Step 4 Dealing with your non-priority debts

Debts with your bank – overdrafts, loans and credit cards

Many people use their current account with a bank or building society to pay in drawings from their business or wages and to pay household bills. This can cause problems if you have a number of debts and your current account becomes overdrawn.

With an overdraft, you pay interest and charges on the amount owed. If you have a loan with the bank or building society, the full monthly instalment will usually be taken from your current account too. This may mean that you do not then have enough money to pay priority debts such as your mortgage, rent, council tax, gas or electricity.

Extra advice:

Standards of Lending Practice 

The Lending Standards Board’s Standards of Lending Practice - Personal Customers and Standards of Lending practice - Business Customers state that personal customers in financial difficulty “will receive appropriate support and fair treatment" so as "to help them deal with their debts in the most suitable way.”

The Standards of Lending Practice - Personal Customers

The Standards of Lending Practice - Business Customers

You need to be very careful in dealing with debts to your bank. Some banks or building societies will react by taking all the money in your account to clear the overdraft or loan. They can also try to do this if you have a credit card debt with your bank. This is called the ‘right of set-off’. Before negotiating a repayment arrangement with your bank, you should consider opening an account elsewhere to pay in drawings from your business or wages. Do this immediately if the bank or building society does not agree to your offer. If your bank tries to take money from your account in this way, contact us for advice.

Opening a bank account

See our fact sheet:

Basic bank accounts.

You may have difficulty opening a business or personal bank account if you have missed payments to your creditors. However, opening a basic bank account should not normally involve a credit check. Basic bank accounts allow you to have wages or benefits paid in and take cash out. Some accounts let you have direct debits and standing orders.

You are not usually allowed chequebooks, cheque-guarantee cards or an overdraft. Shop around the high-street banks and building societies for the best deal or contact us for advice.

If you are on benefits and don’t want a basic bank account, you can choose a post office ‘card account’. You can have your benefits (including tax credits and pensions) paid into this account and can take money out at a post office counter.

Information:

does your bank charge you a fee for a ‘packaged’ account?

Some banks charge you a monthly or annual fee to have a particular account with them, because they offer extra benefits such as mobile phone insurance. Check if you are paying a fee for your account and think about whether the benefits you receive are really necessary, or if you could get them cheaper elsewhere.

Extra advice:

basic bank accounts

Contact the Money Advice Service for a list of basic bank accounts on 0300 500 5000 or see www.moneyadviceservice.org.uk.