On completion of your financial statement, deduct your total expenditure from your total income to see what money (if any) you have towards clearing your debts.
If you are in arrears you should start by negotiating with your priority creditors (see STEP 2) before secondary creditors and this should be done quickly to prevent implementation of their sanctions. Even if legal proceedings for recovery have commenced it is never too late to make an offer and seek a voluntary agreement.
List all your priority debts and send this schedule, along with your financial statement, to each priority creditor. The letter should include a reasonable repayment offer, provided there is a surplus. A sample letter is below:
Dear Sirs,
Account/Agreement Number
I am experiencing financial difficulties because.....................................
I enclose a financial statement detailing my current situation together with a schedule of all my priority creditors.
You will appreciate that it is necessary for me to make an offer to each of these creditors therefore I am able to pay you £......per week/month.
If you will confirm your agreement in writing I will commence payments immediately. Please also advise me of the method and due date for such payments.
Yours faithfully
When negotiating with your creditors:
- Even if creditors don't agree to your initial offer start paying as it will begin to reduce your arrears and may persuade them to change their minds.
- As payment is agreed with each creditor you should include this in your financial statement so that other creditors can see your current situation.
If you have no surplus income for priority creditors after re-assessing your budget you must still contact them and support your position with your financial statement. Some creditors do have the legal right to make direct deductions from wages or income support via the Department for Work and Pensions (DWP).
For 'fuel' debts, pre-payment meters allow the arrears to be collected over a period of time and are a way of avoiding disconnection.
For mortgages and secured loans the following options should be explored:
- An 'Interest only' mortgage payment style could be an option or they may be other options available to reduce your monthly repayments.
- Voluntary sale of the home will usually produce a higher price than forced sale after repossession, but of course consideration must first be given to alternative accommodation. Such a sale may not always produce sufficient equity to clear the outstanding mortgage/loan and you may still be legally liable for the balance, even if the lender agreed to the sale.
For free advice contact the Consumer Credit Counselling Service on 0800 1381111 or contact Credit Action (www.creditaction.org.uk). This guide is for information purposes only and does not constitute financial advice.