Dealing with debt

Information

How debts can get out of control

Unless you pay cash for everything, you have debts. Any form of credit is a debt. It is only when you are unable to keep up with the payments that credit becomes a problem.

When something unforeseen happens, such as becoming unemployed, you might find that you can't keep up your payments or even pay your everyday bills. At this stage you may feel unable to contact your creditors and tell them you are having problems with payments.

This is often what happens next:

• Missed payments and letters from creditors
• Borrowing money to pay bills and catch up with arrears (more debt)
• Paying whichever creditor is putting on most pressure
• Making promises to pay unreasonable amounts (because of fear or embarrassment)
• Broken promises and more pressure from creditors
• Legal action

Getting help

If you are not coping, it is very important to get help. The free Money Advice and Budgeting Service (MABS) can help.

They have a range of resources on their website to help you to deal with debt yourself. They also provide face-to-face help and support services around the country.

How to deal with debt by yourself

Most creditors are very understanding when they know you are having difficulties. If nobody contacts them to tell them what's wrong, they think you just haven't bothered to pay.

The following steps may help you

Make out a full budget (what it costs to live for a full year). Try using the MABS personal budget calculator form here.

Your budget should include all living expenses, otherwise you will make offers of payment you won't always be able to afford. For example, winter is more expensive than summer (more heating, more expensive clothing and footwear, Christmas, etc).

You should include the costs of education, health, travel, job searching, clothing and footwear in working out your budget and adjust this to a weekly amount.

You will not spend this amount every week but it will give you a better idea of what you can afford. Many people would be surprised to find out how much the average family would spend on the basics in a year.

Prioritise your expenses

The roof over your head, heat, light and food are your main priorities. After this, you must list your expenses in order of importance. You must be honest with yourself about expenses like cigarettes, alcohol, etc. See what expenditure you can reduce.

Contact your creditors

When you have completed a budget and you are reasonably sure of your expenses, make a list of your creditors and what you owe them. Talk to the creditors and explain your difficulties. Tell them that you have other creditors, that you have a limited amount of money to be divided between them and that you are trying to be fair to all of them.

If your problems are temporary, give them some idea of when they might expect full payments. If you can't be sure of when this will happen, tell them so.

If your problems are long-term, be honest and tell the creditors you may never be in a position to make the original payments. If interest is being added and this means you will never have the debt paid, ask them to suspend interest.

What will happen if you ignore the problem

The problems will get worse if you do nothing. If your creditors have taken legal action, do not ignore the letters. If you get a legal letter about a debt and you don't hear from them again for some time, don't assume they've forgotten about it - it won't go away. It is very important that you make contact with the creditors or their solicitor.

There is a series of court hearings in the debt collection process. The court will give you a chance to tell it what you can afford to pay - if you turn up. Otherwise the judge will just decide on a weekly amount but won't have any idea of what you can afford. If you are to appear in court, make out a financial statement (income, expenses and debts) and leave it into the courthouse for the attention of the judge a couple of days before the hearing. Send a copy to the solicitor for the creditor too.

Some things to remember before taking out a loan

• Do I need it?
• Can I afford it?
• If I haven't been able to save for it, can I afford the repayments?
• How much will I have paid for the credit in total - including interest and charges?
• Is this the cheapest way of buying the goods?
• Will the loan outlive the goods - what will happen when I have to replace it?

Also remember:

• Borrowing to pay off debts or other loans can often lead to bigger problems.
• If you don't understand a document - don't sign it.
• Never borrow money from an unlicensed moneylender.

Rules

Demanding money with menace

Under Section 11 of the Non-Fatal Offences Against the Person Act 1997 it is an offence to demand payment of a debt in a way designed to alarm, distress or humiliate. This also covers both blackmail and extortion. (Extortion means using intimidation or the threat of violence to obtain money, information or anything else of value from another person).

If someone is charged with this offence and it is tried as a summary offence (that is, in a District Court by a judge only) the maximum penalty is €1,270 and or 12 months imprisonment. If tried as an indictable offence (that is, in the Circuit Criminal Court or Central Criminal Court before a judge and jury) the maximum penalty is a fine and or 14 years imprisonment.

Rates

MABS is a free, confidential service. All staff are highly trained with expertise in money management.