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:
- contact all your non-essential creditors to find out how much you owe them
- add up all the debts to work out your total debt
- multiply each individual debt by the amount of money you have available for creditors
- 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You will not be able to maintain payments and any agreement with your creditors is likely to be withdrawn if you miss payments.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.