ll be able to make your payment, or can only make a reduced payment, you should contact your IVA provider as soon as possible. 

You’ll need to send evidence including full details of your income and expenditure if your circumstances have changed.

If you’re going to miss a payment, please contact us by email as soon as possible.