Three nasty myths about debt

Mike Kielty hits the streets of London to reveal the truth behind three nasty truths about debt.

The Chancellor, George Osborne, believes that the UK is in far too much debt, and that we need to make stringent cuts in our spending. But it’s not just our national finances that are in the red.

British consumers have racked up a colossal amount of debt, almost £1.5 trillion in total. For individuals, this brings the risk of court action, a bad credit rating and even (in extreme cases) imprisonment.

Yet there’s also much that is misunderstood about debt. So today I’m going to dispel three myths that surround debt, and which stop people from sorting out their problems with it.

Myth 1: You can be sent to prison for failing to pay your debts.

You can’t be sent to prison for failing to pay off your credit card or a personal loan – but that doesn’t mean you get off scot-free.

What is most likely to happen to you in this situation is that you might be issued with a County Court Judgment (CCJ), where the court makes an order for you to pay a certain amount to your creditors. If you can’t pay that, then you can ask the court to vary or reduce the amount of your repayments, or to allow you a rest period before you need to start paying back your debt.

If you still fail to pay your debts, then the claimant can apply for a county court bailiff to visit your property. Your debt could also be deducted from your earnings or even might be taken away when you decide to sell your house.

Prison is a distant possibility, though, if you are failing to pay your council tax.

If you have failed to pay back your council taxes, then the council can send bailiffs to your home. If the property they take still does not cover the debt, then the council can force you to come to a court hearing, but even then you would only be imprisoned if your failure to pay the tax was shown to be due to refusal or neglect. This is one reason why you should prioritise getting rid of any debt on council tax before other debts.

Myth 2: Your family will have to pay your debts if you die with them unpaid.

The only time anyone else is legally bound to pay off your debts is if you borrowed the money jointly with them. So if you took out a joint mortgage or a joint loan.

If your debts are solely your own, then none of your relatives will need to pay them after your death. What would happen in this circumstance is that the debts would be paid from your estate, and this would override whatever you had put in your will. If your debts are greater than your estate, then the remainder would be written off.

Myth 3: Getting into debt will give you a bad credit rating for life

It’s true that getting into dangerous levels of debt will have a negative impact on your credit rating in the short term, but this does not have to last for your whole lifetime.

If you get a County Court Judgement against you or are made bankrupt, then this information stays on your credit rating for six years, which will probably make it harder for you to get credit elsewhere. But after this period, provided the debts are repaid, your credit record is wiped clean.

You can take practical steps to improve your credit rating. You can get access to your credit report  for free for 30 days right here at lovemoney.com, as well as lots of tips on improving your credit rating. Most importantly, getting back into the habit of paying back credit payments on time is crucial. If you’re struggling, bear in mind that The National Debtline, Consumer Credit Counselling Service (CCCS) and the Citizens Advice Bureaux (amongst others) will give you free advice on how to deal with your debts. Visit our Dealing with Debt blog to find out more.

Outstanding debts can feel impossible to deal with. But it can be done. You need firstly to get a sense of exactly what you owe, and then make a firm plan for dealing with it that you stick to. If you do that, then you can get your credit rating back into good health, and return your finances to a sound footing.  

> Get access to your credit report  for free for 30 days!