As a student, you only have a limited income, so it is not unusual to fall into debt whilst studying.
Being in debt can be stressful and worrying. The best way to deal with debt is to be aware of the problems and consequences and to manage debts so that you are in control, rather than the debt situation controlling you.
This page will give you a few pointers to help you to deal with a debt situation and will outline the possible debt scenarios that you could be faced with as a student. You will need to identify whether the debt is a priority debt or a non-priority debt.
These are debts that can affect your welfare if they are not dealt with, e.g. you may lose your home or services to your home. Priority debts are:
- Mortgage/rent arrears, secured loan arrears
- Council Tax arrears, fine default, maintenance arrears
- Electricity/gas arrears, telephone arrears
- Income Tax arrears
- Higher Purchase arrears.
These are debts which do not affect your general welfare:
- Bank/building society loans (unsecured)
- Bank/building society overdrafts (unsecured)
- Credit cards
- Store cards
- Credit sale
- Payday loans
Clearing your debts
The best initial advice is to contact your creditor to let them know that you are having difficulty in meeting your payment to them, and to let them know your current financial situation. Always deal with priority debts first.
However, before making any contact, it is a good idea to draw up a weekly or monthly budget plan or financial statement, so that you can see what your income and expenditure is.
Begin by making sure that you are accessing all the income that you are entitled to (this is called income maximisation), for example, are you receiving the maximum amount of student loan that you are entitled to? Are you entitled to any other student support such as dependants' allowances, bursaries or childcare costs? Have you accessed a student overdraft through a student bank account? Have you claimed any state benefits to which you may be entitled?
When you have considered all of these possibilities you can then decide on how to economise so that you can make some offers of payments to your priority creditors. This can be as little as £1 per month if your expenditure exceeds your income. The creditors will want to know who else you owe money to and this should be shown in the financial statement. If there is money left over after negotiating with priority creditors, offers should be made to all your non-priority creditors on a pro rata basis.
You can get help and advice on income maximisation, the construction of a financial statement and on how to make offers to creditors, from the Welfare Officers in Student Finance and Welfare, in the Student Gateway.
Situations that may occur
An overdue bill, a reminder letter, a default notice or default letter
In these cases contact the creditor to let them know that there is a problem, creditors appreciate an early warning and will often be able to suggest an affordable payment plan for you to clear the arrears.
Letter from debt collector
Phone the debt collector to let them know that you are trying to deal with the problem and then write to the debt collector enclosing a financial statement and making an offer of payment.
Let the debt collector know that you do intend to settle the debt as soon as you are able. Most debt collectors are reasonable as long as you let them know what is going on.
Point out that if you are able to graduate then you will be able to gain well-paid employment which will enable you to settle your debts more quickly.
A court summons will be accompanied by a reply form. This will need to be filled in and sent back to the court. Get some expert advice as soon as possible as there will be deadlines.
Letter from Enforcement Agent (bailiff)
There will be a contact number on the letter. You will need to contact the Enforcement Agent and ask to arrange a payment plan.
Rent arrears letter
Contact your landlord and explain the problem. They are often willing to wait for a short time or accept instalments to clear the debt.
These are only issued after reminders and notices have been sent. Do not ignore these, but contact the landlord to see if you can come to an agreement. Possession orders can be suspended by the court but there is a fee for this. Most courts have Welfare Officers who will help, or you can get some expert advice from our Welfare Officers at DMU.
If you are served with an eviction notice you will need to get some expert advice. Contact the court to see if they have someone who can help.
Visit by Enforcement Agent (bailiff)
Enforcement Agents do not have a right to enter your home. You can choose not to let them in. They cannot break in, but can gain access through open doors and windows as long as it is peaceable entry.
Once inside your home they will be able to list your possessions and assess their value in order to seize goods in payment of the debt. Once Enforcement Agents have gained entry they have the right to enter again or break in.
The best course of action is to politely and firmly refuse to let them in. Offer what you can afford to pay. If the Enforcement Agents accept your offer, ask them to return to their car, and don’t sign anything, then get some advice as soon as possible after their visit.
It is illegal for creditors to harass debtors. If you feel that you are the victim of inappropriate behaviour or harassment, you need to let the creditor know that this is unacceptable to you. If they fail to stop, they can be prosecuted. You can report them to the Trading Standards authorities.
Managing your payments
If you are able to arrange affordable monthly payments to your creditors, you must stick to the arrangements and pay on the agreed dates. Once you have received your student loan do not be tempted to pay large chunks off from your debt, resulting in having little or no money to live on.
Useful contacts for expert advice