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What to do if you can’t pay the bills

James Daley

Money expert and Founder of Fairer Finance

Last updated 11th April 2023

7 min read

Keeping your finances in order can be a struggle. Modern life is complicated, and most of us have dozens of different bills to keep on top of every month. As a result, it’s all too easy to find yourself in a position where your bills run ahead of the money you have coming in each month. And with most households keeping very little in reserve, the loss of a job or an unexpected hefty bill – like the need to replace your boiler – can be the final straw that tips a family’s finances over the edge.

In 2022, over 118,000 individuals( opens in a new tab) in the UK ran out of money and had to declare themselves insolvent.

If you find yourself in a situation where you think you’re going to run out of money, the most important thing is to act early. The longer you wait to address the problem, the less your options will be.

Worried man with bills

Act early

Running out of money can be very stressful and upsetting. So, if you think your finances are spiralling out of control, there’s a few steps you should take immediately to see if you can get things back on track.

1. Draw up a detailed budget

If money is tight, it’s important to account for exactly how much money you have coming into your account each month, and exactly how much is going out. As well as detailing all your regular bills, it’s also vital that you think about the bills that may come around less frequently – your car tax, for example. It’s easy to forget these – so it’s worth looking back over your bank statements for the last year to be clear you’ve remembered everything.

2. Cut your expenses

If you’ve got more money going out than coming in every month, that’s a situation that you need to get on top of as soon as possible. The obvious first step is to go through your budget and see if there are expenses that can be cut. Cutting out non-essential spending like takeaway coffees or subscription TV can save you a significant amount each month. Switch your utility bills and insurances. And of course, make sure that any credit you have is on the most competitive interest rate.

3. Boost your income

If you’ve cut your expenses back as far as you can, then the next step is to consider whether there’s any way to boost your income. That might be by switching jobs or taking on a second job. You might also be able to boost your income by renting a spare room, or even renting your driveway to park in. For more ideas on how to boost your income, see our how to make money in retirement guide. Although it’s focused on how to boost your income in retirement, there are lots of ideas that could help make you some extra cash no matter what stage of life you’re at.

4. Make sure you’re claiming any benefits you’re entitled to

If you’re struggling to pay your bills, there may be benefits that you’re entitled to. For example, your local council may be able to give you a reduced rate of Council tax. If you have children, you can claim child benefit. Or you may be entitled to universal credit. To find out whether you’re entitled to any benefits, visit the government website( opens in a new tab).

5. Borrow

If your financial worries are short-term – for example, you’re out of work for a few months but expect to have a new job in a few months – you may be able to borrow to help meet any shortfall in your income. If you have a good credit history, you may be able to get a 0% credit card – with no interest to pay for over a year.

Or if you’re a homeowner, you may be able to increase your mortgage. But you should only consider taking on additional borrowing if you are confident that you will be able to manage the repayments. If you’re spending more than you have coming in every month, and you can’t see any way to cut your expenses or boost your income, then you should avoid using borrowing as a way to fix your financial difficulties – as you may end up in a worse position.

6. Look for local support

A number of charities operate foodbanks around the country, where you can get food and other supplies for free if you’re struggling to pay your bills. If you have small children, your health visitor or foodbank may be able to refer you to a charity that can provide clothes and equipment for them.

Talk to your lenders

If you’ve got loans or a mortgage and you’re struggling to meet the payments, it’s worth talking to your lenders. They may be able to grant you a payment holiday, to give you some breathing space.

This is worth doing if you’re confident that your financial difficulties are temporary, and you will be able to get back on track by having a few months free of debt repayments. It’s not a long-term solution for balancing your budget, however. And if you don’t see any reasonable way that you’re going to be able to get on top of your monthly bills and repayments, then you should seek out some independent debt advice.

Get debt advice

If you have loans and credit cards which are stopping you from getting on top of your household budget, then it’s worth seeking debt advice from a specialist debt charity such as Stepchange(opens in a new tab) or the National Debtline(opens in a new tab).

Their advice services are free – and their advisers will help you with your budgeting. If they can’t help you get your budget into a shape where you can meet all your debt repayments every month, then they may set you up with a debt management plan. These work by getting your lenders to agree to allow you to pay them back over a longer period, and to stop charging you interest.

These are informal agreements and not all lenders will agree to them. That means you may still have some lenders who are chasing you down for repayment, or who continue to add interest and fees to your debts.

Declaring yourself insolvent

If you don’t have enough money coming in to meet the lower repayments from a debt management plan, then the next option is to consider an Individual Voluntary Arrangement (IVA).

This is a legal agreement where your creditors agree to reduce your debts and give you more manageable payments. The agreement usually lasts five or six years, at the end of which any remaining debts are written off.

Entering into an IVA will damage your credit record. But if you’re a homeowner, it should allow you to get protection from the people you owe money too, whilst protecting you from having your home repossessed.

Once you’ve entered into an IVA, your spending will be restricted.

IVAs are only available in England, Wales and Northern Ireland. In Scotland, there is something similar known as a Protected Trust Deed.

If you think you may need to set up a debt management plan or an IVA, it makes sense to use the services of a Debt Charity such as Stepchange or the National Debtline – as they keep their fees to a minimum. Private debt management companies can have high fees that add to your debts.

Declaring yourself bankrupt

Bankruptcy – or sequestration as it is known in Scotland – is the last resort if you’re unable to get the people you owe money to, to agree to an IVA.

The advantage of bankruptcy is that all your debts are written off and you have a clean start. However, any assets you own like your house or your car are likely to be included in the bankruptcy – and it will stay on your credit record for six years. It will also disqualify you from getting certain jobs, so it’s not a decision to be taken lightly. You may still have to make some contribution to your debts for three years.

In the UK, bankruptcy normally lasts for a year, during which time you won’t be able to borrow any more than £500.

Debt Relief Orders

If your debts are less than £30,000 (£20,000 in Northern Ireland) and you don’t own your home – then you may be able to use a debt relief order rather than declaring yourself bankrupt.

You don’t have to pay anything towards your debts for 12 months, after which they are written off.

It’s cheaper than bankruptcy – and only costs a one-off fee of £90. But it does go on your credit file and will negatively affect your credit score.

As well as not owning your own home, you must also have total assets worth no more than £2,000 (£1,000 in Northern Ireland). This doesn’t include your car. But if you have a car, it mustn’t be worth more than £2,000 (£1,000 in Northern Ireland).

Debt Relief Orders are not available in Scotland. Instead, they have a similar process called the Minimal Assets Process.

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