You may be very worried about how you will cope if your income drops a lot because of coronavirus.
This article looks at what you can do if you think your bills and debt repayments will be unmanageable.
Things are changing fast: every day more different sorts of help are being announced. This article has been updated on 2 April.
More help may later be available but if you think your income is going to fall, I am looking at the practical steps you can take now. The common theme is that if you are affected by coronavirus problems, then ask your lender or utility company for help.
Why your income might 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 will be 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.
Benefits that may help
The government has announced changes so it’s easier and quicker to claim sick pay and to get benefits.
The standard allowance in Universal Credit is being increased for a year. At the moment this is £317 a month, it will go up in April 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;
- 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 repayments – 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, and to do this for what may be a short-term Cornonavirus problem is not sensible. Look at what your other options are.
Debts and bills can be divided into “priority” and “non priority”, see What are priority debts?
A debt adviser can help you decide what to do if you have problems with any sorts of debts and bills, but it’s especially helpful for priority debts.
The normal aim is for you to pay as much as possible to the priority debts such as your rent and council tax even if that means paying little or nothing to non priority debts such as credit cards and loans.
Mortgages & Rent
Mortgage lenders have agreed to offer a three month mortgage holiday to homeowners. See Coronavirus – how will mortgage payment holidays work? for details.
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.
Other important bills
Council Tax – 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.
Electric & gas 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.
Water bills – 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.
Non-priority debts – ask for a payment break
Lenders are starting to get their help properly described on their website. Some examples:
- a lot of banks are saying customers with loans can ask for payment breaks;
- here is a non-bank lender who is providing a lot of help and explaining clearly what your choices are;
- Nationwide are saying people can have interest/charges on credit cards and overdrafts stopped;
- Tesco say you can delay your loan and credit card payments for the next two months by completing a simple form, and it won’t harm your credit record;
- Barclays isn’t charging overdraft fees between 27 March and 20 April. This is being done automatically being done for everyone, you don’t have to ask.
So look at your lender’s website first and see what that says.
If your lender’s website isn’t clear – ask for what you need
But if your lender’s webpage doesn’t seem to be offering you reduced payments or a payment break, don’t assume you can’t get help, you need to ask for it.
The Financial Conduct Authority’s rules say customers who can’t make payments should be treated “with forbearance and due consideration” by lenders and debt collectors.
“Forbearance” means they should consider taking lower payments, offering you a payment break and freezing interest.
So if you tell a creditor that you can’t make a payment this month because your income has fallen they should always listen to you. Even without coronavirus, lenders and debt collectors do listen to someone who explains they need a payment arrangement.
And now the creditors are all expecting to hear from a lot of customers with coronavirus problems. They know it’s not your fault. And they also know that there isn’t any point in pushing you to make a payment that you simply can’t afford.
The FCA is planning to bring in new rules saying lenders have to offer payment breaks. But don’t wait for those to be live because many lenders are already being helpful when you get in touch.
If you aren’t sure, talk to a debt adviser so you can find out all your options and the pros and cons.
Too anxious to phone?
If you don’t think you could make that sort of phone call, you could send the lender a short email or a message through their website instead. Something like:
Will this affect your credit rating? Not if your lender agrees to the payment holiday!
Normally missing one or two monthly payments will harm your credit score but you should not get a default added.
Major mortgage lenders such as Lloyds (including Halifax and Bank of Scotland), RBS including NatWest) and Nationwide have said that if a customer takes a mortgage payment holiday it will not affect their credit file.
And on 31 March, Experian, Equifax and TransUnion decided that if your lender lets you have a payment holiday or make lower payments to a credit card, catalogue, car finance or other loan, this will not affect your credit score .
That is good news – one less thing to worry about.
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.
Your IVA firm and your creditors will not want your IVA to fail because of a temporary coronavirus problem. Talk to your IVA firm, see Coronavirus – worried you can’t pay your IVA?
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.