This article looks at what you can do if you think your bills and debt repayments are becoming unmanageable because of coronavirus.
If your income has fallen, or someone else in your house has been affected so you are having to pay more of the bills they used to help with, there are practical steps you can take.
Why your income may fall
You may be affected directly by the virus if you get sick and or have to self-isolate because someone in your household has some Coronavirus symptoms.
But many more people have been affected because of what the government, their employer or other people are doing:
- schools and daycare facilities are shutting so you may have to stay at home to look after the children;
- your hours could be cut or you may not be offered any work if you are on zero-hours contracts;
- the self-employed may find their work dries up.
And in June and July some people who had been placed on furlough started to be told they would be made redundant.
Benefits that may help
The government made changes so it’s easier and quicker to claim sick pay and to get benefits.
The standard allowance in Universal Credit was increased for a year, from £317 a month to £409 a month.
If you haven’t claimed any before, websites such as Turn2Us can show you what you might be able to claim and your local Citizens Advice can help.
A few pointers:
- you may be able to get help with your housing costs through Universal Credit. The government is changing the way the Local Housing Allowance is set – this is a limit on the amount of help you can get with rent. It was frozen since 2012, leaving many people in London and other areas where rents have escalated getting much less help than they in need, but this is now being increased;
- you may be able to get extra money if you have children through Universal Credit;
- if you currently get tax credits and housing benefit these will stop if you claim Universal Credit and you cannot go back to claiming them. Use a calculator to be sure you will be better off by switching and take advice if you aren’t sure.
- you may be able to get with your council tax bills from your local council;
- if you already get some benefits, tell them immediately your income drops;
- if you are pregnant or on maternity leave, see these FAQs: Covid-19 – rights and benefits during pregnancy and maternity leave.
Can’t make normal debt & bill payments – what not to do…
A lot of people in the UK are only just coping at the moment, with no emergency fund and often only making the minimum payments to their debts.
It won’t take much of a reduction in their household income to make their normal debt and bill payments become unmanageable.
So what should you do if your income drops and you can’t afford the repayments?
First three things that are generally a bad idea. I can’t say they are always wrong for everyone, but don’t rush into doing any of these before looking at what your other options are.
(1) don’t borrow more
For most people, the worst thing you can do is to use your credit card, a new loan or more of your overdraft to keep paying other debts.
The coronavirus situation could last months. If you borrow more, you may soon end up with debts you won’t be able to afford even when things get back to normal.
At the moment the problem may just be temporary and creditors will probably be sympathetic – see below. So don’t turn this into a long term crisis by letting your debts get out of control.
(2) don’t rush into insolvency
Things may look very bleak financially for the next few months. But what many people will need is a breathing space until things get back to normal. We don’t know how long that will be yet but there are steps that you can take now to improve your situation.
Missing a few payments to debts such as credit cards, catalogues and loans isn’t going to result in having to go to court or having bailiffs round. Especially if you explain your problem to your creditors.
If you think you might need one of these options because your finances were already in a mess before Coronavirus, then talk to a good debt adviser.
In particular, unless you are 100% sure your job can never be affected, this would be a very bad time to start an IVA.
(3) don’t take money out of your pension
If you are over 55, you may think that taking money out of your pension pot is a good idea to tide you over. Think again!
This is what the regulators say:
regulators are urging savers to keep calm and not rush to make any decisions about their pension in response to the coronavirus (Covid-19) pandemic. The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA), supported by The Money and Pensions Service (MaPS), say fears over the impact of the pandemic on markets and personal finances may make savers more vulnerable to scams or making a decision that could damage their long-term interests.
My article Should you use your pension to pay off your debts? looks at this topic. It isn’t normally a good idea to raid your pension for what may be a short-term problem. Look at what your other options are and talk to PensionWise about what your pension options are.
Claiming Universal Credit may be able to get you some help with the cost of renting. The government has said that no-one will be evicted from private or social housing for the next three months. Landlords cannot start possession proceedings against you in court.
Apply for Council Tax Support on your local council website. This is not automatically done if you apply for Universal Credit, you need to make both applications.
The government has provided extra help to local councils and has said that people getting Council Tax Support should get an extra £150 reduction in addition to the normal reduction your council gives someone on a low income or benefits.
If you don’t qualify for council tax support then ask your council if you can reschedule the bills to you miss some months at the start. The council tax year began in April so many councils will let you not pay in April and May.
Electric, gas & water bills
Talk to your supplier and explain your income has dropped because of coronavirus and ask if you can pay it over a longer period. 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.
13 million people are currently in credit with their supplier, being owed £136 on average. It’s good to be in credit at the end of the summer, so you have a buffer for higher winter bills. But at the end of the winter, you can ask for the credit to be returned or think about not paying for a month or two if Coronavirus has reduced your income.
Water UK has announced that all the water suppliers in England and Wales are actively offering payment breaks for anyone in financial difficulties as a result of Covid-19.
If you are paying for insurance in monthly instalments you can ask the insurer for a 1-3 month payment break if your household finances are affected by Coronavirus and you cannot afford the insurance repayments.
The regulator says:
the FCA expects firms to grant customers a payment deferral unless it is obviously not in the customer’s interests to do so.
Income tax for the self employed
The 2nd payment on account normally has to be paid by 31 July each year. You can ask HMRC to defer this year’s until 31 January 2021. If you do, you won’t be charged interest or penalties.
Payments on account are based on your previous year’s income so if your earnings have reduced you can also apply for a reduction in the payment on account if you now expect your trading profit for this year will be lower than last year, because of coronavirus or any other reason.
The LITRG has produced a good guide to Coronavirus: Self-employment and paying tax.
Deductions from Universal Credit
Deductions from Universal Credit for benefit overpayments and budgeting loans, but not repaying the universal credit Advance payments, were paused for 3 months due to the outbreak.
In July these deductions have started again. Talk to your local Citizens Advice if they are taking off more than you can afford.
The bailiff visits for unpaid court fines, penalty charge notices, council tax or non-domestic business rates stopped when lockdown started.
From 23 August, bailiffs will be able to visit to people’s homes. But before someone comes to your house, they should send a letter saying that they will. So if you get a letter, talk to a good debt adviser as soon as possible – in many cases a bailiff has no right to enter your house so you do not have to open the door to them.
The FCA has introduced a range of help across almost all consumer debt.
For most loans and all credit cards and catalogues, they mean that if you are affected by Coronavirus you can have a 3 month payment holiday. You have to agree this with your lender, not just stop paying.
During this time interest continues to be charged (except for payday loans) but the payment break will not affect your credit score – that is good news – one less thing to worry about.
See Coronavirus – help for people with consumer debts for details and I have detailed articles about some debts:
- how mortgage payment holidays work
- 3 month car finance payment breaks
- payday loans – 1 month break with no interest
You can also get more help if you need it.
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. “Forbearance” means they should consider taking lower payments and freezing interest.
Because these payment breaks don’t stop interest being added (except for payday loans), if it will take a long while for your finances to recover, you can ask the lenders and debt collectors for a payment arrangement. and for the interest and charges on your debt to be stopped.
This may affect your credit record though, so you should only ask for this 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.
When you already have a debt solution in place but now can’t afford it
Payment arrangements and Debt Management Plans (DMPs)
DMPs are informal, flexible arrangements, they can be changed.
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. Again, they will be sympathetic.
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.
Here is an example. A reader was worried:
My partner is currently off work on furlough. So I can’t afford my DMP this month and it’s the 4th missed payment in 12 months so it will get cancelled although! I have been paying it every month the past 6 months fine, it was just a bumpy start with it when it was originally set up! I was hoping to just continue paying my monthly amount but it’s just not possible and they won’t reduce my minimum amount as I am already on it.
This is what happened when she called StepChange:
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. Thank you again so much Sara. 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 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.
IPA in bankruptcy
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.
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 arrangement will not be revoked (the legal term for failed) if you can’t pay because of Coronavirus.