Manage your debt by putting together a statement

When you are in financial crises and managing outstanding debt becomes harder, nothing might seem right. In this scenario putting your monthly income and expenditures in black and white may sound a frightening job. However, it will give you a good perspective.
When you know the proper details of your debt problems, you have a better chance to cope with the situation.

This article will not only help you put together a statement but suggest different ways to save your money. It is a fact that every debtor has a unique and different financial situation and every problem should be handled on its own merits. However, the guidelines mentioned here are applicable to most of the debt problems.

Here are some points that will help you reduce your expenditures quite dramatically.

  • Make a realistic budget and cut down all the unnecessary expenditures. However maintain a reasonable budget for your housekeeping.
  • Try to save some money every month. This money can help you a great deal in times of any emergency.
  • Avoid using Credit Cards as much as possible and use cash. Credit Cards are a handy utility but they can pile up a large amount of outstanding debt because of the interest and penalties.
    Cancel all Credit Cards and retain one with low interest rate.
  • Make extra payment as much as possible. This will not only reduce interest but will eliminate your debt in a shorter time.
  • Always keep track of debt status by doing a debt check and align budget with debt management.
  • Major well thought-of lending institutes will make your repayment flexible if you are in financial crises. But you must talk to them when there's a problem in paying off debt.

Spare Income and Pro-Rata Offer

You can calculate your monthly spare income by subtracting your total monthly expenditures from your total monthly income. For example, if your monthly income is ₤700 and your monthly expenditures are ₤500, then your spare income is ₤200.

Pro-Rata Offer means treating all of your Creditors equally i.e. pay them an amount in proportion to what they owe. If you pay one Creditor more than the others, your whole plan will fail. The other Creditors will also ask for bigger payments which may not be possible for you. Therefore, Pro-Rate strategy is in your own interest.

You can easily calculate the percentage for each Creditor by the formula given below. However you need to calculate your spare income and the debt owed to each Creditor prior to it.

Calculation Creditors’ Proportion according to Pro-Rata

Let us suppose you owe ₤1000, ₤2000 and ₤2500 to three different Creditors, say A, B and C respectively. First, you add all these amounts to get a lump sum total.

Total Debt = 1000+2000+2500 = 5500

Then you divide each individual debt by the total debt.

For Creditor A = 1000 / 5500 = 0.1818182
For Creditor B = 2000 / 5500 = 0.3636364
For Creditor C = 2500 / 5500 = 0.4545455

Then by multiplying each result with the spare income gives you the proportional percentage for each Creditor:

Monthly Payment for Creditor A = 0.1818182 * 200 = 36.36
Monthly Payment for Creditor B = 0.3636364 * 200 = 72.72
Monthly Payment for Creditor C = 0.4545455 * 200 = 90.90

To check whether your result is correct or not, add these amounts and they should be equal to the spare income.

If you do not have any spare income, whether your expenditures are equal to or more than your income or you are living on an income support make a token offer.
This will show your Creditors that you are willing to pay but your financial conditions do not allow you to do so.

Request your Creditors to freeze their Interest

If you are paying your Creditors via a repayment plan, you must request them to freeze their interest. In this way you will be able to pay some percentage of the total amount owed and your actual debt will not increase.

Your Creditors may ask you to pay more than you are offering and sometimes their demands may not sound reasonable. However, you should stay calm and try to negotiate a deal. Whenever you have good fortune pay an extra amount to show your goodwill. However if your Creditors still disagree with your request you can seek professional help to sort the matter out.

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