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Living on a debt solution

Moving to Universal Credit: How will it affect your debt solution?

Posted 19 August 2016

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Are your benefits set to be replaced by Universal Credit? See what this could mean for your finances.

Universal Credit is set to replace certain existing benefits and tax credits. It means that if you’re claiming any of these benefits and tax credits, you’ll stop getting them on different dates throughout the month. Instead, you’ll just get one monthly payment. This can take some getting used to and might mean you’ll struggle with your budgeting at first.

But if you’re on a debt solution, how will the move to Universal Credit affect this? Will it change how much you can pay into the solution every month? Let’s take a look at when this move will happen and what could change when it does.

What is Universal Credit?

Universal Credit is replacing six benefits. These are:

• Jobseeker’s Allowance,

• Housing Benefit,

• Working Tax Credit,

• Child Tax Credit,

• Employment and Support Allowance, and

• Income Support. 

So if you claim any one or more of these benefits, they’ll eventually move onto Universal Credit.

When you’re on Universal Credit, you’ll no longer get these benefits paid at different points throughout the month. Instead, you’ll just get one monthly payment, made up of all of the different benefits you’re entitled to. You’ll still get other benefits like Disability Living Allowance and Child Benefit separately from Universal Credit.

If you’re not used to budgeting off just one monthly amount, it might be a struggle to adjust when your benefits change. You can find out how to cope with this by reading our blog on budgeting on Universal Credit.

When will you move to Universal Credit?

The rollout of Universal Credit has had a few delays – it was originally meant to start much sooner. Because of this, you still might have to wait a while before Universal Credit replaces your existing benefits.

If you’re a single jobseeker, you can now claim Universal Credit in any jobcentre around the country. But if you live with a partner or you have dependents, it’s only available in certain areas. You can see where these areas are by checking out the full list on Gov.uk.

Universal Credit is set to rollout to more jobcentres for couples and families in autumn 2016. These include Peckham and Taunton in October, Market Harborough and Portree in November and Hartlepool and Shepherds Bush in December.

However, all of this is just for new claimants. If you’re currently claiming benefits, Universal Credit isn’t set to replace them until at least mid-2018. Your jobcentre should tell you when this will happen in advance.

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What effect will this have?

When benefits move to Universal Credit, you might find that you get a different amount than before. That’s because the criteria for some elements of Universal Credit aren’t the same as their corresponding separate benefits. Campaigners from the Equality Trust recently warned that some single parents will be worse off under Universal Credit. For example, they say that a single mum with two kids who earns the minimum wage and works full time will lose £554 a year.

If you’re on a debt solution, don’t worry that any changes to your benefits will make the solution unaffordable. For example, if you’re on a Debt Management Plan (DMP), you’ll only have to pay in whatever you can afford. So if you start earning less but your essential bills and expenses don’t fall at all, you could pay in less.

It’s a similar story if you’re insolvent and going through a solution like an IVA or bankruptcy. With an IVA, your monthly payment will be affordable for you. That means if your income falls, your Insolvency Practitioner (IP) can look to lower your payments. If the change is more than 15% of what you’re currently paying, your creditors will have to approve it. And if your benefits changes mean that you earn more every month, you’ll have to increase your payment into the IVA.

With bankruptcy, you’ll only pay in towards your debts each month if you can afford it – this is an Income Payments Agreement (IPA). So if your circumstances change, this could mean your payment will also fall or your Trustee could suspend your IPA altogether.

Seeking advice

If you’re starting a debt solution but think your benefits are likely to change before it ends, don’t worry. Your finances don’t always stay the same so your debt solution can adapt if your income goes up or down.

You can speak to one of our debt advisors using any of the options to the left and they’ll be able to look at your circumstances and tell you which debt solution is best for you. They’ll also explain the effects of any changes to your debt solution. For example, if you start a Debt Management Plan (DMP) and your income drops, you can pay less in but your DMP will last longer. You can also get free and impartial information from the Money Advice Service.

by Emily Bancroft

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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.