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Coping With Debts During Unemployment

By: Garry Crystal - Updated: 19 Oct 2012 | comments*Discuss
Unemployment Debts Coping Creditors

Long-term unemployment can bring stress and financial hardship, and mounting debts are one of the major worries. But there should be some debt options available that will help to ease the stress of accumulating debts during unemployment.

Make Debts a Priority when Unemployment Hits

For most people money worries will play a big factor during a period of unemployment. Mounting debt payments can add to other worries such as finding a job and paying bills. Credit card and loan repayments are not classed as high priority debts unless they have been secured on the home. But creditors who have not been informed of a change in financial circumstances will still expect regular payments in full every month. Keeping the creditors at bay will mean contacting them immediately to make them aware of the change in circumstances.

Check the Payment Protection Policy

It may be the case that Payment Protection Insurance (PPI) can cover repayments for a period of unemployment. Anyone who has taken out PPI with their credit or loan agreement should find that unemployment cover is included in the repayment scheme. The terms of what the PPI actually covers should be included in the credit agreement or may be on a separate policy. PPI will usually apply if the unemployment occurred as a result of sickness, redundancy or an accident. Payment Protection Insurance can cover mortgage and credit agreement repayments for as long as 24 months depending on the policy terms.

Renegotiate Credit Terms with Creditors

Renegotiating credit terms with creditors should result in lower repayment rates and/or frozen interest for a period of time. Creditors should be open to this option as it means they do not have to start recovery procedures. Renegotiating credit terms is not something to panic over. Simply telephone or write to the creditor explaining the financial situation and propose the rate that can be afforded. Don’t succumb to pressure from creditors to pay more than can be afforded. If possible, set out how long the renegotiated repayments are likely to last.

Don’t Panic if Creditors Refuse to Renegotiate

There will be creditors who will be less than open to renegotiating credit terms. This is often a common bluff used by certain credit companies in the hope that customers will pay more than they can actually afford. If a creditor refuses to renegotiate then simply explain the financial situation calmly and state how much can be realistically afforded. The only option open to creditors is to call in debt collection agencies or use a County Court Judgement. Most creditors will not want to use either of these options unless it is a last resort. Don’t succumb to pressure from creditors; a County Court Judgement will usually mean creditors will end with up the lowest payment from debtors.

Take a Stronger Approach with Creditors

If creditors are being unreasonable then consider bringing in professional help. This means contacting companies such as the Consumer Credit Counselling Service (CCCS). By doing this, creditors will then realise that the debtor is fully aware of their legal rights. Calling in the CCCS means that certain creditors will not chance using harassment methods for fear of being reported. Creditors will also be aware that the debtor is taking the matter seriously and knows the options that are available. The CCCS is a free debt help, charity run agency that can provide help with creditors.

Working Out New Repayment Rates

Sitting down and setting out a budget will help to assess how much can be paid to creditors. Included in the budget should include:

  • All income coming into the household including benefits
  • All expenditure including all debts, household expenses, mortgage payments, transport costs
  • Work out how much disposable income is left every month
  • Assess how much can be paid to each creditors; this should be a minimum payment that can be comfortably afforded
  • Make any secured debts a priority
  • Contact all creditors in writing with payment proposals
  • Enquire about the likelihood of interest being frozen for a period of time
  • Send a copy of a budget sheet or Statement of Affairs (SAO) to creditors with the payment proposal; SOA sheets are available from the Citizens Advice
It may be hard to avoid but stressing over debts will not bring a viable solution. Taking a proactive approach immediately and contacting creditors to make them aware of the situation is the best solution. Unemployment is a stressful enough time without harassment from creditors. Customers do have legal rights and protection from creditor harassment. The CCCS and the Citizens Advice should be contacted by anyone who is having trouble coping with unmanageable debts.

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