The Debt Handbook

Credit has become an everyday fact of life for many people and provided it is kept under control, it can be a useful tool in managing your finances. Many of the big expenses in life would not be possible for most people without taking out credit, such as buying a home or going to university.

Borrowing like this is fine as it is usually planned in advance and you will have thought about how you will pay the money back. When credit becomes necessary to fund your everyday lifestyle though, you may find yourself trapped in a downward spiral of constant borrowing simply to make ends meet. And when you reach the point of not being able to repay your credit this becomes a debt which could have a knock on effect on your household finances and make paying essential items very difficult.

Our Debt Handbook has been put together to provide a step by step guide to dealing with your debts if you feel they’re getting out of hand. This can seem like a scary process to start with, which is why we’ve broken it down into manageable stages.


It is not a crime to owe money
Don’t be scared of court action – it can help solve your problem
It is never too late to tackle your debts.

If you are unsure about what you owe or whether your debts are something you should be worrying about, The Money Advice Service (, has produced a ‘Debt Test’ to help you get an overview of what you owe by answering a few simple questions. Try it out at

The steps outlined in this guide may be enough for many people to work through their debt problems themselves. However if there is anything you feel unsure about or if you feel you would like to speak to someone in person, help is available. See our Who Can Help? section for details of local organisations that can provide free, confidential advice online, face-to-face or over the phone.

1. Get in touch with creditors

As soon as you realise your debts are becoming a problem you should contact your creditorsto let them know you are aware of the situation and will are taking it seriously. Do not ignore any letters or phone calls from them, no matter how tempting it may be to bury your head in the sand – the problem will only get worse. You can also ask creditors to hold action on your account. This means they will not take any further action for the time being and will give you a chance to seek advice and consider your options. They may also be prepared to freeze the interest being charged to your account so you know your debt isn’t increasing even further. Sample letters can be found at including one to ask creditors to hold action on your account.

It’s really important to make sure you stay in touch with creditors throughout the process of dealing with your debts, and let them know what you’re doing to try and resolve your problems. This will help them to help you in whatever way they can.

2. Work out your budget

To work out your budget you need to know how much income you receive and how much you are spending each week or month (choose whichever is easier for you to work in – remember to stick to the same timescale all the way through your budget though) and then take away the amount you spend from the amount you have coming in. Our Budgeting section will talk you through this in more depth.

3. Money for creditors

Once you have worked out your budget, you should know how much money you have left over at the end of each month. If you have nothing left, you have no money for creditors and you will need to tell them this. You can find sample letters at including one to help you ask your creditors to write off the debt due to your circumstances. If you do have some money left though then this is money you can use to start clearing your debts and you will need to decide how to use it to pay your creditors. Move on to the next stage to see how to do this.

4. Priority debts

Once you know what money you have available for creditors you need to prioritise your debts. If you don’t pay certain debts (known as ‘priority debts’) you may face higher penalties than if you do not pay other ‘non-priority’ debts, for instance if you don’t pay your rent then you may lose your home, while if you do not pay your water bill there is limited action the water company can take. A full list of priority debts is below, along with what might happen if you do not make an arrangement to pay.

Priority Debt Possible Result
Rent arrears Loss of your home
Mortgage arrears Loss of your home
Council tax arrears Bailiffs/imprisonment
Electric / Gas arrears Electricity or gas cut off
Magistrates fines Bailiffs/imprisonment
Child maintenance Imprisonment
Income Tax Arrears Bailiffs/imprisonment
VAT arrears Bailiffs/imprisonment
Hire Purchase arrears Repossession of HP goods

If you have debts in any of these areas don’t panic, but make sure you act quickly to avoid action being taken against you. See our Types of Debt page for more information.

You must pay these debts before any others.

If you owe money to a loan shark they may try to pressure you into paying them rather than meeting your priority debts. If they are an unlicensed lender however they have broken the law and cannot force you to repay any money you owe them. See our page on Loan Sharks for more information on what you can do if you suspect you have taken a loan from an unlicensed lender.

5. Paying Your Priority Debts

Next you need to work out how to divide what money you have available between your priority creditors. You must pay these before considering making offers to other creditors. Contact each lender and offer them what you have worked out you can afford. Don’t worry if this seems a small amount – it’s better to make an offer that you can afford and stick to it than to try to pay more than you can manage. If the person you first speak to when you contact your creditor cannot help you then ask for a supervisor or manager. Try and get things in writing if you can; if you prefer to ring then make sure you get the name of whoever you speak to and note the date of your call and any agreement made.


Ian and Jane Brown have the following priority debts:

Rent arrears £600
Electricity bill £130
They agree to pay £3 per week off their rent arrears.

The electricity company agrees to install a pre-payment meter. Their electricity will then cost them a total of £14 per week – £12 per week for the electricity they use plus £2 per week off the arrears.

Debt Amount
Weekly / Monthly
Rent arrears £600 £3.00
Mortgage arrears
Secured loan arrears
Council Tax arrears
Electricity £130 £2.00
Magistrates Fines
Maintenance arrears

6. Paying your other debts

After paying for your living expenses and making allowance for your priority debts, you may have little or no money left. If this is the case, you will need to write to your creditors to let them know. Go to Stage 7 – Writing to Creditors to see how to do this.

If you do have some money left to pay these debts, you have to divide it fairly between creditors so that the creditor you owe the most to receives the biggest share of the money. This is known as a pro rata offer.

You need to know the exact amount of money you owe to each of your creditors. If you do not have this information, write to the creditor and ask them for it.

Add up all of the owed amounts to get a figure for your Total Credit Debts. Make sure that for each of your creditors you work out the offer in the same way so that it is fair. Using a calculator, divide the amount owed to each creditor by the Total Credit Debts and multiply by the amount of money you have left to pay these debts.


Ian and Jane Brown have the following credit debts:

Newhouse Catalogue £168.00
Eastern Trust Bank Ltd £460.00
Flexible Card £325.00
Easicheck Financial Ltd £153.00

They have £5.00 per week left over after their budget and paying their priority debts.

For each creditor, they do the following calculation (using a calculator):

  1. Take the amount owed to the creditor
  2. Divide it by the Total Credit Debts figure
  3. Multiply the result by the Money for Credit Debts figure

Their calculations look like this:

Newhouse Catalogue: (168 divided by 1106) multiplied by 5 = £0.76
Eastern TB Ltd: (460 divided by 1106) multiplied by 5 = £2.08
Flexible Card: (325 divided by 1106) multiplied by 5 = £1.47
Easicheck: (153 divided by 1106) multiplied by 5 = £0.69

How to pay

If you have done all of your calculations on a weekly basis, you may find that it will be inconvenient to make small weekly payments. Ask your creditor if you can make an arrangement that suits you better, for example:

  1. 4 weekly – pay four times the weekly amount every four weeks
  2. Monthly – multiply the weekly amount by 52 to get a yearly total and then divide it by 12.

Complete your personal budget

  1. Now that you have completed stages 1 to 6, add all the debt payments you intend to make on to the ‘Expenses’ section of your budget.
  2. You will need a copy of your budget to send to each of your creditors and a copy to keep for yourself.

7. Writing to Creditors

  • Go to for a selection of different sample letters you can use.
  • Change the wording of the letter to explain your own circumstances.
  • Attach a copy of your budget to any letter you send and keep a copy of both the letter and budget yourself so you know what you’ve said.
  • If your account has been passed to a debt collection agency or debt purchase company, send the same letter to them.
  • Always keep copies of everything you send.
  • FAQs – What if I don’t have any available income or assets?
  • There are options you may wish to consider to deal with your debts, such as bankruptcy or a debt relief order. For more information on these, see our What Are My Options? page.Try not to worry too much – generally creditors will agree to accept payments rather than take court action. Even if you have been unable to offer payments because you have no money to pay your debts, your creditors may be prepared to freeze the interest on your account until things improve. If your creditors do accept your offers, tell them how you want to pay. This could be by standing order, direct debit, payment book or by asking someone to call. Make sure you stick to whatever agreement you make.What if creditors refuse my offer?

    1. Do not agree to increase your offer. You may then be unable to pay something more important.
    2. Creditors cannot send bailiffs unless they have a court order and you have not paid as ordered.
    3. If a creditor takes you to court, the court is unlikely to order you to pay more than you had offered. Orders to pay £1.00 per month are common.

    What if my debt is passed to a collection firm?
    Don’t worry; most debt collection agencies are reasonable. They will generally accept pro-rata payment offers, even when these are low. If they insist on larger payments, just repeat that the offer is all you can afford. Debt collectors have no special powers. If you experience problems with a debt collecting agency, get some advice.

    What if my debt is bought by a debt purchase company?
    It is common for debts to be sold by creditors to debt purchase companies who buy the debts and collect them as their own. The rights to the debt are sold so your offer of payment must be made to the new company. You may need to start the whole process of letter writing all over again. As with debt collection agencies, debt purchasing companies have no special powers. If you have problems, get some advice.

    What if a creditor continues to charge interest?
    If you are paying less than the interest being added, your debt will continue to grow, so you should ask the creditor to stop charging you any more interest. Generally, creditors will do this. If they do not agree, get some advice.

    If your creditor takes you to the county court for a debt of less than £5000, interest charges will automatically stop. Debts between £5000 and £25,000 usually do not attract interest charges.

    What if they continue to insist I pay more than I can afford?
    People you owe money to are allowed to ask you for it. But it is a criminal offence for them to harass you by, for example:

    1. Ringing you late at night or repeatedly at work or
    2. Telling you that it is a crime to owe money
    3. Never be pressured into paying more than you can afford – it just means that you can’t pay something more important.

    If you feel that you are being harassed, contact Trading Standards (342 8355) or, in extreme cases, the police.

    Will I be able to get credit again?
    There are Credit Reference Agencies who keep records of some unpaid debts and there is a register of all County Court Judgements (CCJs). Most companies will check these before they decide to give you credit. They must tell you which companies they used, if you ask.

    You can get a copy of your record from the Credit Reference Agency in seven days by paying a small fee. If it is wrong you can get it changed. When you pay off a County Court Judgement, you can have that record changed as well.

    What happens if creditors take court action against me for money I owe?

    The County Court is not a criminal court and is not there to punish anyone. If a creditor takes court action for the money you owe, you may not even have to attend court. If you do, the hearing will usually be in a private room. There is no publicity.

    If you get a court summons and you do owe the money, return the form of reply attached to the summons to the creditor, saying how much you can pay. Attach a copy of your budget to it. If you dispute the debt, get some advice.

    If the court orders you to pay more than you offered, write back within 14 days and object.

    Once you have a judgement against you, provided your debts are no more than £5000, and you have two or more creditors (including the judgement) you can ask the court to take over the payment of all of your debts. You then make just one payment each week or month to the court and the court pays all of your creditors for you. This is called an Administration Order. Sometimes you may have to pay a small fee for this and a court judgement must have been entered into before you apply.

    If you need more help or free advice on any of the information shown here,you can contact one of the agencies below. Our Who Can Help? page has further details of useful organisations.

    Help and Advice

    • Consumer Credit Counselling Service (CCCS)
      Phone: 0800 138 1111
    • National Debtline
      Phone: 0808 808 4000
    • Payplan
      Phone: 0800 280 2816
    • New Charter Housing Trust Debt Advice Team
      Phone: 0808 178 2330
    • Tameside Welfare Rights
      Phone: 0800 074 9985
    • Tameside Debt Advice Service
      Phone: 0800 328 0008
    • Tameside Citizens Advice Bureau
      Phone: 0161 330 2156
    • Tameside Housing Advice
      Phone: 0161 331 2700
      Out of hours: 0161 342 2222 for emergency housing.
    • Shelter Housing Advice Line
      Phone: 0808 800 4444