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Good financial organisation is the best way to prevent going into debt
Becky WildingMoney writerFriday 28 November 2025 13:58 GMTComments
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Debt is an increasingly common issue for young people in the UK.
According to a 2025 survey from Interactive Investor, more than one-quarter (27%) of Gen Z – defined as those aged 18 to 28 – have defaulted on a debt repayment or bill in the last six months.
A default can have a serious impact on your future borrowing, including your ability to buy a house.
Defaults can often be avoided if you know what action to take, so it’s important to understand the process and consequences.
What is a default?
A default on a debt or bill simply means a failure to pay it.
However, a single late or missed payment is might not be recorded as a default, as long as you catch up on your payments soon afterwards.
If your failure to pay continues for several months, your creditor will likely believe that you’re unable to pay at all.
They may wish to close your account or cancel your contract, marking it as defaulted.
What’s the process for a default?
Let’s start from the initial bill, which tells you the amount you owe and the due date for payment. Once this date has passed, the payment is considered missed. Your creditor will usually contact you again to remind you, likely stating a new deadline for action.
If the payment is still unpaid after three to six months, your creditor may issue a default notice. This will typically demand the full balance owed within 14 days.
Note that the full balance may be more than the missed payment. If you’ve missed a series of payments, they will all be due. If your creditor has chosen to cancel an ongoing contract with several months remaining, the future payments will be due.
Depending on the nature of your credit agreement, there may be interest included in the full balance.
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open image in gallery(Getty Images)If you’re unable to pay the full balance within the time limit, and you haven’t come to an alternative arrangement with your creditor, a default will be recorded on your credit file.
What are the consequences of a default?
Firstly, your creditor might escalate their attempts to collect payment. For example, they may pass the debt to a debt collection agency.
If the debt was secured against one of your possessions (e.g. a car loan is often secured on the car), they may begin the process to take ownership of that possession.
They may apply for a county court judgment (CCJ) against you, meaning they’ll seek court-ordered repayment of the debt according to a new schedule. While there’s no minimum amount for a CCJ, this approach is usually taken for larger debts.
Secondly, the default will have consequences on your future borrowing. Any lenders you apply to in the next six years will see the recorded default, and this may impact their decision to lend to you.
It can affect your applications for credit cards, loans, and mortgages.
How serious is a default?
Generally, creditors prefer to lend to borrowers with spotless credit files, as these borrowers are most likely to repay the loan in full, without delays. However, if creditors only ever lent to these borrowers, they’d have a very small pool of customers. In practice, each creditor has its own policies on the type of borrowers they’re willing to deal with.
With a default on your credit file, you may be declined by certain creditors and may not be eligible for the best interest rates. You’ll have to look harder to find an appropriate loan, credit card, or mortgage, and you’ll probably pay more for it.
open image in gallery(Getty Images)The bigger the default is, and the more defaults you have, the harder it will be to take out credit.
If you have more serious action taken against you, like a CCJ, it will be harder still.
How can you avoid a default?
If you’ve missed a payment or you know you’re unable to make an upcoming payment, it’s best to talk to your creditor as soon as possible. You may feel worried or wary to make that call, but you’ll likely be pleasantly surprised at how willing they are to help.
Remember, your creditor’s goal is to eventually collect the payment, even if it takes longer than originally planned. They would prefer to work with you than to close your account or cancel your contract.
You’re not the first customer to miss a payment, and they have policies in place which might include pausing your payments, freezing your interest, or arranging a new repayment plan.
All of these measures can help you avoid a default.
In short, clear communication can give you far more time to get your financial affairs in order before any serious action is taken against you - but the best way remains to stay organised in your finances, not spend beyond your ability to repay and ensure you know when, and how much, repayments are due.
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