Three easy steps to deal with your debts
Three easy steps to deal with your debts
When an unforseen change happens in our life like becoming ill, losing your job etc money worries can very soon add to the problem.
As this ‘money worry’ can create stress and probelms we have listed below our 3 step guide to help you deal with your debts.
Step One – Making a Budget
If you are in genuine financial difficulty it is essential that you sort it out as soon as possible. Both you and your creditors will want to do this quickly. The first step is to work out exactly how much you spend each month on your basic living costs. Essential Expenses we call them. At this stage do not includ any of your debts, just the essentials like mortgage or rent, power and heat, food, these kind of things.
It will also help to cancel any of your non-essential expenses. Things like club memberships etc. This will ensure that you have more money left to pay off your debts sooner. It may be a good idea now to look at the many online price comparison sites and check that you are paying the best price for your essentials. Every pound you save can be put towards clearing your debts quicker.
Also make a note of all the income you receive now. Include any benefits too.
Step Two – Adding up your debts
You now need to make a list of all of your debts, including any credit cards, store cards, personal loans and bank overdrafts. Include the names of the lending company for each debt and how much you pay them each month. Where possible also include an up to date figure on how is outstanding to pay.
With all this information you will quickly see the size of your particular problem. Make a 2 colum list. Put your total incomes in the left side and the total Essential Expenses plus the Total Monthly Debts on the right side. Now you will see how much you have left each month to pay towards your debts.
For example: Income £1,000 Essential Outgoings: £910 Debt Payments £310.
Clearly you will only have a maximum of £90 to offer to your creditors. You can approach them individually and try and negotiate but I reccomend using a Debt Management Company to do this for you.
Step Three – Setting up a repayment plan
As everyone’s circumstances will be different a Debt Management Company will create a bespoke plan (DMP) just for you. Using the figures you give them as in step one and two they will calculate exactlt how much money you have left each month to put towards your debts and liaise with your creditors to establish a fair plan of payments. They will hopefully get the interest charges FROZEN and thus enable you to make real payment off the debt balances.
It can often work out that you end up paying back MORE capital each month under a DMP than you were when paying the usual monthly payments with interest included.
Obviously there are implications to these type of arrangements. Your credit file will be updated to show that you are in an ‘arrangement’ but frankly it would have been showing missed payments etc anyway. You have nothing to fear from a DMP.
You may have insurance that covers your card payments etc, the Debt Management Company will ask you about these and take account of any that can help your situation.