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Drop in income

Dealing with a drop in income 

When you are faced with a change of circumstances, such as a reduction in your working hours, ill health, loss of a job, cut backs on extra shifts or increased living costs it can be hard to keep on top of your finances. For some people, this may be a short-term concern but others may be faced with longer-term financial difficulties.

What can you do?

It is best to approach your debts step by step. You cannot make an offer of repayment or consider other options until you know what you can afford to pay. You don’t know what you can afford to pay until you have worked out how much money you need to live on.

1.) Work out what you need to live on so you can see what is left available to pay your debts

Our advisers can help you with a personal budget which can be used as a statement to explain your financial situation to creditors and to work out affordable offers of repayment.

2) Check that you owe the money

In some cases, creditors may not have acted properly in the way they provided credit or money. Your name may not be on the credit agreement. If your debt is over six years old and you haven’t heard from the creditor, it may not be enforceable. The account balance may be wrong or you may have wrongly incurred charges. Our advisers can check these issues and advise you on your rights and liability for the debts.

3.) Make offers to the most important creditors first - priority debts

If you have any of the debts listed on the previous page, you should ensure that what money you have is used to pay these debts first before any others.

4) Deal with the other debts

Once you have made repayment arrangements for your priority debts, you can deal with the other debts you have

5) Stop further action being taken against

If your your creditors start court action, don’t panic as you can still make offers of repayment and stop further action being taken against you


Mortgage

Your mortgage repayments may be your single largest outgoing and is a priority debt. If you are having trouble meeting your monthly payments, or anticipate payment difficulties, talk to your lender and explain what is causing the problem. There are various measures your lender could put in place to prevent you getting into arrears and reduce monthly payments.

These include:

  • agree to change or lengthen the term of your loan
  • accept reduced payments from you for a fixed period
  • add your debt to the amount you have borrowed.

Strategies for dealing with your mortgage payments and secured loans will depend on your personal circumstances. We can give you advice on approaching your lenders and about government schemes that are in place to help certain people who have missed payments on their mortgage.

Rent

If you owe money to your landlord and you cannot make an arrangement to pay arrears, then you could lose your home. There are different types of tenancy and some have more rights than others. If you are unsure what type of tenancy you have, seek advice straight away

To prevent repossession action in court, you should try and get an agreement in place to pay off any arrears. Landlords will normally want the usual rent plus an amount towards the arrears. Our advisers can help you work out what money you have available to make an offer and we can advise you if you are eligible for any housing benefit to help towards the cost of your rent. If, after ensuring that you are receiving all the benefits you are entitled to, you do not have sufficient income to meet payments to non-essential creditors, seek advice about the best options for your particular circumstances.

If, after ensuring that you are receiving all the benefits you are entitled to, you do not have sufficient income to meet payments to non-essential creditors, seek advice about the best options for your particular circumstances.

Informal arrangements

These are usually most suitable for the short-term loss of income where payments are anticipated to increase in future.

Work out how much money you have available to offer your non-essential creditors. Start by listing all your income and essential expenditure on a weekly or monthly basis – this will enable you to see how much money you have left to offer as repayment to your non-essential creditors. The Welfare Service can provide you with a standard financial statement that you can present to creditors.

If you have no money available, you can offer token payments to your creditors.

The fairest way to distribute the money between your creditors is called ‘pro-rata’ offers. It is usually accepted by creditors and is the method used by the courts. You calculate pro-rata payments as follows:

  1. contact all your non-essential creditors to find out how much you owe them
  2. add up all the debts to work out your total debt
  3. multiply each individual debt by the amount of money you have available for creditors
  4. divide that by the total debt owed to calculate the amount you should pay to each creditor.

Sending a copy of your personal budget with a covering letter to each creditor with an offer of payment is an effective method of persuading them to accept reduced payments. Send your first payment with your letter and ask them to suspend any interest charges to help you reduce the outstanding balance quicker.

Do not offer more than you can afford!

You will not be able to maintain payments and any agreement with your creditors is likely to be withdrawn if you miss payments.

If you are dealing with a bank loan or overdrawn account, do not send payment until your offer of payment has been accepted. Some banks will continue to take full monthly loan repayments until an agreement is in place. You will probably need to open a basic bank account to receive your regular income as this is the often the easiest way of regaining control of your finances and budgeting.

If you have standing orders or direct debits arranged on your old account, you will need to cancel these to avoid unauthorised borrowing charges, and make alternative arrangements to pay essential bills.

Getting creditors to accept payment proposals

Always put your offer of payment in writing to your creditors and keep copies. This avoids dealing with them on the telephone where they may pressure you to make an increased offer of payment that you cannot afford. It also serves as an official record for the courts, of your attempt to negotiate should your creditors take court action.

  • Creditors may not accept your offers of payment and they may refuse to suspend interest on your accounts.
  • You may need to be persistent in your negotiations and they can usually be persuaded to accept your offer.
  • Some creditors will not accept below a minimum level of repayment until you have defaulted on the credit agreement you have with them.   

In these cases, your account will usually be passed to a debt collection agency to negotiate payments and it is often easier at this point to have your offer accepted.

Whether a creditor accepts your offer or not, you should start paying the amount offered as a gesture of goodwill. If you pay this by postal order, they have to accept the payment. If they have rejected your proposal, write again reiterating the offer and explain that it is all you can afford.