Taking control of your debts
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In the old days families used to keep a set of pots on the mantelpiece and each week money would be put in the various pots to pay the different bills. Only after the money had been set aside to pay each bill did the family consider spending money on food let alone any luxuries.
In the same way, to gain control of your finances you need to sit down and work out a complete budget.
Firstly decide whether it is best for you to work on a weekly, fortnightly or monthly basis (usually in line with how frequently you receive your main source of income).
To assist you, we have provided a free Budget Planner (in PDF) that you can print and use to see where your money goes. To get your free budget planner, please click here.
To view the Budget Planner you will need Adobe Reader, please click here to download.
When you are filling in the details about your income and your expenses, be honest and realistic, because you won't gain anything by cheating yourself!
Everyone in the household who spends and / or contributes money should take part. One way is for all of you to list everything you spend each day for a month, and be prepared for some nasty shocks!
Even if the creditor turns down your offer you should continue to pay the amount offered. Tell them if other creditors have accepted – it might persuade them to accept as well.
It is important to realise that creditors will expect your budget to be realistic rather than extravagant. They have guidelines about the amount they expect people to spend on food, clothing, utilities and the like and will expect your budget to be within those guidelines. If they believe your spending is excessive in a particular area they may ask for proof and/or require you to make reductions so the amount available for debt repayment can be increased. Unsecured creditors will not normally involve criminal courts unless there is an indication of fraud. Otherwise, if they wish to pursue a debt they will normally use the County Court where you will be given an opportunity to respond and make a realistic offer of payment.
When you deduct what you need to pay out from your total income, if the amount left over is less than the total repayments to your creditors you might want to consider offering reduced repayments.
Whatever is left over in your budget (your disposable income) should be earmarked for repayment of your debts. Normally all unsecured creditors are treated equally.
So if you have debts of £10,000 and £100 a month to spare you should pay your creditors on the basis of £0.01 every month for each £1 owed. |
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It is very important to understand the way your budget will be viewed by both your creditors or the courts who will decide whether you are spending more than you should on living expenses. For your sake you need to include sufficient leeway to cope with emergencies and non-regular outgoings. However, they will already have guidelines as to what is considered “normal” spending and will expect your figures to be realistic. Before they agree to accept lower payments from you, the creditors need to be satisfied that your offer is fair by seeing that what you are spending is reasonable and that nonessential expenditure is being kept to a minimum.
The more realistic the budget, the more likely it is that your proposals will be accepted. Your budget will come in for very close attention if you claim that there is no money available to pay creditors.
In many cases the offer may not be sufficient to cover even the normal interest charges so it is worth asking creditors to reduce or waive interest charges for a period.
However, they are not obliged to do this. Where a creditor does agree to waive interest and charges they will only normally do so for as long as regular repayments are made.
First and foremost do not bury your head in the sand and hope that debt problems will go away – they will not!
As soon as you realise you are running into trouble you should contact each of your creditors and explain the situation and include your personal budget. If, after paying your outgoings and your priority debts there is some money left – no matter how little – you should offer, and make a pro-rata payment to all your creditors as explained above.
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