The eight biggest debt myths

If you're struggling to pay off your debts, you're probably feeling vulnerable, scared and extremely worried about what the future holds. And you might be unsure where to turn and what to do to get yourself out of this situation.

The problem is, as you're trying to work out what to do and what the consequences might be, it can be very easy to confuse the facts with fiction.

So in this article, I'm going to outline eight of the biggest myths about debt to watch out for.

1) If you don't pay off your credit card, you could be put in prison

Fiction! You can't be sent to prison for defaulting on your credit card or personal loan.

Instead, you might be issued with a County Court Judgment (CCJ) which is an order by the county court stating how much you must pay towards an individual debt. This will remain on your credit record for six years - and can detrimentally impact any further applications you make for credit.

If, once a CCJ has been granted, you're unable to come to an arrangement to pay your debt, it might be taken further, but it still won't lead to imprisonment. Instead, it could result in an attachment of earnings - where a debt is collected directly from your employer by deducting payments out of your wages. Or you could be issued with a charging order - where the credit card company can take some of the sale proceeds when you come to sell your home. Charging orders are not that common, however, and they don't force you to sell your home, merely to give the creditor a share of the proceeds when you do come to sell.

If, on the other hand, you're struggling with council tax, the implications are more serious. If the Council Tax Office has tried, unsuccessfully, to get money from you, it may apply to the magistrates' court for a summons to be sent asking you to attend a court hearing. And this is the start of the process which can lead to imprisonment.

Before you panic, however, you're only likely to be sent to prison if your non-payment of council tax has been due to refusal or neglect, and the court can prove that you have the money but have chosen not to pay.

For these reasons, council tax is a priority debt - the type of debt you should always pay off first, while credit cards, store cards and loans are non-priority debts, which you should put second, and then snowball. To find out more about priority debts and snowballing, adopt this task: Snowball your debts.

2) Credit card companies can send bailiffs round

Fiction! Credit card companies do not have the authority to send bailiffs round to your home - so if your credit card company threatens to send bailiffs, don't believe it. 

Credit card companies can only instruct the court to send round bailiffs once a County Court Judgment has been granted against you. The only thing they can do before this happens is send a debt collector to try to collect the money you owe. But the debt collector won't have any legal power, and you don't even have to speak to him.

3) Bailiffs can't force their way into your home

Fiction! While most bailiffs do not have the authority to force their way into your home to take goods, if the bailiffs are from the Collector of Taxes (Inland Revenue), and the debt you owe is a fine or council tax, they can get a warrant to force entry. However, this is rare.

It's also more serious if you're behind on your mortgage or rental payments, as your mortgage lender or landlord may get a court order to evict you. In this situation, the bailiffs are allowed to break into your home. They can also break into your home if they have been allowed into your home before, and you haven't stuck to a debt repayment agreement.

Generally, though, bailiffs have a set of rules they should follow. For a start, they should provide their identification and authorisation if you ask them to. Bailiffs collecting rent are obliged to call between sunrise and sunset, but other bailiffs can call whenever they want. However, most bailiffs should call at a reasonable time - usually between the hours of 8am and 8pm. You can find out more in What can bailiffs do to you?

4) If you miss payments on your debts, your flatmates' credit scores will be affected

Fiction! Whether you share your home with your friend Billy, or your sister Petunia, your debt issues will have no impact on your flatmates' credit records. This is also the case for partners and husbands/wives.

That said, if you share financial responsibilities with your flatmates - for example, if you have a joint bank account with Billy, or a joint mortgage with Petunia - your debt problems can affect their credit records. Similarly, if Billy or Petunia had debt issues, this could affect your credit record. Sign up for a free 30-day trial to get access to your credit report.

5) Your credit rating could be affected by the previous owners of your home

Fiction! This is great news for me personally, because the previous owners of my flat were in mountains of debt. Thankfully, this will have no affect on my credit record. What's more, there's no such thing as a credit blacklist - so neither you nor your home can be blacklisted. 

6) Bad credit ratings are for life

Fiction! Generally, bad credit will stay on your personal credit file for about six years.

For tips on how to rebuild your credit rating, read 10 steps to a perfect credit record. And as I mentioned earlier, if you're curious to know more about your credit rating, you can get a free credit report via lovemoney.com to help you work out exactly where you stand. Just remember to cancel your membership before the 30-day trial period is up, to avoid being charged in the future.

7) You have to pay for debt advice

Fiction! As I explained in the video Watch out for this debt rip-off, some banks have the audacity to charge as much as £100 for debt advice. But there's absolutely no reason to pay this ridiculous sum of money because you can get debt advice absolutely free from places such as Consumer Credit Counselling Service, National Debtline, and Citizens Advice.

All of these will provide guidance on a range of options to suit your personal needs and help you with your debt problems. So don't pay for something you can get for free!

8) Your family will have to pay your debts if you die

Mostly fiction. Generally speaking, this won't be the case. However, if you have borrowed jointly with someone, that person will be liable for all joint debts if you die. He or she will however assume full ownership of any asset, such as a property (presuming you have borrowed as joint tenants, rather than tenants in common). 

Related blog post

• The Consumer Credit Counselling Service writes:

  The first steps to facing up to your debt

  With the recession still biting and cutbacks in public spending on the way, getting your finances back on track should be a priority for 2011.

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If there are sufficient assets in your estate to settle your debts then this would be done by the executors. If your estate is greater than your debt, whatever is left will be distributed according to your will. However, if your debts are bigger than your estate, the remainder is likely to be written off.

Finally...

If you are struggling financially, don't bury your head in the sand. Your problems won't disappear by themselves.

If you want to get back in control of your finances, the first thing to do read this how to guide: Destroy your debt. Next, watch this video on debt advice and this one on debt rip-offs. And then, why not have a wander over to Q&A and ask other lovemoney.com members for advice? Many have been through similar situations and can share tips from their own experiences on how best to tackle a specific problem you raise. And finally, there are some more debt myths here on Ed Bowsher's blog.

Good luck!