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If you’ve taken out credit, it’s probably a safe bet that your creditor has asked you to set up an automated payment for your monthly bill.  In principle, this makes sure they can get their money without you having to remember to send a payment.  In practice, this only works if there’s money in your account to cover the bill.  If there isn’t then your creditors won’t get paid and you can take it as read that they will take action.

Can’t pay/won’t pay/forgot to pay?

In all probability, your creditor’s first line of action will be to get in touch with you to work out why you didn’t pay.  There are generally three main reasons for this.  They can be roughly summarised as can’t pay, won’t pay and forgot to pay.  Won’t pay and forgot to pay do happen, but this article will focus on can’t pay.

Cash flow or income issue?

Your creditors will want to establish early on if your inability to pay was just a temporary issue or if it’s a long-term issue.  For example, if you work in a field where your income can be erratic, then the fact that you didn’t have the money at the time it was due doesn’t mean that you are a bad customer or even a huge risk, it just means that your lender is going to have to deal with the fact that there are probably going to be times when you’re late with payments.  You can expect to get a late payment penalty, (although you might be able to talk your lender into waiving this) and you can expect your credit record to take a hit (this is probably non-negotiable), but it’s highly unlikely that your lender will take any further action.

Managing regular payments on erratic incomes

When it comes to managing regular payments on erratic income, here are some key points to note.  First of all, lenders value regular payments more highly than overpayments and under/missed payments.  In other words, if you have spare cash one month, then wait until you are sure that you can make your full payment the following month before you decide whether or not you are in a position to make an overpayment.

Secondly, if your income is erratic, automated payments can be a bad idea. Basically, it can make more sense to make payments manually as soon as you have money in your account so that you then know that what is left over is yours rather than having to remember to keep money in your account.  Thirdly, lenders tend to find communication reassuring, so if you know you’re going to be late with a payment, let them know, tell them why make it clear you have a plan in place to fix the issue and tell them when they can expect payment.

When your income doesn’t cover your expenses

Technically, when your income doesn’t cover your expenses, you are insolvent, but there is a bit of nuance here.  The key point to note is that your creditors will want to recover as much as they possibly can but that they can only get what you are able to give them, so, while it is entirely possible that they can force you to sell any significant assets you have to pay what you owe, it is not necessarily in their interests to force you into insolvency if there are alternatives, such as a debt repayment plan which could, for example, see them get their capital in full but without interest or with a lower rate of interest.

For the sake of completeness, in the UK, there is really no such thing as “unsecured debt”.  If you have assets, your creditors have a claim on them.  The only real difference between “secured debt” and “unsecured debt” is the process creditors use to access their value.

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