Debt
Talking to a creditor when you cannot pay
Creditors have processes for people in difficulty, and the worst outcome comes from saying nothing.
The instinct when a payment cannot be made is to avoid the phone, and it is the single most costly response available.
Why contacting them helps
Creditors in most regulated markets have obligations towards customers in financial difficulty.
Available measures typically include payment holidays, reduced payment arrangements, interest and charge freezes, extended terms and, in some cases, partial write-off.
These are generally available only to people who ask, and are frequently more generous earlier than later.
Avoiding contact produces the opposite: charges accumulate, the account defaults, the debt is sold to a collection agency, and enforcement follows.
Which means the phone call you are dreading is the cheapest action available.
Before you call
Preparation that changes the outcome.
Produce a statement of your income and essential expenditure, which is what any creditor will ask for.
Free debt advice services provide standard formats that creditors recognise and accept, which carries considerably more weight than a figure you have estimated.
List all your debts, amounts and who they are with.
Work out what you can genuinely afford to pay, including if the answer is nothing for a period.
Know which debts are priorities, since these are paid first and creditors of non-priority debts should be told they are receiving a proportionate share.
And decide what you are asking for, specifically.
What to say
Practically.
State plainly that you are in financial difficulty and want to agree an arrangement.
Explain the cause briefly — illness, job loss, reduced hours, relationship breakdown — since circumstances affect what is offered.
Say what you can afford, based on your statement rather than on optimism.
Ask for interest and charges to be frozen, which is a standard request and which prevents the balance growing while you repay.
Ask what the arrangement will be reported as, since this affects your credit file.
Ask for confirmation in writing.
And do not agree to a payment you cannot sustain, since a broken arrangement is worse than a realistic one.
Prioritising correctly
Where instinct is wrong.
Pressure comes from whoever contacts you most, which is not the same as the debt with the worst consequences.
Priority debts are those where non-payment risks losing your home, your energy supply, your liberty or essential goods: rent, mortgage, secured loans, energy, water in some jurisdictions, local taxes, court fines, child maintenance and tax debts.
Non-priority debts — credit cards, overdrafts, personal loans, catalogue debt, most buy-now-pay-later — are unsecured and are dealt with after priorities.
Paying a credit card while mortgage arrears accumulate is a common and serious error.
Your rights
Which vary by jurisdiction and share common features.
Regulated creditors must treat customers in difficulty fairly, which is a formal obligation in many markets.
Debt collectors are regulated as to contact frequency, timing and conduct, and harassment is prohibited.
You can request that contact be in writing only.
You can request proof that a debt is owed and that the collector has the right to collect it.
Debts become statute-barred after a period in some jurisdictions, which is a complex area where advice matters.
And enforcement requires a legal process, with defined steps and opportunities to respond — ignoring court correspondence is what removes those opportunities.
Free advice
Which should be the first call rather than the last.
Free regulated debt advice services exist in most countries, negotiate with creditors on your behalf, and produce statements that creditors accept.
They will explain formal debt solutions and their consequences.
They do not judge and they have seen far worse.
And anyone charging a fee for debt management is selling something available free, frequently with worse outcomes and sometimes with serious consequences.
What not to do
The responses that make things worse.
Ignoring letters and calls.
Ignoring court correspondence, which removes your right to respond.
Borrowing to repay borrowing, particularly from high-cost lenders.
Taking a consolidation loan secured on your home without advice.
Prioritising the loudest creditor.
Agreeing to unaffordable payments to end an uncomfortable call.
And paying a fee-charging debt company for what is available free.
Afterwards
Keeping it on track.
Keep records of every arrangement, in writing, with dates and names.
Review the arrangement when your circumstances change, in either direction.
Check that interest and charges have actually been frozen as agreed.
Check your credit file periodically to confirm the account is reported as agreed.
And build a small buffer as soon as any surplus exists, since the absence of one is what produced the arrears in most cases.
General information only, not financial or legal advice. Contact a free regulated debt advice service — do not pay a fee for help that is available free.
