Common Credit debts

In this article I'm talking about common credit debts, like credit cards, personal loans, catalogue debts, store cards, overdrafts & short term loans - these are often referred to as non-priority debts. I'm not going to cover secured debts or any type of hire purchase/options car scheme.

Reassurance & the boring stuff

People in debt often think the whole world is going to crash in on them, they suffer many a sleepless night worrying about not paying common credit bills. However, the collections process in practice is usually pretty reassuring as creditors have a duty totreat their customers fairlyat all times.

It's easy to explain because arrears and debt collection are heavily regulated with standard processes and self-regulatory best practice. The common debts like your credit card and loan debts are regulated as follows:

1. Consumer Credit Act 1974 

2. The Standards of Lending Practice

If a creditor refuses to follow the above regulation and guidance, a complaint can be made to theFinancial Ombudsman, even lodging a complaint before it's upheld costs a firm money so they'll want to avoid it - of course it's not in your interests to make false claims either!

The 4 Creditor Collection phases

Phase 1 - Reminders (First 3 months)

You've missed a couple of minimum payments, you'll receive reminders by email, text, letter, phone asking you to make a payment immediately. Further reminders will include a larger minimum payment. Your debt will start to increase with added interest and default charges. You may find that your credit is restricted or even suspended until you clear the arrears. Some lenders may even cancel your overdraft facility.

You may feel distressed by this but remember, creditors don't understand why you're not paying, they're just trying to find out why and encourage you to keep up to date. It's typical for people at this stage to juggle other lines of credit to meet late payments and to offer unrealistic promises. The best action is always toseek free debt advice, we also recommend you be up-front with creditors that you're in trouble, tell them you're going to get independent help.

Phase 2 - Statutory Default Notice (Between 3 - 6 months*)

You'll receive this legal notice after you've missed between 3 to 6 payments, your creditor has to issue the default notice under theConsumer Credit Act 1974regulation. The notice looks pretty intimidating to most people but it is a formality and you still have the option of getting help. You'll have 14 days to pay the outstanding arrears. If you can't pay them, your creditor will register the default on your credit file and can take further enforcement action for the whole amount of the debt. A default is registered on your credit file for 6 years so getting further credit will be difficult. In practice, your creditor will usually not take steps to legally enforce the debt but will go to the next phase of collections.

The default notice will include the following:

'Important you should read this carefully''Default notice served under section 87(1) Consumer Credit Act 1974'The arrears to be paid up to dateThe deadline to make this payment – you must get at least 14 days to do this

An information sheet from the Financial Conduct Authoritywill be enclosed with the default notice recommending you getfree debt help.

Phase 3 - Collections (Between 6 - 12 months*)

After default has been registered, it's usual for your debt to either pass to a collections team within the same creditor organisation or be transferred or sold to a collections agency. They'll want to understand your situation and arrange a repayment proposal, you'll be asked to complete an income and expenditure form. At this stage, the collections team may be prepared to freeze interest and charges and you'll usually get time to pay what you can afford. You may benefit from additional concessions and forbearance if you have any health issues that affect your ability to repay. Please visit ourMALG Debt & Mental Health Evidence page.

This phase will probably happen even if you have made a payment arrangement and/or when a debt advice organisation becomes involved. This is because your lender's first business is lending, not collections. It can be frustrating keeping up to date with which company is collecting your debt. You may also end up agreeing to a payment plan that is not affordable or sustainable long term if you don't getfree debt advice.

Phase 4 - Enforcement (Between 9 to 18 months*)

Well, I'm really hoping that you don't get to this stage! But if you do, you could be facing a number of legal enforcement options to recover your debt, such as:

1. County Court Judgment (CCJ)

2. Attachment of Earnings Order

3. Charging Order on property

4. Bankruptcy for debts 5k & above

5. Third party order (can seize savings)

6. Possibly seizing certain goods if you default a judgment

You needurgent debt adviceif you're entering this phase. Even if these things are happening to you now or have already happened, there are stilldebt solutionsthat can help you manage these situations.

Money Advice Hub Tip!

There's nothing nice about being unable to pay your debts and let's face it if you can't, you're going to end up with a bad credit history. But why struggle with sleepless nights whenfree debt adviceis available, it's a no brainer, there's always a way forward!

*Timescales quoted are estimates in practice and can vary depending on your circumstances and the creditor. They must not be relied upon as part of a debt strategy.