Paul Lewis
Over the past four years the average debt of its older clients has grown by 18%, a bigger rise than for any other age group. In 2008, clients over 60 owed an average of £31,719, only slightly lower than the £33,144 owed by the age group with the biggest debt, 40 to 59-year-olds.
Credit allows us to spread our income and buy expensive items we need. The interest we pay is the price for that convenience. But credit can go horribly wrong. Then we call it debt. That usually happens when life takes a bad turn – we lose our job or a relationship ends. Or credit we could cope with in work becomes unaffordable on a pension. If debt worries stop you sleeping, it is definitely time to ask for help.
First steps
Write down all that you owe. That includes outstanding amounts on credit and store cards, personal loans, money owed to catalogues, unpaid bills, overdrafts, and any money you have borrowed from doorstep lenders. Never throw bills or warning letters away unread.
Some debts take absolute priority because they can lead to homelessness, ill health, bailiffs, fines or prison. They include rent or mortgage, fuel bills, council tax, income tax, and TV licence (it is free once you reach 75). Other debts can also lead to serious consequences if you ignore them. Any creditor can go to court and if you fail to comply with a court order can send bailiffs to seize your goods. You should also check you are claiming any state benefits that may help with your council tax or income (see my leaflet Claim It! It's Yours... - downloadable from here).
Set out a budget of your income and your necessary expenditure for living and paying towards your priority debts. Any surplus should then be used for paying towards other debts. Start with the ones that charge the highest rate of interest. Every credit agreement has to tell you the rate, called the APR. Contact all your creditors and tell them what you are doing. They may agree to stop charging interest if they see you have a plan to repay them. That process can be very daunting and professional help is usually needed.
Getting help
Never pay for debt advice. Three major national charities will help you. Their websites give information about debt and how to deal with it (see below for details). If you call them they will negotiate with your creditors and come to an agreement which they believe you can keep. You will then pay that much to the charity, which will distribute it to your creditors. As long as you keep up the payments you should not be hassled or troubled by creditors who have agreed. However, some banks now sell their debts to third-party collectors, who will often be much harder to negotiate with.
If you search for help on the internet the lists you get will be topped by commercial companies that charge you and may offer varying standards of advice. Even if you are told that someone else will be paying the cost, it is better to stick with the charities. They are there to give free, accurate and fair advice and help. Some commercial firms claim they can get your debts written off. They say many banks and other lenders have failed
to observe the strict legal rules about lending money and that the courts would therefore not enforce the debt. Their claims are untested and there is no guarantee of success. These companies will always want money from you before the matter reaches court. So they will win whatever happens. Avoid them.
Involving the courts
If a debt management plan will not sort out your debts you can consider more formal alternatives.
A Debt Relief Order (DRO) is a new process run by the Government’s Insolvency Service. It applies to people with debts of less than £15,000 who have at least £50 a month of spare income and no significant assets or savings above £300 (a car can be worth up to £1,000). In Scotland a similar plan is called a Debt Arrangement Scheme.
If you have a court judgment against you but your debts are less than £5,000 the court can make an Administration Order. More formal is an Individual Voluntary Arrangement (IVA). You do a deal with your creditors – the ones owed three-quarters of your debt have to agree – and pay back what you can afford over five years. At the end of that time if you have kept up the payments any remaining debt is written off. Once an IVA has been agreed your creditors cannot take any other action against you. If you own your home you will have to sell it. The plan is supervised by the courts and run by a qualified insolvency practitioner. In Scotland a Trust Deed is similar to an IVA.
The final option is bankruptcy (or sequestration in Scotland). It is a major step and the court can force you to use all your assets, including savings, to repay your debts. You may have to sell any valuables, including your car and your home. So it is generally not a good idea for homeowners unless your mortgage is close to or above the value of your home. But if you pay rent, have debts you cannot repay, and are willing to put up with inconvenience, it might be the answer. Your debts are written off. You pay what you can from your assets and you may be expected to contribute towards your creditors from income for at least a year. If you inherit money, you may have to use it to repay creditors. Bankruptcy will stay on your credit record for six years making it almost impossible to get credit or even a normal current account.
Final thoughts
If you are part of a couple and you have taken on debts jointly then you have what is called 'joint and several liability'. That simply means that you both are responsible for all the debt. And the lender will target the partner who is the most likely to be able to pay. Even if you divorce or split up the full debt remains attached to both your names.
If you have debts when you die they are paid from your estate. Your heirs will have to sell your assets, including your home, to pay them. But if the total value of what you leave is less than you owe, your heirs do not have to pay any net debt which remains.
Where to go for help
Consumer Credit Counselling Service www.cccs.co.uk (0800 138 1111).
National Debtline www.nationaldebtline.co.uk (0808 808 4000).
Citizen’s Advice www.citizensadvice.org.uk – put in your postcode to find your local bureau. www.adviceguide.org.uk offers free advice on debt.
The official insolvency service, England and Wales: www.insolvency.gov.uk
In Scotland, go to www.aib.gov.uk
In Northern Ireland, go to www.adviceni.net or www.citizensadvice.co.uk
Written by Paul Lewis, this article was first published in the September 2009 edition of Saga Magazine. Paul's opinions are his own and for general information only. Always seek independent financial advice.