If you’ve fallen behind with your payments, you can directly arrange repayments with creditors. Firstly, you will need to work out an achievable and realistic personal budget. Then you will have an idea of the amount you can pay towards your debts, after paying your living expenses.
If you are not currently in arrears but struggling financially, you should try your best to keep making the repayments. If your personal budget reveals you cannot afford to pay the amount the creditor wants, you should speak to them as soon as possible.
How To Make a Repayment Arrangement
Explain to your creditors that you are struggling, even if you are still unsure how you will deal with your debts. Tell them you are doing a budget and seeking advice. You can ask them to hold action on your account while you work out your budget. This may buy you some time and breathing space.
You should work out your income and expenditures, and then you will see what you have left. This can help you work out how to tackle your debts. Get in touch with creditors by letter, email or phone and explain about your circumstances. Offer to pay them an amount you can realistically afford, and send them copies of your personal budget to prove that you are only spending on necessary living expenses.
It can help if you explain the cause of your financial difficulties to your creditors, for example, if you’ve been made redundant, or you can no longer work due to an illness, or your living costs have increased. You may also ask your creditors to freeze any interest and charges on your account.
Keep copies of all letters you send and receive. Use a recorded delivery service for important letters. When you speak to creditors on the phone, keep a record of who you spoke to and when.
Which Debts Should You Pay First?
Some debts are more important than others and are known as priority debts. It’s important to make agreements to repay these debts first. Priority creditors hold more powers than non-priority creditors. Here are some key examples of the most serious steps priority creditors could take. Do not be alarmed as you would be given plenty of warning. If you act quickly, you can prevent these things from happening.
- Mortgage, rent, or secured loan arrears. Your landlord or lender could go to court for repossession of your home.
- Council tax arrears. You could go to prison.
- Court fines. You could go to prison.
- Gas or electricity arrears. Your supply could be disconnected.
If your creditor has said they will take action against you, such as repossession or energy disconnection, it is not too late to try to make an arrangement and to stop the action.
Non-priority debts are debts where the creditor has no extra powers to force you to pay (for example, they cannot repossess your home). These debts can generally be approached differently to priority debts.
Common non-priority debts include:
- Credit cards
- Doorstep loans
- Unsecured personal loans
- Payday loans
- Water rates
- Bank or building society overdrafts and loans.
Make sure you receive your income (benefits or wages) into an account at a bank that you don’t owe any money to. This means the bank cannot take any of your income to pay a debt to them, and you can prioritise your repayments.
Working Out What To Pay Your Creditors
Using any money you may have left after paying for your living costs, it is vital that you pay as much as you can towards your priority debts first. Generally, you need to pay your ongoing payments and offer a regular payment towards the arrears.
After you have come to an agreement with priority creditors, you should share your leftover money between non-priority creditors. A popular way to work out payment offers is a ‘pro-rata distribution’. This is calculated by using the percentage you can offer each creditor, according to how much you owe each of them. This way you provide all your creditors with a fair share of what you can afford to pay.
Look for areas in your budget where you could be flexible. If you can reduce any spending, this could allow you to pay more to creditors. This shows creditors you are committed to paying the debts off and may increase the chances of them agreeing to your payment plan, or stopping extra charges from being added.
What If They Don’t Agree To The Repayments?
When you write to your creditors to make payment offers you may get a mixed response. Some creditors might accept your offer, and some may refuse. If your creditor has refused your payment offer, then you could ask them if they will reconsider. If there’s no room to adjust your budget, don’t be pressured into agreeing to a payment amount you cannot afford.
If a creditor accepts your payment offer but is still adding interest, ask them to reconsider freezing the interest. Some creditors refuse to freeze interest entirely or only agree to reduce the interest. If your payment offer is less than the interest that is being added on, then the debt will only increase. This means you would never pay the debt off. You should explain this to your creditors.
Your creditors do not have to accept your offer of payment or freeze interest. If they continue to refuse what you are asking for, carry on making the payments you have offered anyway. If you are unhappy with your creditor, keep a record of the details. If you later decide to make a complaint, this will come in helpful.