Talking to creditors - repayment plans

If you can't make your minimum payments, it's essential to tell your creditors immediately. Tell them how much you can afford to pay them, based on what you earn, what you need to live on and what you owe.

If they can see that you're making every effort to repay, they'll probably be prepared to help you.

Dealing with creditors - golden rules

  1. Don't wait for your creditors to contact you. Contact them first, and tell them you're having trouble meeting your commitments.
  2. Explain why you're in financial trouble, what you're doing about it and if your financial situation is likely to get better or worse. Be prepared to provide evidence.
  3. Know exactly how much you can afford. If you can't make the minimum payment, what are you going to suggest? Click here for a guide to budgeting.
  4. Make sure your budget is realistic. It's better to make smaller payments reliably than promise too much and miss payments.
  5. Phone your creditors and write to them:
    • Phoning can be the best way to discuss issues, suggest ideas and reach agreements. Be sure to get the name of the person you're talking to and note the date and time of each call.
    • Letters are proof of what you've agreed, so it's vital that you confirm everything in writing - and ask them to do the same. Keep a copy of every letter you send and receive.
  6. Tell them what other debts you have, and if other creditors have accepted your offers - it might persuade them to accept as well.
  7. While you're making reduced payments, it's worth asking creditors to reduce or waive interest for a while.
    • They don't have to agree, but they might - especially if you're good at making regular payments (even reduced payments).
    • If they do agree, you can be quite sure they'll bring the normal charges back in if you start missing payments.
  8. Don't be pressured into paying more to creditors who 'shout the loudest'. Your payments should be based on:
    • The consequences of not paying that debt.
    • The amount you owe to that creditor.
  9. Pay something - if you can't afford the full amount, pay what you've said you can afford, even if they've turned down your offer. If you end up in court, it's vital to show that you're trying.
  10. Contact them as often as necessary - don't assume that 'no news is good news'.

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Dealing with priority creditors

Your priority bills are your essential living requirements (accommodation, heat, light, taxes, etc.), so you must deal with them first. If you're having problems paying them, it might be a sign that you're living beyond your means - unless your financial problems are temporary, you might have to make some serious changes to your lifestyle.

In general, these bills are not open to negotiation in the way that non-priority debts may be. If you owe rent / mortgage arrears, for example, your landlord / mortgage provider will almost certainly insist that you propose a way of paying back the arrears (over time if necessary) as well as paying your ongoing bills. They are not likely to simply accept lower payments for more than a short time.

If your priority creditors are threatening you with court action, you should explain your problems and ask them to hold off on any action for a short time so you can explore your options and put your plans into action.

If you act quickly, you should have the opportunity to make the necessary arrangements (whether that means seeking advice or looking into the professional debt solutions available) and avoid the more serious consequences of non-payment. The sooner you take action, the easier - and cheaper - it will probably be.

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Dealing with non-priority creditors

Once you've spoken to your priority creditors, you'll know how much disposable income you have left for your other debts.

If your disposable income is enough to make the minimum payment on each debt, you should use any 'spare' money to pay more to whichever debt has the highest interest rate. It might mean living without luxuries for a while, but you could save a lot of money by cutting down on your interest payments.

If your disposable income is not enough to make the minimum payments, you should distribute all available funds fairly among your non-priority creditors, based on how much you owe each one of them. This is known as 'pro rata' payment.

An example:

Say you owe 10,000 to 4 creditors:

Personal loan 4,000
Credit card 3,000
Store card 2,000
Overdraft 1,000
Total: 10,000

Your monthly disposable income is 100 - not enough to make the minimum repayments. You will have to split it among them, and your creditors will be more likely to accept lower payments if they can see you're doing this as fairly as possible.

The equation:

To figure out your proposal:

1) Divide your Disposable Income by your Total Debt. 100 / 10,000 = 0.01

2) Multiply that number by the amount you owe each creditor to find out how much you should offer to pay that creditor per month.

The proposal:

Personal loan 40 (0.01 x 4,000)
Credit card 30 (0.01 x 3,000)
Store card 20 (0.01 x 2,000)
Overdraft 10 (0.01 x 1,000)
Total: 100

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Be realistic

Your creditors (and the court, if it goes that far) will examine your figures closely.

They will have guidelines about average spending on food, clothing, utilities, etc. If they think you're overspending, they may ask you to justify your expenses or cut back on some of them. Keep all receipts and bills, so you can prove what you're spending.

Don't be too strict with yourself. There's no point suggesting a budget that leaves you with almost nothing for food, or for unexpected expenses. Making lower payments reliably is better than promising a higher payment you can't really afford.

Once you have reached an agreement, make sure you stand by it.

  • Keep making the payments.
  • Supply your creditors with an updated statement of your income and expenditure and other debts when they ask.
  • Provide evidence (bank statements, payslips, etc.) when they ask.
  • If there's a problem, inform your creditors straight away.

Don't be pressured

The vast majority of creditors and debt collectors will understand your situation and try to help. That doesn't mean they'll agree to everything you propose, but they should consider any reasonable suggestion.

If your offer is not accepted, they should explain why and what they would be prepared to accept, as well as what will happen next if you can't afford the extra they want.

All their staff should follow strict guidelines in their dealings with you. It is illegal for them to harass or mislead you - for example, by:

  • pretending to be a court official or bailiff,
  • sending letters that look like they're from a court,
  • falsely threatening criminal proceedings,
  • calling you too often, or at unreasonable times, or
  • pressuring you to pay by telling other people about your debts.

If you feel that you're being unfairly pressured, keep a record of what happens and when, and report it to your local trading standards department. You can find your local department by visiting and filling in your post code.

The Office of Fair Trading (OFT) has written guidelines about debt collection. Click here and see section 2 - 'unfair business practices'.

The courts

If you can't reach an agreement, your creditor may get the court involved.

But remember:

  • Most creditors can't take you to court unless your debt has been overdue for some time and they've issued the appropriate notices.
  • Most creditors see court action as a last resort. You should be able to resolve your problems before it gets that far.
  • Even if you do end up in court, you still have an opportunity to sort your problems out.
  • The courts aren't there to punish you. They're there to settle disputes and reach a decision that's fair to everyone - so your creditor gets the money they're entitled to, and you get to pay it back in a way that you can afford.

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