What the Creditor Will Expect from a Debtor

When you have overcome the initial contact with a creditor you will enter into a payment arrangement period that can range from a month to an indefinite period.

You may be told that they will accept a reduced payment for three months, then you will be expected to resume normal payment and reduce the outstanding arrears, or that your case will be reviewed in 6, 9, 12 months…

You will be expected to increase your payments pro-rata when you pay-off creditors or if your financial circumstances improve. If you had debts due to unemployment and you get another job it could be tempting to leave the reduced payments ‘just for a while’. You run the risk of losing the complete co-operation of all creditors, which could be far more costly than simply paying a bit more. In serious situations the creditor will know that the debtor is unlikely to ever resume normal payment, or even repay the debt.

Whatever the situation or arrangement, you will be expected to complete an Income & Expenditure Statement every six months (some creditors every three months). You must return these requests promptly, and factually. After a period these requests may seem more regular than they are. Accept them as a small price to pay (literally).

Should I Take Out a Loan to Repay My Debts

In almost all debt situations the question of taking out a further loan to repay a debt will confront you. The advice you will receive from most debt counsellors would be an emphatic ‘NO’. But that is not always the most realistic answer to debt. Sometimes taking out a further loan can be a good long-term answer, as well as an obvious short-term solution.

If you are in employment, and your position is secure, you need to work out your finances in a similar way to the Income & Expenditure Statement. If you find that taking out a five-year £5,000 loan at £120-130 per month will settle debts that cost, say, £300 per month at present, you should take out the loan (together with learning your lesson).

If you have debts through weekly collected credit (supplied through door to door loan sales/collectors) the loan rates are normally (nearly always) too high to consider taking further loans to reduce a debt (whatever they may tell you). However, obtaining a loan through lenders with acceptable rates to pay off a door collector should be considered. Many weekly loan customers are of an acceptable standard to major loan services but they have never tried to get a loan as they carry on a family tradition of weekly loan credit.

The two questions that you need to answer are:

• Is a further loan a long-term solution?
• Am I serious about getting out of debt?

If you answer no to either question, avoid any further debt.