How to cope if your income suddenly shrinks

Have you found yourself dealing with a short term loss of income? Maybe you've recently been made redundant, or found that illness has forced you to take time off or work fewer hours. Suddenly finding that your income has taken a hit can cause a lot of worry about how you're going to cope financially and the situation can become a lot more complicated if you've also got debts you need to pay off.
By The Newsroom
Published 23rd Feb 2017, 09:20 GMT
Updated 1st Mar 2017, 09:56 GMT
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You can’t always control what life throws at you but if you find yourself in this situation, there are ways to make sure you don’t fall behind with your repayments and get into trouble with your creditors.

The most important thing you need to do is keep in touch with your creditors. If you know you’re not going to be able to make your repayments this month – or for a number of months – make sure you give them a call and let them know. Explain why your situation has changed and when you expect to be able to make your full payments again. This may seem daunting but it’s important to remember that creditors must help you stay out of financial difficulty and provide you with help if you ask for it.

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They may be able to freeze interest and charges on your debts, so they don’t grow out of control and you don’t get charged for any payments you can’t avoid missing. Depending on your circumstances, they may also be able to suspend your payments for a while, to give you a financial breather.

While you’re sorting things out with your unsecured lenders, it’s important to remember to prioritise your important bills, such as your mortgage/rent, secured loans, child maintenance, utility bills and council tax.

It may also be a good idea to get professional debt advice. A debt advisor will be able to have a look at your particular situation and recommend the best course of action for you. For example, it might be more appropriate for you to start a Debt Management Plan (DMP), if your advisor can see you need more of a long term solution to your debt problems.

A DMP allows you to repay everything you owe to your unsecured lenders but at a reduced, affordable rate. In some situations, creditors decide to freeze interest and charges on your debts when you start a DMP, making it easier for you to repay everything that you owe.

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A DMP means that you may end up paying more of your debts back over a longer period of time – because your monthly payments will reduce. It will also have an effect on your credit history for six years from the date that you start it, meaning you may find it more difficult or more expensive to borrow in the future.

But a DMP can help you avoid the situation where your creditors want to take legal action against you. With a DMP you aren’t tied into the agreement for a fixed length of time – should you find that your circumstances improve, you can come off the plan and resume your contractual payments.

So if a loss of income has impacted your ability to make your repayments, make sure you keep in touch with your creditors and seek professional debt advice.

Debt Advisory Centre: 0161 871 4881