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Tackling your debts

How to deal with late payment letters

Posted 13 June 2016

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Receiving late payment letters can be intimidating if you’re struggling with your finances, so here’s our advice to help you deal with them.

 

If you receive late payment letters in the post, your first instinct might be to panic, but you don’t need to. Here’s our advice on how to deal with them.

Prioritise letters

First of all, it’s important to work out whether your late payment letter is regarding a priority debt or bill, or a non-priority debt or bill. Priority debts and bills include your mortgage or rent, any loans that are secured against your property, your Council Tax, TV licence, court fines and gas and electricity bills. Non-priority debts include payday loans, credit card or store card debts, water bills, overdrafts, unsecured personal loans and any subscriptions you may have to things like TV services or the gym. For more information on the differences between priority debts and non-priority debts, check out our informative guide.

 

Your priority debts and bills need to be paid before any others because they could have serious implications if you don’t … for example, if you don’t keep up your rent or mortgage payments, you could lose your home, or if you don’t pay for gas and electricity bills, your heating and lighting could be cut off, so it pays to tackle these first.

 

If you have non-priority debts, you should always pay off as much as you can afford to, but the implications for not paying them back are less serious, which is why they take second priority.

Why you shouldn’t ignore late payment letters

Even though it might seem easier just to put these letters into a pile to think about another day, it’s always best to face them head on. Ignoring late payment letters could lead to more charges and higher interest rates, which mean you could end up owing more money (the lender must send you a default sum notice within 35 days to let you know about these). Ignoring the letters could also harm your credit score, which means you may have trouble borrowing money in the future, so it’s better to tackle the letters as soon as you get them to help prevent this happening.

Different types of late payment letters

Receiving a late payment letter from a lender or other firm (firms you owe money to are called "creditors") doesn’t mean that they will automatically take serious action - you’ll first receive one to tell you that you’ve missed a payment and if you don’t respond to this, the firm will send a follow up letter to tell you that you are in arrears or in default. The third type of late payment letter will give you notice to appear in court to explain why you haven’t paid the debt. Each letter will be accompanied with information from the Financial Conduct Authority (FCA) about what it means and where you can seek advice. At any point in this process, you can speak to your creditors to try and work out a solution with them. Don’t feel that you’ve left it too late to deal with it, as no creditor wants to take you to court and would prefer to sort it out with you personally.

 

If companies you owe money to can’t get in touch with you by letter, they may resort to phone calls, they could pass your details on to a debt collection agency, send a representative to your home, or go to the county court to get a judgement against you for the money you owe them. If you talk to the firms as we’ve advised, you may well be able to avoid these extreme measures.

 

Alternatively, if you don’t feel able to talk to your lenders yourself, you could speak to a debt expert, such as the ones at the Debt Advisory Centre or another independent third-party. They could speak to your creditors on your behalf and tell you about the range of debt solutions available to help you get back on track, such as an IVA or DRO … for which some fees may be payable.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.