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Reasons for Being in Debt

Here are some of the most common reasons people get into debt, with some hints and steps you can take quickly to try to improve your situation.

1. Unemployment and Redundancy

If you suddenly lose your job and all your income it is important to act fast to try and ease the situation.

Redundancy

If you haven’t already received your redundancy pay, check with your ex-employer whether you are entitled to any redundancy pay.

Benefit Entitlement

It is important to check what other benefits you may be entitled to.  Dependent on your circumstances you may be able to claim benefits such as jobseekers allowance, and also help with paying your rent or council tax.

Mortgage

If you are a home owner, check to see whether you are entitled to help from one of the numerous government mortgage schemes.

Payment Protection Insurance

If you have any of these policies with any of your creditors, check if you are entitled to claim on them.  This would mean that the insurance would pay your normal monthly payment for you, although usually for a fixed period of time.

2. Divorce and Separation

If you are going through a divorce or separation then this often means that your financial situation can be affected.

Joint Debts

If you have joint debts with your spouse or partner you will have joint and several liability to pay those debts.  This means that the creditor can claim the whole debt from you if the other joint debtor cannot or will not pay.

Renting a Property

If you rent a property in joint names you can ask the landlord if they would be prepared to transfer the tenancy into your name only.  One benefit of doing this is that if you are the tenant intending to occupy the property it will take away any legal rights the outgoing tenant would have to occupy the property in the future and would stop them from being able to re-enter the property.  However, if you are the outgoing tenant, although there is one benefit of being taken off the tenancy as from that date you will no longer be responsible for any further rent arrears.  However you should take legal advice before you agree to have your name taken off the tenancy as the local authority are likely to take the view that by agreeing to take your name off the tenancy you would have intentionally made yourself homeless which would mean that they would not have any further legal obligation to re-house you.

Impact on your Income

If your separation or divorce has affected your income, check to see what other benefits you may be able to claim, such as income support, housing benefit, council tax benefit, tax credits or child maintenance.

3. Health

If you have been ill, or have suffered an injury that affects you for any length of time then this can have a big impact on you financially.

Benefit Check

Check your benefit entitlement, as depending on your circumstances you may be able to claim benefit such as statutory sick pay or industrial injuries disablement benefit.  If your condition is long term, you may be able to claim disability living allowance.

Renting or Mortgage

If you are renting your property check to see if you are entitled to housing benefit towards your rent or if you are a home owner check to see whether you are entitled to help from one of the numerous government mortgage schemes. 

Payment Protection Insurance

If you have any of these policies with any of your creditors, check to see if you are entitled to claim on them.  This would mean that the insurance would pay your normal monthly payment for you, although usually for a fixed period of time.

4. Maternity

When you have a baby it can put a big financial strain on your family.  This may mean that you are struggling to pay your debts and household bills.

Benefit Entitlement

You should check what benefits you may be entitled to, such as child benefit and tax credits.  Also check with your employer as to what maternity pay you can claim.  You may also be able to claim a maternity grant so you should check this with your local benefits office.

5. Bereavement

Not only is it a very difficult time when you are dealing with the death of a spouse or partner but it can often cause you to go into debt especially if it means your household income is reduced.  You may also find it daunting if you are left to deal with all the debts on your own.

Partner’s Assets

If your partner had assets such as equity in a property, or other valuable assets, it may be wise to seek legal advice as soon as possible to check what their creditors may be able to claim.  If your partner had no assets, any debts in their sole name should be written off, as you are not legally obliged to pay these.

Joint Debts

If you had any joint debts then you will be responsible for paying them.

Insurance Policies

Also check to see if your partner has any insurance policies you can make a claim on such as life insurance to cover the mortgage.

Pensions

If your partner was working or had contributed to a pension, check whether you are entitled to any death-in-service benefits, or whether there is a widow/widower’s pension which can be paid to you.

Benefit Entitlement

Check what benefits you may be able to claim as you may be entitled to a bereavement payment or allowance or a widow/widowers parent allowance if you have children.  You may also be able to claim such things as council tax benefit, housing benefit and other tax credits.

6. Retirement

For lots of people retirement can mean a reduced income.  You may have problems in paying your household bills, debts or both.

Benefit Entitlement

Check to see what benefits you may be able to claim such as pension credit or council tax benefit and you may be entitled to help with your winter fuel payments.

Pensions

If you have contributed towards any private or company pension over the years, you should check with them as to how much you are likely to receive and when the payments are due to start.

Free Entitlement

Once you reach retirement age you are entitled to such things as free prescriptions and free eye tests in England.  You may also be entitled to free bus pass.