Prioritise and deal with late payment letters

Receiving a late payment letter can be extremely worrying, but there is no need to panic. First, you need to understand which of your debts is most important and then start dealing with them or talk to a free and impartial debt advice company. Find out more below.

• Priority and non-priority debts
• Why you shouldn’t ignore late payment letters
• What to do if you receive a late payment letter
• Get free and impartial debt advice if you’re struggling
• What will happen if you do not respond
• Rules on debt collection

Priority and non-priority debts

It’s important to know the difference between priority and non-priority debts.

Your priority debts aren’t necessarily the largest bills or the bills with the highest interest rate.

But if they’re not paid, you could end up:

• receiving a court claim form
• being made bankrupt – because you haven’t paid your tax bills
• losing your home – because you’re not keeping up mortgage or rent payments
• having your heating or lighting cut off – because you haven’t paid your energy bills.

Your priority debts, which you should pay first if you’re unable to meet all your bills and debt repayments are:

• court fines
• Council Tax
• TV Licence
• child maintenance
• gas and electricity
• Income Tax, National Insurance, and VAT
• mortgage, rent and any loans secured against your home
• hire purchase agreements, if what you’re buying with them is essential, such as a car to get to work.

Your non-priority debts include:

• water bills
• overdrafts
• payday loans
• personal loans
• phone, TV and gym debts
• credit card or store card bills
• catalogue or in-store credit bills
• money borrowed from family or friends.

Why you shouldn’t ignore late payment letters

If you receive a late payment letter the worst thing you can do is to ignore it.

This will only make the situation worse.

Ignoring late payment letters might:

• Harm your credit score and your ability to borrow in the future – missed payments and defaults might be recorded on your credit report.
• Lead to late payment charges and other fees, increasing your debts further (although the lender must send you a ‘default sum notice’ within 35 days telling you about these fees.

What to do if you receive a late payment letter

Don’t panic if you receive a late payment letter – legal action should be a last resort for a company chasing your debt.

However, this doesn’t mean that you can ignore the letter.

There are different types of late payment letters and each one must be accompanied by an information sheet from the Financial Conduct Authority (FCA) on what the late payment letter means and where to go for advice.

The types of letter you could receive are:

• letters saying you have missed a payment
• a letter giving you seven days’ notice of court action, or
• a letter telling you that you are in arrears or you’re in default.

Talk to the people you owe money to

You should make it a priority to speak to the people you owe money to or get in touch with a free and impartial debt advice company who will help you.

The company or companies you owe money to might offer to:

• give you a short ‘payment holiday’
• freeze or reduce any interest payments
• negotiate an arrangement to repay what you owe in instalments
• reschedule the payments you owe, or the deadline for payment
• provide you with ‘breathing space’ from reminder letters and phone calls while you discuss your situation with a debt advice provider.

Most creditors will be reasonable if you explain your situation to them.

But they can’t help you if they don’t know you’re having problems.

There are tips on how to approach creditors in our guide below.

Work out what you owe and can afford to repay

You need to work out your incomings and outgoings to see how much you can set aside each month to pay your debts.

You can work out how much money you have left over each month with our Budget planner below – or get help from a free debt advice service (see the later section ‘Get free and impartial debt advice if you’re struggling’).

If you think there has been a mistake

If you think that there is a mistake or you don’t actually owe the money, don’t delay.

Contact the company immediately to avoid follow-up letters being generated.

Get free and impartial debt advice if you’re struggling

If you are struggling to repay the money you owe every month, talk to a free and impartial debt advice company.

They will talk you through your different options. Read our guide below to find out more.

What will happen if you do not respond

• You will continue to receive letters and possibly phone calls from your creditors.
• Depending on the type of debt, you will then receive a default notice.
• If you don’t respond to the default notice or letters demanding payment, the creditor might pass your debt over to a debt collection agency, sell it to a company that buys debt or start legal action.
• Your creditor might then go to the county court to get a judgment against you for the debt. In Scotland, a judgment is known as a ‘decree’.

Rules on debt collection

There are clear rules from the Financial Conduct Authority about what a company or debt collection agency should not do when collecting a credit debt.

They cannot:

• Enter a property uninvited.
• Use unnecessarily complicated language.
• Chase you for payment if you’re not liable.
• Mislead you about your debts or your rights.
• Produce documents that look like court documents when they’re not.
• Contact you at an unreasonable hour and must take into account any request you make not to be contacted at particular times or in particular ways.
• Send demand letters addressed to ‘the occupier’ (utility companies, which are not regulated by the FCA, can send letters addressed to ‘the occupier’ if someone has moved).

If a debt collector breaks FCA rules or harasses you, report them to your local Trading Standards or complain to the Financial Ombudsman Service.

This article is provided by the Money Advice Service.