The Cost of Waiting: Why Taking Early Action on Debt Matters

Debt problems often develop quietly.

A payment is missed. A letter is left unopened. A telephone call is ignored because there is no money available and no clear answer to give.

For a time, postponing the problem can provide emotional relief. Unfortunately, it rarely improves the financial or legal position.

Interest and charges may continue. A creditor may commence court proceedings. A business supplier may withdraw its support. A lender may move from its customer-support team to formal recovery or enforcement.

Taking action early does not guarantee that the debt can be reduced or settled. It does, however, create time to understand the options before they become narrower.

Why people delay seeking help

People rarely ignore debt because they do not care about it.

More commonly, they are:

• embarrassed about what has happened;
• frightened that speaking to the creditor will trigger enforcement;
• uncertain about who can be trusted;
• overwhelmed by several debts arriving at once;
• waiting for income, a property sale or business payment;
• worried about the effect on their family; or
• convinced that nothing can be done.

Financial anxiety can also make the administrative task of addressing debt much harder.

The FCA previously found that 11% of UK adults had postponed dealing with financial matters, ignored warning correspondence or avoided speaking to lenders as a result of the rising cost of living.

Avoidance is therefore a common response to pressure. It should not be confused with indifference or irresponsibility.

Delay can allow the creditor to control the timetable

Before formal action begins, there may be time to gather information, check the balance, review legal documents and prepare a proposal.

Once proceedings have commenced, the timetable may be dictated by court deadlines, statutory notices or enforcement processes.

The consequences will depend on the type of debt. A secured lender may have rights over property. A judgment creditor may pursue enforcement. A business creditor may issue a statutory demand or insolvency petition. A finance provider may seek to recover an asset.

Some debts are also more urgent than others. Rent or mortgage arrears, council tax, utility liabilities and certain court debts may require different treatment from ordinary unsecured borrowing.

This is why a complete review is important. Paying the creditor who is applying the greatest pressure is not always the same as dealing with the debt carrying the greatest risk.

Early support can produce better-informed decisions

The FCA's Financial Lives 2024 research found that only 22% of adults in financial difficulty had used debt advice or a debt-management service.

That means many people experiencing serious financial difficulty are attempting to manage the position without specialist support.

Separate FCA research found that 2.7 million adults sought help from a lender, debt adviser or financial-support charity during the 12 months to January 2024. Of those who sought help, 46% considered themselves to be in a better financial position as a result.

Support does not necessarily mean entering a formal debt arrangement. The first benefit may simply be establishing:

• the correct balance;
• the legal identity of the creditor;
• whether the debt is secured or unsecured;
• whether any court action has started;
• what income or assets are available;
• which liabilities should be prioritised; and
• which solutions are realistically available.

Replacing uncertainty with verified information can make the problem more manageable.

Speaking to a creditor is not the same as surrendering

People sometimes worry that making contact means admitting every aspect of a creditor's claim or agreeing to an unaffordable repayment.

That need not be the case.

Before making substantive admissions, payments or proposals—particularly in relation to old, disputed or legally complex debts—it may be sensible to obtain advice. Limitation periods, disputed balances, guarantees and enforcement rights can all require careful consideration.

Once the position is understood, communication can be planned rather than reactive.

A structured approach may include asking the creditor to:

• provide a full statement or supporting documents;
• suspend activity while information is reviewed;
• consider temporary forbearance;
• agree an affordable repayment arrangement; or
• assess a full-and-final settlement proposal.

The appropriate request will depend on the circumstances and the creditor is not obliged to accept every proposal.

Some individuals may be eligible for Breathing Space

In England and Wales, the Debt Respite Scheme—commonly known as Breathing Space—can provide eligible people with problem debt with temporary protection while they receive debt advice and develop a plan.

A standard Breathing Space can last for up to 60 days. During that period, most enforcement action and creditor contact relating to included debts are paused, and most interest and charges are frozen.

It is not a payment holiday, does not write the debts off and is not available simply by asking the creditor directly. Access is through an authorised debt adviser, and eligibility and exclusions apply.

Breathing Space primarily concerns individual debt. Companies facing financial difficulty require different advice and protections.

Early action matters for businesses too

For a business, timing can determine whether the objective is rescue, restructuring or orderly closure.

A company that still has customers, assets and some cash may have several possible courses of action. Once its cash is exhausted, key employees have left and suppliers have withdrawn credit, those options may be considerably reduced.

Early action can allow a director to:

• prepare an accurate short-term cash-flow forecast;
• identify personal guarantees;
• collect overdue customer invoices;
• review creditor priorities;
• obtain advice on directors' duties;
• negotiate with key suppliers or lenders; and
• assess whether individual debts may be settled.

Directors who are concerned that a company may be insolvent should obtain advice from a licensed insolvency practitioner or appropriately qualified lawyer. Debt negotiation should not be used as a substitute for advice about statutory duties.

Where a full-and-final settlement may help

A full-and-final settlement involves a creditor agreeing to accept a specified payment in resolution of the relevant liability.

It may be considered where:

• the full balance cannot realistically be repaid;
• a lump sum can be made available;
• the creditor faces delay, cost or uncertainty in pursuing recovery; and
• the debtor can present a credible and properly evidenced proposal.

The terms must be clear. An informal payment made without an appropriately documented agreement may not prevent the creditor from pursuing the remaining balance.

No particular percentage reduction can be assumed. Outcomes depend on the debt, available funds, security, enforcement position and the creditor's commercial decision.

Starting the conversation before the creditor has incurred substantial legal and enforcement costs may create a more constructive environment for negotiation. It does not, however, guarantee acceptance.

The first step is smaller than the whole problem

You do not need to resolve every debt during the first conversation.

Begin by assembling:

• the creditor's name;
• the approximate amount owed;
• the most recent letter or legal document;
• details of any security or guarantee; and
• the amount, if any, that may be available for a settlement.

An expert can then help identify the questions that need to be answered.

Just Settlements works exclusively with limited companies, LLPs and their directors on business-related debts and creditor action. Where appropriate, we negotiate with commercial creditors in pursuit of an agreed full-and-final resolution.

Personal or consumer debt? Just Settlements does not advise on or negotiate personal loans, credit cards, overdrafts, personal vehicle finance, mortgages, council tax, utility arrears or other consumer-credit liabilities. For free, confidential and impartial help please contact MoneyHelper or another FCA-authorised debt-advice provider.

Waiting may feel easier today. A clear plan is more likely to make tomorrow easier.