How to deal with debt collectors in the UK
8 Steps to handle debt with a debt collector using the Token Payment Method
If your debt has been passed onto a debt collector, you’ll no doubt be feeling worried and stressed about what is going to happen to you. It’s important to remain calm and remember you’re not alone.
Many people find themselves in the position where they haven’t been able to keep up with their debt repayments. We’re going to share some information with you, to help you feel more prepared when it comes to dealing with debt collectors. Some good news is, it’s a little easier to handle debt collectors than the original creditor.
All the information we’re going to provide is based on section 7.3 of the Financial Conduct Authority (FCA) handbook which you can find here.
We have broken this information into eight easy steps. Read the steps carefully and make sure you understand the process from start to finish.
Not in the mood to read? We got you covered. Listen to the rest with the YouTube link at the bottom of the page.
Step 1: Do not ignore or throw away any letters
It’s essential to keep hold of any written communication you send and receive from debt collectors. These letters are evidence of your communication with them and will hold important information. You can read more about this here.
Step 2: Communicating with Debt Collectors
How you communicate with debt collectors is key, and we must highlight this point as it's really important…
Keep all correspondence in writing!
Do not use phone calls to communicate with debt collectors. If possible do not even entertain the calls. If you can find an email address, contact them this way, if not, then use good old-fashioned Royal Mail. You should be able to find the postal addresses of most, if not all debt collectors on any letters or statements they have sent you. If you still can't find the address, you will need to search for it on the debt collector’s website.
You may find that you receive letters asking you to call the debt collector, or letters that are clearly system generated. If this happens, look for the sender address on the letter you receive, and resend your original letter to this address. Repeat this process every time you receive correspondence that doesn’t answer your letter. Don’t panic if you haven’t received a response to your letter, it can take time for your email or letter to reach the correct department.
In step 4 we’ll explain what you need to do once you receive a response.
Step 3: Making Token Payments
Alongside making sure you keep all written communication; making token payments is the most important part of the process. As soon as you start communication with the debt collector, you need to start making token payments immediately.
We call them ‘token payments’ because it should only be based on what you can afford. Even if the debt collector hasn’t responded to your letters or emails, continue to make monthly token payments. Do not miss any monthly payments. Here’s why, and it’s to do with the way in which a debt collector is required to treat customers…
Section 7.3.5 (3) of the FCA Handbook states the below as an example of treating a customer with forbearance:
Section 7.3.5 (3)
Accepting token payments for a reasonable period of time in order to allow a customer to recover from an unexpected income shock, from a customer who demonstrates that meeting the customer existing debts would mean not being able to meet the customer priority debts or other essential living expenses (such as in relation to a mortgage, rent, council tax, food bills and utility bills).
Financial Conduct Authority (FCA)
Debt collectors are required to follow this guidance when a person alerts them that they are experiencing financial difficulty and trying to put a plan in place to address the situation with the debt collector.
The action of making token payments, means the debt collector should not pursue other legal routes, for example court which could lead to a County Court Judgment.
This is why the token payments are so important.
Step 4: Response to your written correspondence
When you do receive a response to your letter, the debt collector might ask you to call to discuss your situation. Do not call. Simply write in your letters that you "wish to keep all communication in writing". By doing this, you’ll have a clear record of all discussions and agreements.
At some stage, you may receive a letter that includes an income and expenditure form. It is entirely up to you if you choose to complete this form or not. There is nothing in Section 7.3 of the FCA Handbook that states it is mandatory. The form is the debt collector’s way of determining how much you can afford to pay them, so be mindful of this.
If you choose to complete the income and expenditure form, please read the next section carefully.
Step 5: Completing an Income and Expenditure
As we mentioned earlier, the income and expenditure form is the debt collector’s way of determining how much you can afford to pay them.
However, before committing to complete this form we recommend completing our budget planner, so you can retain control and calculate what you can afford to pay. You can also print off and send it to them instead of the debt collector's version.
If you do decide to complete the income and expenditure form, there are some important pointers to be aware of:
- Only fill out the parts you are comfortable completing. If you are unsure about any of the requested information, do not feel pressured to complete that part of the form.
- The debt collector is looking for the figure remaining after subtracting your expenditure from your income. This is the figure they will expect you to pay.
- Debt collectors are not allowed to suggest amounts for you to make as token payments. The income expenditure, shows them how much you can afford to pay each month.
- You are not required to send copies of wage slips, copies of bank statements, medical records or similar private sensitive information.
- Be aware that luxury expenditure may be questioned, things like expensive gym memberships, alcohol, cigarettes etc.
Once you have completed the income and expenditure, retain a copy for yourself and post the original to the debt collector.
Step 6: Confirmation of your plan
You should eventually receive a letter or email confirming that your offer has been accepted for a period of time, after which you will be contacted again for a review.
Step 7: Reviewing your payment plan
The debt collector will get in touch to review your plan at least once within a 12 month period, however this may vary.
Some may review your plan after a month, some after 3 months, some after 6 months. When you receive a letter requesting a review, do not feel pressured to increase your payment if you cannot afford to. If your circumstances haven’t improved, all you need to do is write back to the debt collector telling them this.
If you can afford to and want to increase your payments, then you can do so at any time. Only pay what you can afford to, never sacrifice your mental wellbeing for the sake of increasing your debt payments.
Step 8: Discount offers
The debt collector may reach out to you with discounts or offers to settle your debt, such as a reduced one-off payment. You can read more about this here.
Don't forget to read The Real Debt Guy's final thoughts below!
The information in this article is considered to be true and correct at the date of publication.