Arranging debt repayment plans with creditors

The basic steps are these:

• Make a budget with our guide
• Use that budget to work out what you can afford
• Make an offer to the people you owe

1. Your Budget

Your budget shows you:

• How much money you have coming in
• What you spend on housing and bills
• What you spend on living costs like food, travel and clothes
• What you need to pay towards debts

2. Working out what you can afford

Any money left after living costs can be shared out to the people you owe.

This only covers "unsecured debts" so things like:

• Credit card debts
• Personal loans
• Catalogues and Store cards
• Overdrafts

To work out what to pay everyone you owe:

1. See how much money you have after living costs are paid
2. Figure out what you total debt owed is
3. Work out how much you owe to different people
4. Divide what you owe to each person by the total debt
5. Use that fraction of your leftover money to pay the debt

So let's say:

• You have a loan and a couple of credit cards
• You owe £1000 in total
• Card 1 - You owe £100
• Card 2 - You owe £200
• Loan - You owe £700
• The fraction of your debt works out as:
• Card 1- 100 divided by 1000 equals .10. Also called 1/10 or 10%
• Card 2- 200 divided by 1000 equals .20. Also called 2/10 or 20%
• Loan- 700 divided by 1000 equals .70. Also called 7/10 or 70%
• Your budget shows that you have £100 left over each month after bills and living costs
• This means you could afford to pay:
• Card 1- £10 (10% or 1/10 of the £100 you have left over)
• Card 2- £20 (20% or 2/10 of the £100 you have left over)
• Loan- £70 (70% or 7/10 of the £100 you have left over)

The first thing to do is contact the people you owe by:

• Phone
• Email, or
• Letter

Explain your situation and offer to pay the amount you can afford.

You may want to send a written copy even if they agree over the phone.

To support your offer:

1. Show the people you owe what you can afford:

• Send each of them a copy of your budget ('income and expenditure statement')
• This helps the creditor see that your offer is fair and based on what you can afford

2. Explain why you cannot keep up with full payments right now:

• It helps if your creditors understand why you are struggling to pay
• For example:
• You lost your job or are earning less money
• Cost of living has increased
• You are going through a divorce
• You have an illness or mental health issue, like stress or depression

I cannot afford to pay more than I offered

Carry on paying what you offered if you know that:

• The amount you are offering is fair
• It is all you can really afford to pay

The payments should still be accepted and your account updated.

Learn more about what your creditors can do.

They want me to pay more and I think I can do that

Only offer to pay more if you are sure you can afford it.

This helps creditors see you are working to pay off your debts. But they could keep adding extra charges.

Be careful about where you try to save money.

For example:

• It may be easy to spend less on clothes for a few months, but
• Spending less on food could be hard

Paying off debt is a good option if you can afford it.

For many people though, paying a large lump sum makes it hard to buy basics for a while.

Monthly payments may be a better option for you.

Your credit rating is affected any time you pay less than the required monthly payment.

This makes it harder to get further credit.

Your creditors will try to contact you to pay more and bring the account up to date.

They will eventually default your account and end the contract.

• This means you cannot use that credit card, overdraft or store card
• You need to repay personal loans in full before getting more credit from them

A default stays on your credit file for six years. Find out about default notices.