In November 2020, the FCA has changed the rules about Coronavirus payment breaks. You can now have 6 months of payments breaks from a mortgage, car finance, most loans, all credit cards and catalogues.
If you have had 6 months already for a debt you won’t be able to get more from that lender.
More than four million of these payments breaks have been taken up until the end of October. And even with these breaks helping many people, Citizens Advice found that in September that 6 million people had fallen behind with an important household bill because of Coronavirus.
Some people have been able to go back to work. With the children back to school in September, this may have felt like some normality was returning.
But local lockdowns and children being sent home from schools with Covid-19 cases made it hard to predict what anyone’s position might be in a few weeks. And we are all back in lockdown in November.
This article looks at what support you can get now and where to get advice if you are struggling. All contact details are at the bottom of the page.
Benefits that may help
At the start of lockdown in March the government increased some help from benefits:
- the standard rate for Universal Credit was increased by £20 a week;
- people getting Council Tax Support an extra £150 this year.
If you haven’t claimed any benefits before, websites such as Turn2Us can show you what you might be able to claim and your local Citizens Advice can help.
If you already get some benefits, tell them immediately your income drops.
People who currently get tax credits and housing benefit will have these stopped if they claim Universal Credit – and it’s not possible to go back to claiming them once you have applied for Universal credit. So use a benefits calculator to see if you might be better off by switching to UC and take advice if you aren’t sure.
Know what is top priority
When there isn’t enough money to pay everything, you have to make difficult choices.
It’s important to know what must be paid first and in full, even if this leaves not enough to pay non priority debts. See What debts and bills are my top priority for a list of these.
Paying your rent and car finance – and of course food, clothes, transport and heating! – may leave little or nothing for your credit cards and catalogues. This may sound alarming, but non-priority creditors know that they are bottom of the list and that priority bills have to be paid in full.
Try this online budgeting tool from National Debtline. Even if your income or expenses are changing, this will still help:
- it lists expenses so you don’t forget something;
- it converts everything to monthly amounts;
- it works out what the “priority” and “non-priority” debts and bills are;
- it shows how to divide up the money you have;
- you can download it to show creditors or a debt adviser. This can save you having to explain your budget on the phone to lots of different people.
Important bills and priority debts
Rent and Mortgage
Universal Credit can get you some help with the cost of renting. You may be able to get an extra Discretionary Housing Payment (DHP) from your council if your Universal Credit doesn’t cover your full rent.
Landlords have to give 6 months notice of eviction to most tenants. It doesn’t matter if your tenancy agreement says something shorter or your landlord says you have to leave next month – these are new laws so find out your rights.
You can’t get help with your mortgage through Universal Credit until you have been getting it for 39 weeks. See When mortgage payment breaks end, can you pay your mortgage? for the support lenders should give you if you are struggling and what you should ask for.
Get help – if you are worried about your mortgage or your rent, you have an eviction notice from your landlord or threatening letters from your mortgage lender, talk to your local Citizens Advice or Shelter.
You can apply for Council Tax Support on your local council website.
The government has provided extra help to local councils. People getting Council Tax Support will get an extra £150 reduction in addition to the normal reduction your council gives someone on a low income or benefits.
If you have council tax arrears but your income is now back to normal, talk to your council about making an arrangement to pay the arrears.
Get help – If you are worried about council tax for this year or previous years, your local council wants you to pay too much or you are getting bailiff letters, talk to your local Citizens Advice.
Electric, gas & water bills
If you are on a low income or are getting some benefits you may be able to get £140 off your electricity bill this winter through the Warm Home Discount Scheme. Check with your electricity company and apply as soon as possible, as some companies close their schemes early.
New rules are being brought in so gas and electric companies will give people more help, see Ofgem strengthens protections for customers struggling with energy bills this winter.
Talk to your supplier and explain your income has dropped because of coronavirus and ask if you can pay a bill over a longer period. It’s important to say if people in your household have health problems. If you are having deductions through a prepayment meter for existing debts, ask if the deductions can be reduced or halted for the next few months.
Water companies can offer payment breaks, extended payment plans and schemes that can reduce the amount you have to pay if you are on a low income. So get in touch with your water company and see what help there is.
Get help – if your gas, electricity or water company wants you to pay more than you can afford, talk to your local Citizens Advice.
For many people this is their biggest expense after their rent or mortgage.
You can ask the lender for a payment arrangement on car finance. But this is a priority debt and your car is at risk if you can’t pay it in full.
See Can you afford your car finance now payment breaks are ending? for details of your options. Even if you want to keep your car you need to know about your right to end a car finance contract early.
Get help – if you aren’t sure about what the best option for you is, talk to National Debtline.
Business Debtline helps people who are self-employed or who have a small limited company. They can help look at your personal finances as well as your business problems. Their Your budget tool can give an overview of your situation.
The LITRG has produced a guide to Coronavirus: Self-employment and paying tax.
Get help – talk to Business Debtline.
Deductions from Universal Credit
Deductions from Universal Credit for other debts can be very high leaving you with not enough to live on. Sometimes you can ask for this to be reduced, see Who to contact about money taken off your Universal Credit.
Get help – talk to your local Citizens Advice.
The non-priority debts – choose which help is right for you
Have you taken your 6 months of payment breaks?
In the first lockdown, the FCA introduced payment breaks across almost all consumer debt. For most debts you could get a 3 month payment holiday, and then later a second 3 month break.
These were supposed to end at the end of October. But with the new lockdown, the FCA changed the rules so that people who haven’t yet had 6 months break on a debt can now have the rest of their 6 months:
- if you have already had a 6 month break from a lender, you can’t have more – but the lenders have to give you different help instead, see below.
- if you had say 4 months then were back at work and started making the normal payments again, you can now have 2 months..
- if you haven’t had a break at all from this debt, you can now take the full six months if you need it.
The only exception to this 6 month is payday loans, where you were only allowed one month.
During these breaks, interest is still added. The payment break did not directly affect your credit score but lenders may be able to see you have taken one so it may make it harder to get credit in the future.
But lenders still have to offer you help!
When you have used up your 6 months of breaks, lenders have to listen if you still have financial problems and provide you with support.
The FCA’s rules say customers who can’t make payments should be treated “with forbearance and due consideration” by lenders and debt collectors. This always applied, even before Coronavirus.
For unsecured debts like loans, credit cards, catalogues and overdrafts, this means lenders must consider taking lower payments and freezing interest.
“Consider” may sound vague – you may be worried your lender won’t be helpful.
I can’t say this “lender lottery” won’t happen, but for non-priority debts it is very likely that most banks, credit cards and other lenders will stop adding interest when asked. Especially if you explain that you have priority bills and debts to pay – your rent/mortgage, council tax, utilities.
Lenders know you don’t have much money and that paying the rent and feeding the kids has to come first. And if they don’t freeze interest you can complain you aren’t being treated fairly and go to the Financial Ombudsman.
So how can you get this help?
1) ask the lenders yourself
For unsecured debts such as credit cards, catalogues, loans, payday loans and overdrafts you can ask the lenders and debt collectors for a payment arrangement. Also ask for the interest and charges to be stopped, so your debts don’t get worse.
The online budgeting tool linked to above can tell you how much to offer to each lender. And you can show the report from that to your lender – it proves what you are doing with all your bills and debts.
If you have little money spare you can ask for a £1 a month token payment instead.
Payment arrangements will affect your credit record, so you should only ask for one if you need it. If you aren’t sure, talk to a debt adviser so you can find out all your options and the pros and cons.
One bit of good news: if you need this forbearance, the lenders should help you by removing the extra interest that they have added during the payment breaks.
2) opt for a 12 month Coronavirus Payment Plan (CVPP)
If your finances were fine at the start of 2020, you may just need some temporary help from your lenders while things get back to normal for you.
So StepChange have introduced a Coronavirus Payment Plan (CVPP). This is a sort of DMP that will only last 12 months, aimed at allowing people time to get their finances back on track.
This may suit you if:
- you can pay all your priority bills and debts, or have a payment arrangement in place for them;
- you can pay a “reasonable amount” towards these non-priority debts, say a third;
- you expect things to improve in the next year;
- you weren’t in already in a DMP or an IVA last year which has now failed.
To find out more, complete a short eligibility check and StepChange will get in touch with you.
3) look at a Debt Management Plan
Some people will know they need more than 12 months help.
Perhaps you were already struggling with your debts before lockdown. Perhaps you have lost your job or your business and you know it’s going to take a long while to recover.
StepChange operates debt management plans (DMPs) for hundreds of thousands of people. They make one affordable payment to StepChange each month and the money is then divided between their non-priority debts. There are no fees charged. And interest and charges are almost always stopped.
DMPs are good options if your situation may change because they are flexible. If you get a good job then you can repay the debts much faster. If things get worse, you can look at insolvency.
4) other debt options (and why to avoid an IVA)
At the moment if your situation is uncertain and may improve a lot in the next year it is usually better to avoid insolvency as you may not need it. You can’t go back from bankruptcy, a DRO or an IVA to just paying off your debts as normal.
And if your situation may get worse, you should avoid an IVA. Even before the pandemic, about 30% of IVAs were failing as people couldn’t make the repayments. A failed IVA leaves you back with all your debts after a lot of stress. Bankruptcy never fails and a DROs fail less than 1% of the time.
Not sure what to go for?
Get help: if you have some money to pay to your non-priority debts talk to StepChange. If you think you have little or no money for non-priority debts, talk to National Debtline.
Already have a debt solution in place but now can’t afford it
Payment arrangements and Debt Management Plans (DMPs)
If you are already in a debt management plan, talk to the company running it and ask to make lower payments or have a payment break. DMPs are informal, flexible arrangements, they can be changed.
This is what happened when one reader called StepChange about her DMP:
Have just come off the phone to a lovely lady. Payment suspended for 3 months. Had options of 1/2/3 months but like you and she said no one knows how long this is going to go on for so best taking 3. Coronavirus impacted code placed on file so will go out to all my creditors. Took me a lot of strength to call up as been worrying about it and the mindset to talk to someone about something so stressful right now x
The same applies if you have already made a payment arrangement with a lender/debt collector. Ask for it to be reduced, to zero if necessary and tell the creditor if you have priority debts such as mortgage/rent/council tax/car finance arrears.
Insolvency – IVAs, bankruptcy, DAS and trust deeds
The Insolvency Service has brought in new rules, see Coronavirus – new rules to help people in IVAs for the extra help available. Your IVA firm and your creditors will not want your IVA to fail because of a temporary coronavirus problem. So talk to your IVA firm about how they can help.
If you are bankrupt and paying an IPA, tell your OR’s office and the IPA will be reduced, to zero if necessary. This will not extend the length of time you have to pay an IPA for – that can’t be more than 3 years.
For DAS & Protected Trust Deeds (Scotland), see Can’t Pay Trust Deed or DAS? by a Scottish adviser. The Accountant in Bankruptcy has said that DAS arrangements will not be revoked (the legal term for failed) if you can’t pay because of Coronavirus.
Summary – where to get help & contact details
If you don’t know what to say to the lender or someone you owe a bill too, or you have tried to talk to them and they are not helpful, talk to a good debt adviser.
You only need to talk to one debt adviser.
Here is how to choose who to contact:
- if you have priority debts and bills which are a problem, talk to your local Citizens Advice.
- if your problem is urgent and you cannot get an appointment with Citizens Advice quickly, phone National Debtline.
- if your priority debts are under control and you have some money to pay to your other debts talk to StepChange.
- if your priority debts are under control leaving you with little or no money for other debts, talk to National Debtline.
- if you are self-employed or have a small limited company, talk to Business Debtline.
- Find your local Citizens Advice.
- National Debtline: phone 0808 808 4000 or use the National Debtline webchat.
- StepChange: phone 0800 138 1111.
- Business Debtline: 0800 197 6026 or use the Business Debtline webchat.
Be careful. Some commercial firms trying to sell you an IVA use names that sound a lot like these good debt advisers. Make sure you are talking the real thing!