Credit is a useful tool to help you spread costs, especially for bulk buying of everyday items if you can save money. But if you find you’re not meeting loan payments or are using credit to pay for essential items like food, you need to take action.
These steps will help if you’re overloaded with credit from different sources – such as credit cards, loans, overdrafts and short-term credit products such as Buy Now Pay Later or are considering borrowing money from friends or family.
You need to take stock of where you are to get a picture of your true financial situation. These are the steps to take.
Write down all your credit commitments including payments and the day that the payment is due. Just getting them all down will help you to understand where you are and keep track. Check all your accounts or bank statements to make sure you’ve captured them all.
If you bank online, your bank may offer a spending app that can do it for you quickly and easily.
If you are using lots of cards, our guide to Open Banking shows you how to see all your bank accounts in one app or online so you can see what you’re spending on credit.
Read more about Open Banking and sharing your information online
While it’s important to take control of credit before you miss payments, some bills and payments are more important than others. Our bill prioritiser helps you to sort out which ones you need to deal with first, so you can take care of your essential expenses, such as rent, mortgage or energy bills.
Check out our bill prioritiser
If you’re having to spend more on your credit payments, you need to have a look at where you can cut costs and maximise income by making sure you’ve claimed everything you’re entitled to.
Try our free and easy-to-use Budget Planner
Find out how to manage your credit repayments
Once you know where you are and what you owe, take these steps to improve your situation.
If you do have savings, even with higher interest rates, the rate you’re getting on them is likely to be less than the interest you’re paying on your credit cards. So it can be better to use some of the money to get your credit balances down.
When you’re back in control of credit again, make sure you build savings up. As a rule of thumb, you should aim for at least three months income to give you the buffer you need.
Work out a repayment plan for your borrowing
Cash withdrawals on a debit card are fine, but as soon as you take cash out using a credit card, your credit score takes a hit, which can make it more difficult to get credit in the future.
And you get charged extra for taking cash out on credit as soon as you take it out because there is no interest- free period, like there is with purchases.
Your best bet is to just not do it.
There are other types of credit to consider
When you use your overdraft, you’re going into debt. Overdrafts are typically more expensive than credit cards and loans if you use them long term.
Used well, they can have a positive impact on your credit score. To do this, you need to:
Your credit score will be negatively affected if you:
So it’s best to go into your overdraft for short-term borrowing or emergencies only.
If you’re starting to rely on your overdraft rather than use it occasionally, ask your bank if you can have an interest-free buffer – some providers will offer up to £500.
Use our Bank account fees and charges comparison tool to see all the fees and charges that apply to bank accounts – it shows everything from overdraft fees to foreign cash withdrawal charges.
If you need to use credit to pay for everyday essentials because you’re struggling to keep up with debt payments, you’re not alone and can take steps to get help.
Talk to your provider about ways you can manage costs and repayments as there is lots of extra support out there.
Solutions could include negotiating a repayment plan you can afford or putting you onto a cheaper tariff.
If you’re struggling financially, gas, energy and water providers will often do a free benefits and grants check to make sure you’re getting everything you’re entitled to.
Talk to your provider – help them to help you. They must offer you a range of support options – the sooner you talk to them the better.
Find out how to Use Buy Now Pay Later agreements wisely
Buy Now Pay Later (BNPL) can seem like the easiest way to pay for your purchases. However, lots of people don’t realise they are a form of credit. So there are things you need to watch out for, especially if you’re starting to use these products to cope with the increased cost of living.
BNPL is often presented as the easiest way to pay at the checkout, allowing you to buy something with just one or two clicks.
The transaction may be so seamless you are not even aware you have chosen to pay in this way. Or you may be encouraged to choose BNPL over other payment methods. For example, you’ll be offered a further discount if you choose to pay using BNPL.
This means you might not give yourself enough time to think about whether you need what you’re buying and how you’re paying for it, or you may be tempted by discounts to buy something you don’t really need.
Think carefully about using BNPL by reading our guide on how these agreements work
The small print about what you’re signing up for could be buried somewhere else on the website. It may be hard to work out what repayment plan you’ve taken out or whether it’s best for your needs.
It’s important to make sure you check the terms and conditions rather than simply tick a box without reading them.
Things to watch out for include:
Before borrowing, read our guide on how to work out a repayment plan
Keeping a record of how much you’ve spent and when your payments are due is vital to avoid additional charges on BNPL agreements, particularly if you have more than one agreement on the go.
Make sure you include this payment in your budget to keep track and ensure you pay on time.
Some BNPL providers offer you access to your account via their website or an app to help you keep track.
Track your repayments with the help of our Budget Planner
Providers should contact you before payment is due, most will do this but because they aren’t regulated by the Financial Conduct Authority, they don’t have to.
Check your payment card is in date until the last payment is made. If it expires while you’re paying off a BNPL purchase, you will miss a payment. It’s up to you to tell your provider about your new card details.
Use your debit card to make repayments. Making repayments with a credit card means you will only push the debt further down the line. This is a problem if you can’t afford it and a sign you could be heading towards problem debt.
Use our bill prioritiser to get the help you need before you miss a payment
If you don’t keep up with your repayments, you can be charged a penalty fee (for example, LayBuy, ClearPay, PayPal Pay in 3) or the payment can be rolled into the next one (Klarna).
If you are still unable to make payments, some BNPL providers will pass your debt on to a debt collection agency to collect payments.
It’s important you talk to your BNPL provider before you miss a payment.
Steps to take as soon as you think you may fall behind on your Buy Now Pay Later repayments
Find out what to do if you’re borrowing from family or friends
It can be tempting to ask relatives to lend you money. But you need to think carefully about whether you can afford to repay it and can cope with what might happen if you can’t.
Before you borrow from family it makes sense to look at all the alternatives first. Things to do include:
Consider other credit options to find the best type of credit for you
If you still want to borrow from a partner or family member, make sure you draw up a budget beforehand. This will help you see how much money you have left for repayments after paying your current living expenses.
It’s a good idea to get together your current account and credit card statements from the last three months (or longer, to take account of one-off costs) before you do your budget.
Our Budget Planner will take you through easy steps to see how you’ll afford repayments
Before you borrow money from family, you need to have an honest conversation about how you will repay the money.
Think about:
It’s a good idea to get something in writing, clearly spelling out how much will be repaid and when.
Your lender might want to keep records of when the repayments are made, so you both know exactly how much is still outstanding.
There’s help on having a formal agreement in writing in our guide to talking with friends about money
Be very wary if you’re offered a loan by someone you know casually – for example, from having seen around locally or who’s a friend of a friend or you’re approached online.
You should even be wary if someone you work with offers to lend you money, especially if they have lent money to a few other people.
They might be a loan shark who lends illegally and the loan could cost you a lot more than you think.
Find out more about loan sharks and how to spot them
It’s always stressful if you can’t afford to pay back what you owe. But it can be even worse if you’re leaving family out of pocket, and it might harm your relationship with them.
That’s why it’s important to work out your budget and make a new repayment plan as soon as you find yourself in difficulties.
Make sure you let the person you borrowed from know what’s happening as soon as possible.
If you’re struggling with debts, there is help available.
Read our guide on how to have a conversation about money
Find out what to do if you’re lending to family or friends
It can be tempting to lend money to friends or relatives. Or you may feel under pressure to help out. But you need to think carefully about whether this is the best option. Consider alternative solutions which might help instead, especially if you think they can’t afford to repay it. As this will make the situation worse.
If a friend, partner or family member asks for financial help, it can be hard to refuse.
Try and have a conversation about why they need the money and if there are other options.
Work out your own budget before lending to anyone.
Don’t be embarrassed to encourage someone to look at their budget or seek debt advice if they’re really struggling.
Debt advice is free, impartial and confidential and if someone has missed payments it may be a better long-term solution to get them back on track.
It will be less awkward to do this before you lend them money rather than dealing with problems repaying you after having borrowed the money.
Prepare for your conversation about money with our guide, including how to work out your own budget first
You might be confident the person you’ve lent money to will be able to pay it back in full. But you still need to consider what you would do if they can’t.
Make sure you talk about, and agree, what would happen if the borrower lost their job and couldn’t pay the money back, or you needed it back in a hurry.
How you might deal with this type of situation is an entirely personal decision. But it’s one you need to think about before lending money to someone you know, no matter how sure you might be that they’ll repay you.
Conversations about money can be difficult so read our guide on how to have them and what to cover
If so, now is the time to get debt advice
It’s free and confidential
Gives you better ways of managing your debts and money
Ensures you’re claiming all the right benefits and entitlements
