Dealing with debt

4 min | 21 March 2022

Janice Warman

For many people, the years of the COVID-19 pandemic will have a lasting effect. They may have lost their jobs, their careers and even their homes and might have built up large debts. So where do you start if you are in this position?

First, remember that although you may feel alone, there is help out there for you. The first step is to seek it out. You can start with the Citizens Advice Bureau’s detailed advice on debt and money (Opens in new window).

Second, take a deep breath, find a quiet moment, a cup of tea and sit down. It might be scary to finally write it all down, but the first step is to look at it all. Make a list of all your debts, along with the interest rates and regular payments expected.

Third, assess which debts have the highest priority. These are debts that could have very serious consequences, such as mortgage or rent arrears (where non-payment could lead to your eviction) or bills for essential services (such as gas or electricity).

Fourth, find out what you can do to manage the rest of your debt. Get a glass of water, collect all of your information together, call the bank and explain what's going on. They'll help you figure out a way to manage your repayments, called a debt management plan. You may want to start with your bank, but also talk to your mortgage provider and card issuers. The best form of action is always to maintain contact, explain your position, and ask for lower payment options. The payment holidays offered during the height of the pandemic are over, but many lenders will still seek to help borrowers where possible. The same applies to utility companies, so you can keep the light, heat and internet on.

Before you phone your bank, draw up a budget. Include your income and your foreseeable, regular expenses, such as food and transport, and make a monthly allocation for payments towards your debts. 

One woman found that her freelance income fell sharply during COVID-19, and she ran up credit card debts just to keep food on the table. Soon, interest payments on her cards were forming a large chunk of her outgoings each month, and she was trapped in a vicious circle that involved taking out more credit cards and an overdraft on her bank account, just to meet those minimum card payments.

‘I eventually decided to call a hard stop to it all,’ she said. ‘I thanked my lucky stars that as I live in the UK, I have free healthcare. But it was frightening how quickly the debt built up, and the interest on it was so sky-high that I despaired of ever paying it down.

‘I contacted my creditors, and they were prepared to let me pay a reduced amount each month.’

‘As my income started to increase again, I managed to get a loan to pay off one of the credit cards. The interest on that was just 1.5%, against 24.2% on the card.

‘Once I was making regular payments again, I switched my mortgage to a lower-interest deal, which saved me £200 a month. I went through all my insurances and utilities and shopped around for lower deals on all of them. When I was offered an upgrade on my mobile, I switched to a sim-only deal, so my monthly payment dropped from £50 per month to £20.

‘Not having a regular income does make things more difficult, but now that I have got on top of my debt, it also makes me more cautious. I think that’s a good thing. I have now nailed down all my outgoings to the minimum.

‘I’m also careful now to put aside money for my tax. At my lowest point, I had used that money for day-to-day costs, and I had to ask HMRC to let me pay the tax I owed month-by-month. I’m not completely out of the woods yet, but I’m on the path, and I can see the light at the end of it.’

However small your steps towards freedom, the minute you begin to work towards your goal, you will feel better.

Resources:

Moneyhelper.org (Opens in new window)

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