Student Finance Centre

In debt? Take control

If you're a University of Portsmouth student and worried about debt the information on these pages will be of use to you, or if you would rather talk to someone first please contact us. Our Financial Advisers can provide one-to-one, confidential debt counselling advice to help you reduce your debt. We will provide the support you need to contact your creditors, and make the necessary arrangements to set up easy-to-manage payment plans. We can also give you information about external organisations that can help, for example the Citizens Advice Bureau.

Don't ignore your debts

Your debts won't go away just because you ignore them. If you act now you can prevent the situation getting worse. Follow the five steps below and you'll be on your way to taking control of your debt.

  • Step 1: Identifying and prioritising

    Identify and prioritise your debts:

    1. Make a list of all of the money you owe. Be honest with yourself and make sure you include everything.
    2. Now categorise them. Debts fall into two categories: Priority and Non-priority debts.
    3. Priority debts are the most important and should be dealt with first.
    What is a priority debt?

    Debts are normally categorised as 'priority' if non-payment of these debts will give the creditor (that is the person you own money to) the right to deprive the debtor (that is you) of their home, liberty or essential goods or services.

    The following types of debt are considered priority:

      • Mortgage/rent arrears
      • Secured loans
      • Council tax
      • Gas and electricity
      • Fines, maintenance and compensations orders
      • Tax, VAT and National Insurance
      • Hire purchase for essential goods (essential for debtor to retain for example, oven, cooker, fridge or a car in absence of suitable public transport)
      • TV licence
    What is a non-priority debt?

    These are the debts that remain after you have identified your priority debts. These debts cannot be ignored but should be dealt with once repayments are in place for any priority debts you have.

    These will normally be:

      • Credit cards
      • Unsecured personal loans (including your student loan)
      • Bank overdrafts
      • Water bills (companies are not allowed to cut off your water supply)

    Now continue to Step 2 to work out what you can afford to repay to your creditors.

  • Step 2: Work out your repayments

    Communicate

    Make contact with your creditors immediately to let them know your situation. Don't ignore these creditors - it will just make the situation worse.

    Determine what can you afford to pay

    You need to work out how much money you can spare each month after meeting your essential costs. The best way to do this is to draw up a monthly budget planner (.pdf). In order to use the planner effectively, make sure you are thorough and include all costs you can think of. It also helps to identify any areas where you might be able to cut back (non-essential expenditure). The planner works on a monthly basis as this is how frequently your repayments will be made. Most creditors work in this way. You can use our expenditure tracker (.pdf) to follow your weekly spending.

    Tips for planning a budget on a monthly basis
      • If you pay a bill weekly, multiply the payment by 52 and divide by 12
      • If you pay a bill quarterly, divide payments by 3
      • If you pay Council Tax, remember you only pay for 10 months of the year

    When you have completed your monthly planner you will be able to identify how much you can pay towards your priority debts.

    Not got enough?

    If you have a negative balance (for example, you are spending more than your income) think of how you can reduce your expenditure. Contact us for advice.

    Continue to Step 3 to find out how to deal with your priority debts.

  • Step 3: Priority debts

    Take action now!

    The general rule is to deal with priority debts quickly and effectively. It is strongly advisable to seek the help of a debt counsellor when dealing with this type of debt. Contact us to arrange an appointment with one of our Financial Advisers.

    If you have more than one priority debt our Financial Adviser will be able to help you identify which one to deal with first:

      • Contact the creditor immediately to prevent further action being taken.
      • Negotiate your repayments. The amount, conditions and time to repay.
      • Ensure you are clear about agreed actions, for example how much to pay, to whom and when.
      • Monitor your agreed actions. Keep in touch with your adviser!
      • Once you've set up arrangements for your priority debts, start to plan how to tackle any non-priority debts.
    Keep on top

    Start any repayments immediately! Keep the creditors happy by setting up a direct debit.

    Get it in writing

    Always ask the creditor to confirm any agreement in writing.

    Continue to Step 4 to find out how to deal with your non-priority debts.

  • Step 4: Non-priority debts

    Probably the fairest way to deal with your non-priority debts is to use something called the 'pro-rata distribution' method. This calculation divides your repayments according to the amount that you owe:

    1. Money left for non-priority debts
    2. Multiplied by amount of individual debt
    3. Divided by total amount of all debts
    4. Equals monthly offer you make to creditors

    This calculation may mean that the amount you are offering is very small compared to the amount owed but it is far better to make small regular repayments than to make larger offers you are unable to keep up with.

    An example

    Rachel has worked out a budget and has no priority debts to meet. Her monthly surplus income is £29 and she has the following non-priority debts to repay:

      • Banana Loans: £950
      • Apple Finance: £800
      • Pear Credit: £590
      • Total debts: £2,340

    Starting with the 'Banana Loans' the calculation is as follows:

    1. £29 (money left for non-priority debts)
    2. Multiplied by £950 (debt to Banana Loans)
    3. Divided by £2,340 (total amount of all debts)
    4. Equals £11.77 (monthly offer to creditors)

    Rachel uses the same calculation for all of her non-priority debts:

      • Banana Loans offer: £11.77
      • Apple Finance offer: £9.92
      • Pear Credit offer: £7.31
      • Total: £29 per month

    Tip: Include your workings when making offers of payment.

    If the creditors see that you have been fair, they are more likely to accept your offer. Do not make offers of payment that you will not be able to meet as this will make any further negotiations more difficult. We have provided example letters in Step 5.

    Persevere!

    If the offers you have made are genuine don't give in if you are sent a refusal letter.

    Continue to Step 5 to find out how to take action.

  • Step 5: Take action

    It is now time to send your offers to the creditors.

    We've put together an example of an offer letter, which you can amend so it is suitable for your individual situation.

    If you completed your personal budget planner and have no surplus income each month, you could send your creditors a nil offer letter to see if they will hold off any action for a short period while you try to increase your income or reduce your expenditure. Please feel free to ask our Financial Adviser to check your letters before you send them.

  • Additional information

    • How do the court systems work?

      If you ignore any of your debts for too long then you may be threatened with court action. This is normally a last resort for most companies because it costs them money, so if you enter negotiations early on you could prevent this.

    • Does it matter if I go to court?

      If you do have to go to court, it can affect your chances of getting any further credit, for example it will affect your credit rating. If you are unsure about your credit rating you can order a credit report, which shows all the information potential lenders see and can cost as little as £2. For further details visit Experian or Equifax or you can contact us.

      Most debts are dealt with by County Courts but in some cases, if the debt is one that is a criminal offence not to pay, for example Council Tax, it may be dealt with by a magistrates' court. The decision of a county court is known as a 'judgement' whereas the decision of a magistrates' court is called an 'order'. Once a County Court Judgement (CCJ) has been issued against you, this will be recorded on your credit file. It can be removed if you pay the debt within 28 days however, if you take longer than this to clear the debt, it will stay on your file for six years, which could again affect any credit you apply for in the future.

    • What happens if I go to court?

      Using the court system can sometimes be a good thing. You will be asked to provide a financial statement showing your income and expenditure. The court can use this to decide what you can afford to pay to the creditors. If you have been negotiating repayments with a creditor but they have not accepted any of your offers, the system can sometimes work on your favour. You will be ordered to make repayments but at a level you can afford and the creditor will have to accept this.

      You can only be sent to prison for non-payment of certain debts like Council Tax. Not for credit card debts.

    • Administration orders

      If you have at least one CCJ against you as well as other debts (not totalling more than £5,000) you can request an 'Administration Order' from the court. This means you make one affordable payment to the court, which is then divided amongst your creditors. This can be helpful if you have a large number of creditors and have difficulty keeping track of the repayments.

      It is important that you always seek professional advice before considering either an Individual Voluntary Agreement (IVA) or bankruptcy. Contact us for further information.

    • Individual Voluntary Agreement (IVA)

      An IVA is often described as an informal bankruptcy because it should always be considered before bankruptcy itself.

      IVAs allow you to enter into a legally binding agreement with your creditor. These agreements will cease any further action the creditor may wish to take and the whole process is overseen by an insolvency practitioner.

      IVAs are legally binding, so you need to be sure you will be able to meet your repayments and should only be considered if you have at least £100 to £200 available each month to make repayments.

    • Bankruptcy

      If you are dealing with high levels of debt then you may start to consider bankruptcy as an option. There has been a lot of media attention surrounding bankruptcy and in particular, how students are affected. You may have heard stories about a loophole in the system, which allows Student Loans to be written off if you are declared bankrupt. It was possible for a short time for any students with loans taken out from September 1998 to have these loans discharged if they declared themselves bankrupt. This is no longer the case. The Government closed this loophole with the introduction of the Higher Education Act 2004.

    • Debt Relief Orders (DRO)

      Introduced in April 2009 as an alternative to bankruptcy, they are available to those with debts of up to £15,000, assets of less than £300 and an assessed surplus income if less than £50 a month. Debts can then be discharged after 12 months. During the time the order is in force protection is offered from enforcement action by creditors but should the client's financial situation improve during the order, arrangements must be made for repayment of the debt. DRO applications are made to the Official Receiver.

      We would strongly advise anyone considering bankruptcy to seek advice from the Student Finance Centre or another professional debt counselling organisation such as the Consumer Credit Counselling Service (CCCS) to get all the facts before any decisions are made.