A new study of debt has revealed that millions of people have failed to pay their essential bills. Council tax debts are the most alarming, with over 6 million people owing more than £300. Some 17% of people owe more than £100 to gas and electricity companies, and 10% owe more than £300 to their water company. Over 9 million people have owed money on at least one utility bill for more than a year.
Overall, when asked which was the hardest bill to cover each month, three quarters of people said it was the council tax bill. Electricity bills came next - posing difficulties for a quarter of respondents. CEO of icount, Samuel Mond said: "The sheer amount of people in the UK struggling to pay essential utility bills is worrying. These payments contribute to basic day-to-day quality of life such as light and warmth. "
If you fail to pay, the most obvious impact will be that after some time, and repeated attempts to get the money, they will cut you off from the supply.
Your debt will also appeal on your credit record, and if you don't pay in time, your debt will be passed to a debt recovery firm, which will send in the bailiffs. If they cannot seize goods to pay your bills, they may get a county court judgment demanding payment - which again will cause issues for your credit record.
Given the consequences of missing utility bills, it's easy to see why people may prioritise these debts over council tax. As Mond says: "Council Tax payments may be considered a lower priority for those people struggling to pay utility bills. The direct impact may be perceived to be less, than if the electric, gas or water is cut off by the supplier."
However, failing to pay your council tax has even more serious consequences. Paying late will create a mark on your credit record, but if it continues over the long term, the problems will start to mount. You will get two reminder letters, and then a third - which will demand you pay for the whole year's council tax. If you don't pay, they will go to court, and their legal costs will be added to your bill. They can then take money directly from your wages or benefits.
If they can't recover the costs, they will send the bailiffs round, and if they can't recover the property, they will take you to court. You can be sent to prison for up to three months if the court decides you don't have a good reason for failure to pay. They will also arrange a schedule for you to repay everything you owe.
If you cannot pay your bills, the best bet is always to get in touch with the people you owe money to, and explain you are having issues, before they start sending demands. It's in their best interests that this money is eventually paid, so they will usually come to an agreement which allows you to pay over a longer period of time. If this feels overwhelming, organisations like the Citizens Advice Bureau can help, and charities like StepChange will be able to talk to the suppliers on your behalf.
Most common causes of debt
Most common causes of debt
There are some very common reasons for building up problem debts. Here we reveal seven of the most common, and what you can do if you face them.
Unemployment or illness that means one or more of the household’s earners are unable to work will bring a profound change in family finances, and according to the Money Advice Service is the most common reason for getting into problem debt.
If your circumstances change, therefore, you need to immediately address your family finances, and put everything on a minimum spend lockdown. You should also look into the benefits and tax credits that are available sooner rather than later, to try to close the gap.
If you are on the kind of contract that means varying hours, it can be incredibly difficult to work out what you can afford to spend - making it the second most common reason for getting into debt - according to the Debt Support Trust.
Rather than swinging through the extremes from week to week, the best approach is to establish a budget that will work in the leanest of months, so you don't find yourself getting used to the months when you work more hours.
According to Citizens Advice, trying to service too much debt is the third most common reason for getting into difficulties. The TUC found that those with problem debts spend 40% of their income on debt repayments.
If you are in this position, you officially need some help with your debt problems. If you continue to rob Peter to pay Paul, you will end up owing more and more, so you need to take stock and talk to a debt charity about all your options.
The double-whammy of the legal bills combined with the incredible cost of establishing two separate households is enough to make divorce or separation the fourth most common reason for going into debt - according to the Debt Support Trust.
There's no easy solution, but if you are going through this, it can be helpful to talk through your financial situation with someone you trust or a debt charity, who can help you balance a stretched budget.
Problem debts aren’t necessarily caused by a sudden shock to the system. According to the Money Advice Service, 20% of their clients are simply trying to live on an unsustainably low income.
If you are in this category, it’s important to seek help on the benefits and tax credits you may be able to receive. It’s not always easy to navigate the system, but charities like StepChange have experts on the benefits system who can talk you through what’s available.
The combination of rising costs and stagnating wages over the last few years has meant increasingly people saw their monthly wage cover less and less of their monthly outgoings. This position has started to ease more recently, but has left many people far worse off than before the financial crisis. The Money Advice Trust said a combination of this and unexpected costs was responsible for almost one in ten problem debts.
If you consistently spend more than you are expecting, it's well worth keeping a spending diary. That way you can establish the real cost of living, and start to identify where you can cut costs.
The Money Advice Service says it commonly deals with individuals who have struggled to get to grips with budgeting and debts, and have got into debt because they don’t have the skills and knowledge to manage their money effectively.