Borrowing Tips?

What you pay to borrow
Borrowing is in most cases an expensive way of buying something compared with saving up and getting it later on. Sometimes, you must have an item now and have no choice but to borrow, but often you do have a choice and therefore be aware of how much extra you’ll have to pay if you decide to borrow.

Borrowing wisely
• Consider saving up to buy later instead of borrowing to pay now. You not only save the cost of borrowing, but your savings also earn interest.
• Decide what sort of borrowing would suit you best, given the length of time for which you want to borrow and the cost.
• Borrow only if you have worked out in advance how to pay off the money.
• Borrow only if you are sure you can manage the repayments within your budget.
• Shop around for a competitive deal. Compare APRs to decide which deal is cheapest. But check for additional charges.
• Read the contract before you sign up. Make sure you understand what happens if, say, you want to pay off the loan early or you run into problems making the repayments.
• If you run into problems making repayments, don’t bury your head in the sand. Debt problems do not go away – they just get worse.
• If your debts get out of hand, get help.

All debts have consequences

Non-priority debts have less severe or less immediate penalties. However, they still need attention as the following list of legal and other consequences makes clear.

If you owe money to your bank, it is advisable to have your wages paid into an account elsewhere so that you can still have access to them (remember to set up new Direct Debit/Standing Orders to ensure payment continue to)

Catalogue debts are difficult to enforce if you have not completed a formal credit agreement. Ask for a copy of the agreement if proceedings are threatened.

NOW’S THE TIME FOR ACTION

The following information contains guidance about:

• How to prepare you

• How to prepare your Budget Summary of income and living expenses

• How to negotiate with priority creditors

• How to negotiate with other creditors

We’ve also included some standard forms & letters

The forms and letters at the back of this pack are specially designed for you to use when communicating with your creditors.

You will need more than one copy of each document so:

• Make photocopies before you start

• Keep the originals safe for possible future use

If possible, continue making payments to your creditors while you sort out your finances. Follow the guidelines below.

1. PAY PRIORITY CREDITORS in full if you possibly can – even if it means reducing or stopping payment to non-priority creditors. REMEMBER: Priority debts really should be dealt with first.

2. If you can, PAY SOMETHING TO ALL YOUR CREDITORS – even if it is only a token amount (it shows you are not trying to avoid your debts)

CONTACT CREDITORS AS SOON AS POSSIBLE

Creditors cannot help until they are aware of your circumstances. So let them know about your financial difficulties as soon as you have prepared your financial details. At the same time, you should ask them to confirm.

• The amount owing, including the arrears plus any changes

• Who is responsible for making payments

Please remember to keep a record of all communications with creditors – including a copy of each letter you send.

When replies are received:

1. Check whether you are responsible for paying the debt. Remember with the exception of Council Tax, husband and wife are not responsible for each other’s debts. So if YOU have not actually signed the agreement, YOU ARE NOT RESPONSIBLE for paying the debt. And you cannot inherit a dead person’s debt.

2. Check that the amount claimed is correct and make sure that all payments have been deducted.

A suitable Notification of Financial Difficulties (letter PDL1) is included at the end of this guide for your information. Follow the instructions on the letter and refer to the example when completing the boxes.

PREPARE YOUR WRITTEN FINANCIAL DETAILS

• List of Creditors

• Budget Summary of income and expenditure

You may need to estimate some figures at first. Update the forms:

• Whenever you get new information

• When you agree payment terms with individual creditors

INCLUDE ALL HOUSHOLD COSTS

Your ‘Budget Summary’ of income and expenditure should include:

• An allowance for occasional costs like necessary repairs & replacements

• Yearly costs such as your TV licence and irregular bills like fuel. Divide by 12 or 52 as appropriate for the necessary monthly or weekly figure.

At this stage, do not include any payments for arrears to priority creditors or any of the payments you make to non-priority creditors (you need to know how much you have available – if anything- to make offers to them)

REVIEW YOUR EXPENDITURE CAREFULLY

You should now review your expenditure to try to make savings. Creditors will expect your expenditure to be reasonable. So they may challenge your spending on essentials like food and fuel, as well as asking you to justify any money spent on holidays or other luxuries.

However, you may have to live on your budget for several years. So:

• Make sure your costs are realistic in relation to your circumstances

• Try to reduce non-essentials rather than basics such as food and heating

• Be honest about things like cigarettes that you spend money on

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