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Payment difficulties

Payment problems can be caused by a number of occurrences: an unexpected reduction in income, illness, loss of a job, and guarantees that are activated, among others.

Any household’s objective should therefore be to set some money aside from their income and deposit it to a reserve fund that they can use to meet unexpected expenses if they should arise. The best way is always to take preventative action before the problem becomes unmanageable.

In order to avoid payment difficulties or to rebuild your finances after having experienced payment difficulties, it is good to bear the following in mind:

Obtain a realistic overview of your income and expenses

  • What does it actually cost to run your household? How much to you pay on loans, rent, childcare, and other fixed expenses? How much income do you receive after taxes and other deductions.
  • Knowing what your expenses are gives you greater financial security.
  • One way to gain an overview of your expenses is to write them down every day; for example, in an expense diary such as Kladdinn.
  • It can also be good to gain an overview of your household living expenses by maintaining household accounts. In addition, it is possible to use the Debtors' Ombudsman’s cost-of-living references as a benchmark in assessing your living expenses.
  • Recording your expenses makes it easier to see where your money is going, and then you can decide which expenses you want to classify as fixed expenses and which ones you want to (or can) omit. It can be good to categorise expense items according to how difficult it is to do without them or reduce the cost of them. For example, it could be difficult to reduce items such as rent, property taxes, or daycare, while it is easier to lower energy costs, subscription costs, or costs due to clothing or food purchases.
  • Many people over- or underestimate their income, and it is best to calculate the total over the past 12 months and find the average amount paid out. Do not forget to add items such as child support, child benefits, mortgage interest allowances, and housing subsidies, if applicable.
  • You can determine your debt service capacity by deducting your total expenses from your total income. The difference is the amount you have as disposable funds each month.

Set goals and adhere to them

  • When you have calculated your debt service capacity, you can set goals. Such a goal may be, for instance, to avoid spending more than a specified amount for certain items, or to begin saving on a regular basis for a specific purpose. Setting goals makes it possible to set aside the money to cover expenses that you do not want to omit, while saving in other areas. When your goal has been set, you should then decide when you will review the situation in order to see how you have progressed.
  • If you can create additional space in your budget, you can use it to pay down loans, pay down short-term debt, or make a deposit to a savings account. Allocating extra funds in this way helps you to to prepare yourself better for unexpected circumstances.

What if I cannot pay my debts on time?

  • If you do not have the financial scope to pay all of your debts on time, it might prove necessary to prioritise them. Top priority should go to expenses relating to the household: loan instalments, property taxes, utilities, and/or rent. You could prioritise the others by paying the smallest claims first or by making partial payments on those that bear the highest interest and expense.
  • The penalty interest rate on past-due debt was 8,5% as of January 2021; therefore, it could be sensible to pay down debts in arrears first. The interest rate on automatic instalment payments and split credit card payments is often similar to the penalty interest rate. The interest rate on overdraft loans is usually slightly lower than the penalty interest rate. Interest rates and other costs for so-called payday loans can vary. A discussion of payday loans can be found here.
  • Negotiate immediately with your creditors if your debt service burden is too high relative to your income.
  • In order for you to pay your debts on time, your expenses must be lower than your debt service capacity. When you see that you will be unable to pay on time, you must respond immediately because, if your arrears begin to pile up, it can be difficult to correct the situation, and arrears are costly.
  • It is important to contact the creditor concerned immediately and find out what options are available for a debtor experiencing temporary payment difficulties. For example, see if it is possible to negotiate deferred loan payments, to pay only the interest on your loans, or to amend the terms and conditions of your loans. Upon satisfying certain conditions, it is possible to apply, for instance, to the Icelandic Student Loan Fund and the Housing Financing Fund for a moratorium on payments due to financial difficulties.
  • When financial difficulties are persistent or if default is foreseeable, it is possible to contact the Office of the Debtors' Ombudsman for advice and possible solutions. After you have undergone a financial distress assessment, you can get help in negotiating with your creditors.

Get to know what your rights and responsibilities are

  • Are you missing out on something you are entitled to?
  • All information on mortgage interest allowances and child benefits can be obtained from Iceland Revenue and Customs.
  • Information on housing benefits can be found at the website Húsbót, which also features a housing benefit calculator.
  • Information on special housing support can be obtained from the local authorities in your community.
  • Information on child support and alimony can be obtained from Commissioners’ Offices, and information for those who pay alimony and child support can be obtained from the Child Support Collection Centre.
  • Information on support payments for single parents can be obtained from the Social Insurance Administration.


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