Help, I'm struggling with debt — can I claim hardship?

3min read
Posted 16 December 21

While it's always wise to pay your bills, they can sometimes pile up, making it hard to manage. Taking out loans to pay other loans may also prove difficult, as lenders or credit providers will likely prevent you from getting other loans if you have a history of not repaying what you owe.

So, there are options when you can't meet your repayments, but they will come with their difficulties. 
 

What can I do?

The first step should always be to talk to your lender or credit provider. With them, you can arrange a new payment plan based on what you can afford to meet. You may have to extend your loan period to complete this, and so could end up paying more in interest but it's better than going bankrupt. 
 

What happens if a debt collector contacts me?

Debt collection agencies are hired to chase up what you owe on behalf of whoever lent you the original loan or credit amount. Credit lenders do this because chasing people up for bad debts takes a lot of time and resources, which they might not have. However, debt collectors want to secure payment for their client, your lender. You can always talk with debt collectors to arrange a payment method that works for you. 

Check out our blog on speaking to debt collectors for more information.
 

Other things to consider.

If you've got too many open accounts, you might also consider consolidating all your owing amounts into one account with a single set interest rate. This is called debt consolidation, and we cover it in detail in another blog. 

Another way is to sell off your assets, which are things of value you own. These can be sold to pay for your existing debt. Some loan agreements will be secured, to begin with, meaning that your lender agrees to lend you money as long as you decide to sell a specific item off if you can't meet a repayment. The process of selling items off is called repossession, and you can apply for this voluntarily if you suddenly find you can't pay your debts. 

This may seem like a lot to take in, but it's good to be aware of your options before applying for hardship.
 

Applying for hardship

Applying for hardship also means you need to meet the conditions below; 

  • Have met with something serious, like illness, injury, loss of employment, end of relationship or death of a partner or spouse.
  • New development means that you can't afford to meet your debts.

To apply, you also need to have;

  • Been in default (unable to repay) an owing amount for more than two months.
  • Been in default for more than two weeks after receiving notice that your items will be repossessed
  • Or have failed to make more than four debt repayments on their due dates.

Unless your lender says otherwise, you can only make one hardship application within four months.

Your loan or credit repayments are then either reduced, restructured (which changes the loan's original terms) or suspended for some time. 
 

Impact of hardship applications.

When you apply for hardship, your credit history is accessed. This is counted as an enquiry, which is a process where you ask for your credit history to be looked into, either to get more credit or loans or to assess you for financial difficulty. A full enquiry is noted on your credit history and will impact your score.

Hardships can stay on your file for up to 5 years and may mean lenders or credit providers turn you down in future because they can see you have a history of non-repayment.

The good news is that your account will be 'frozen' in hardship, which means your score can't drop further once hardship is in place. You also get a break from repayments for some time while you get your finances together and sort out a way you can repay your debt in the future. You may even get access to some hardship funding, depending on your reasons for applying. 

So, hardship can be a good option if you need it. However, it's essential to consider all the implications of applying for hardship and consider other options before you do. Applying will impact your credit score, credit history, and ability to secure money in the future, so consider it carefully.
 

Hardship terms to know.

The following terms are essential to understanding hardship and appear on your credit report. Even if none of these applies to you personally, you'll still see them as an empty box on your Yonda or another credit report. 

All the below hurt your credit score, so try to avoid them if you can:

 

Bankruptcy. 

This is where you declare you don't have enough money in your account to meet the debt, and your account is frozen for some time (usually for three years). Bankruptcy is generally run through the court, as it's considered a legal status. 

 

Insolvency. 

This may be thought of as the step before bankruptcy. When you're insolvent, you declare you can't pay your debts in time, and your account is frozen or assets sold off. The difference is that you're not considered legally bankrupt yet insolvency is something you work out with your lender or credit provider, not the court.

 

Collections. 

When your debt is transferred to a collection agency, this will get noted on your report. 

 

Judgements. 

This includes all debts being considered at the court level, usually for bankruptcy. 

 

Public notices. 

A public notice won't hurt your score, but it's essential to know. Specific information such as bankruptcy, insolvency and any court orders you have are legal issues of public notice. This is to protect businesses who might want to lend, employ or deal with you in future by letting them know your credit history. Keep public notices in mind if you ever want to apply for bankruptcy in future. 

 

Credit enquiries. 

We cover this topic in detail elsewhere. But in short, credit enquiries are where you ask for your credit report to be checked, either to apply for a loan or credit card or to apply for hardship. These checks result in a drop in your credit score, so it's important not to keep asking for them.

However, checking your Yonda credit report won't result in a score drop. Yonda doesn't perform a 'hard pull' on your credit history because you won't be using Yonda to get credit approval so you can check your credit report as much as you like.

 

In short.

This blog covered a lot because hardships are a severe topic. They impact your credit score and ability to secure credit cards, loans and even employment in future. However, they can also give you a break from your debts if you need. 

Just consider all your options first before making a hardship application.

 

 

Disclaimer.

Info and tools on the Yonda website are used as a guide only and do not constitute financial advice. Use Yonda as a starting point and then seek professional advice.