Debt problems among older people are growing. Figures from one of the major charities which assist people with debt show that one in ten of those that come for help are over 60. Over the last 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 £31,719, only slightly lower than the £33,144 owed by the age group with the biggest debt, 40 to 59-year-olds.
There is nothing wrong with credit. It allows us to spread our income out evenly over our lives and buy expensive items when we need them. The interest we pay is the price for that convenience. But sometimes credit goes 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 in work becomes unaffordable on a pension. If you wake up worrying about your debt or if it stops you sleeping then 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 (remember 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 Claim It, It’s Yours! available from www.saga.co.uk/money).
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. There are three major national charities that
will help your through your problems. Their websites can give you lots of
information about debt and how to deal with it (see box 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 who 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. They 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 that 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 that they would succeed. 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 £1000). In
Scotland a similar plan is called a Debt Arrangement Scheme.
If you have a court judgement against you but your debts are less than £5000 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 it will not be put at risk. 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 are in rented accommodation, have debts you cannot repay, and you are willing to put up with the inconvenience of being a bankrupt then it might be the answer for you. Once you have been made bankrupt your debts are written off. You pay whatever you can from your assets and you may be expected to contribute towards your creditors from your income for at least a year. If you later inherit money then you may have to use that to repay your creditors. Bankruptcy will stay on your credit record for six years. And that will mean it is almost impossible to get credit or even a normal current account. Official figures suggest that the number of people over 65 who are going bust is growing.
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 legal phrase simply
means that you both are responsible for all the debt. And the lender will come
after 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 then they are paid from your estate. Your heirs will have to sell your assets, including any home you own, to pay them. But if the total value of what you leave is less than the total you owe then your heirs do not have to pay any net debt which remains.
Contacts
Consumer Credit Counselling Service
www.cccs.co.uk tel 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 Scotland
www.aib.gov.uk
In
Northern Ireland go to
www.adviceni.net or
www.citizensadvice.co.uk
July 2009