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Tackling your debts

Millions of UK adults issued with defaults in the last year

Posted 20 August 2016

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Are you one of the millions who have defaulted in the last year?

Have you had a default in the post from one of your lenders? Don’t worry – you’re not alone. Our latest research shows that millions of adults up and down the UK have defaulted on at least one account in the last year. 

So what exactly is a default and what should you do if you get one? In today’s blog, we’re going to look at why some people may find themselves defaulting and how to avoid this happening with any of your accounts. 

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Defaults are not uncommon

At Debt Advisory Centre, we want to know what kinds of difficulties people find themselves in with debt and what causes these problems to begin with. Our latest research has shed some interesting light on defaults and what leads to this problem.

Across the nation, one in five people found themselves defaulting on at least one account in the last year. The most common reason for defaulting was missing payments on a credit card – one in nine people questioned said that they defaulted due to this reason. 

Unpaid utility bills were the cause of a default for one in 10 people. Other reasons include missed payments on loans, utilities, and mobile phones. 

What is a default?

If you’ve defaulted on your account, it means that you’ve missed a certain number of payments and the lender has decided that the agreement between you is broken. They may then ask for the whole amount that you owe in one go. 

Usually, you have to miss three to six payments in order to get a default. If you’ve missed one payment on your account, it’s unlikely that you’ll get a default but it’s important that you put a plan in place to catch up with the payment that you’ve missed. 

Will it affect my credit score?

A default will have a negative effect on your credit history and will stay there for six years from the date that it’s issued. If you try and borrow any more money or use a service that requires a credit check like a mobile phone, you may find that defaults affect whether or not you’re approved. And if you do get accepted, you may have to settle for a higher rate of interest on your borrowing if you have a default. 

Make sure you prioritise your payments

As we can see from the research, people up and down the country are finding that they are defaulting because of everyday, essential expenses like utility bills as well as borrowing like credit cards. 

If money is tight and you don’t know whether you can afford everything you’ve got to pay one month, it’s really important to prioritise your payments so the most important things get paid first. The most important payments are those that will have the most serious consequences if you don’t pay them.

For instance, it’s very important that you pay your council tax (and any other type of tax for that matter) because if you don’t, you’ll get in trouble with HMRC. And of course your rent and mortgage are very important payments as missing these will result in you losing the roof over your head. Utility bills are also important as you need gas and electricity to run your household. 

These priority payments come before others like your credit card and loan payments. You can still get defaults by missing payments on your borrowing but the consequences won’t be quite as severe. 

Are you having trouble juggling all your payments?

But one thing you should never do is simply stop paying back your credit cards or loans without contacting the lender and explaining why you’re unable to pay. That’s exactly the type of situation that leads to people getting defaults which then damage their credit rating for six years. 

Contact the lender and tell them why you’ve missed the payments and how you intend to catch up with them. If you can see your difficulties lasting for a few months it might be possible for the lender to give you a payment holiday, reduce your payments or at least stop interest and charges being added.

It’s important to note that if you come to an arrangement to pay less each month, you could still end up with a default as you won’t be paying the correct amount. However, it will be better for you in the long run to agree a new payment plan with the lender rather than just miss payments. 

If you don’t see how you’re ever going to get back on track with all your payments, it might be time to seek professional help and advice. A debt advisor, like the ones here at Debt Advisory Centre can tell you about the different solutions available to deal with unmanageable debt and which one is best for you. The sooner you address the problem, the better it will be in long run so don’t put off contacting your creditor or speaking to an advisor. 

 

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.