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Debt Management Plans

Here we give you some basic information about how to manage your debts. Please note that these are simple guidelines and need further investigation before you determine what your best course of action may be. The most important thing to do is to stay calm and not panic, you also should not ignore your debts and payday loans, this only makes the problem worse.

Here are three steps that you can follow to help manage your debts:

Make a list detailing all of your debts
Work out your monthly budget according to a debt management plan
Contact your creditors with offers

First step – Making a list of your debts

Before you can even think about sorting out your debts you need to see exactly what you owe and to whom. Make a list of each person or company that you owe money to and the amount that you owe them. It is advisable to always keep your statements from creditors in a safe place so that you have a snapshot of what you owe plus a breakdown of what interest has been added to the amount over the last few months.

If you have received any papers notifying you of court action then you should always act on these first. If you are not sure what steps to take next then you can always contact your local Citizens Advice Bureau who can give you impartial debt advice and guidance.

Once you have a list of your debts you need to work out which are your priority debts. Priority debts are those that will have the most severe consequences should they not be paid. These can include:

Mortgage or rent payments. If you fail to keep up with these payments then you may even find yourself homeless.
Fuel bills. If you fail to pay your fuel bills on time then you may find yourself disconnected from these services.
Council tax. If you fail to pay your council tax a county court bailiff may remove your goods for sale at auction, you may even be sent to prison.
Court fines. If you have any court fines then you need to make sure that these are paid as once bailiffs get involved the charges can go drastically higher.
Tax arrears. If you have outstanding bills for income tax or VAT then you need to make an arrangement to get these paid. HMRC are not as horrible as you may think and will often set up a payment agreement with you. The important part here is that you contact them and be proactive with regards to tax debts.

This list is not complete by any means, you may have debts that you class as priority that we have not listed here, it is important to make sure that you identify these.

You should also work out your non-priority debts, these may include but are not limited to:

Any benefits that you have been accidentally overpaid and have to pay back
Credit debts such as credit cards, overdrafts, loans etc
Money borrowed from people you know personall such as friends or family.
Student loans

None of these debts will end up with you being sent to prison for non-payment but if you fail to keep up with payments on a debt management plan then a court may grant power for bailiffs to remove your goods for sale at auction.

Second step – Working out your budget

To do this you need to make a list of all of the income and expenditure for your household. Make sure these amounts are realistic and don’t rely on any income that you think you may earn, just list what you know is definitely coming in.

Things you may include in this list are:

Wages for yourself and your partner, list the net amounts ie after tax and NI has been deducted. If these amounts vary then take an average over the last 6 months.
Any benefits that you may receive
Any maintenance payments that you may receive from an ex-partner for your children.
Rent from a lodger or contributions from family members.

If you have the ability to earn extra money then make sure that you do so, it is important to get out of debt as quickly as possible.

Now make a list of your monthly outgoings. Make sure to include everything in this list such as mortgage or rent payments, housekeeping money, utility bills, insurance payments and any other expense that you have to pay. It may help you to go through your bank statements and list what direct debits you have paid over the last few months and what they were for.

Once you have added all of these items together you can then see if you have any money left over to pay off your debts.

If you have more than £12,500 of debts you may qualify for an Individual Voluntary Agreement.

Step three – Contacting your creditors with payment offers

The first thing to do here is to contact your priority creditors and explain to them that you are in debt. From the creditors point of view, it is better that you are up front and honest and they would rather receive something towards your debt than nothing. If you contact them by phone then you should always follow up your conversation with a letter stating the agreement you reached. Make sure that you keep copies of any correspondence.

If your main priority creditors have written to you stating that they are about to start court action then you can send them what is called a ‘holding letter’ that explains your current problems. Ask them not to take any further action for the next 2 or 3 weeks and you will contact them again once this period has expired. You can then contact them once you have worked out how much money you can afford to pay them each month. You will find that the majority of creditors will be happy to agree to a payment plan, after all, if it goes to court you may end up going bankrupt and they risk losing out altogether.

The things to remember when sorting out your debts are:

Always be honest and up front with your creditors, burying your head in the sand helps no-one and will eventually make the problem worse
Stay calm and in control, panicking will get you nowhere
If in doubt, seek advice from your local Citizens Advice Bureau
Always compare mortgages and loans to get the lowest APR.

Debt Advice

Do you have more debt than you can realistically pay back?

This section explains some of the options open to you to deal with your debt.

Debt Consolidation

If you have a large amount of debts, it may make sense to consolidate them.

This section will give you some tips on how to go about consolidating your debts.

IVA

An Individual Voluntary Agreement could be a good option for you if you have debts of more than £12.500.

This section will explain exactly what is involved with an IVA.

Bankruptcy

Are you being threatened with bankruptcy because of debts? There are alternatives to being declared bankrupt.

Read this section to know your rights and view your other options.