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What To Do If You Cannot Maintain Repayments to Your Creditors

The hardest part about being in debt is actually facing up to the fact that you’re in difficulty.  Once you’ve done that, you can begin to sort things out by following the steps below.

STEP 1: Complete a budget sheet (also called a financial statement)

This will provide you with an accurate financial picture, make you look at what you’re spending and help prevent you from running into further debt.  When you’re doing your budget, remember to be honest and to list realistic figures – your budget has to be something which you can keep to!

STEP 2: List your income

On the income side, list all your income and divide this as well as your student loan into either 52 weeks or 42 weeks (if you’re sure you will have income other than your student loan over the summer period).

STEP 3: List your expenditure

On the expenditure side, list all your priority expenditure (see attached financial statement as to what this includes) and don’t forget to include course costs and tuition fees (if you have to pay them).  At this stage, don’t include any debt repayments you have to make.  If you’re converting calendar monthly figures to weekly figures, multiply by 12 and divide by 52.  If you’re converting quarterly figures to weekly figures, multiply by 4 and divide by 52.

STEP 4: Reduce your expenditure

Once you’ve done your budget, analyse it. If you haven’t enough income to cover your basic priority expenditure, are there any ways in which you can reduce your expenditure?  If you are not sure and require some help, please see our list of tips for saving money on this website.  Also, are there any ways in which you can increase your income?  If you want to ensure that you’re receiving all the funding and social security benefits that you’re entitled to as a student.

STEP 5: List what you owe to creditors.

Then divide your debts into priority and non-priority debts. 

Priority debts are rent, mortgage, gas, electricity, council tax and any Magistrates Court Fines. These are referred to as priority debts because of the consequences of non-payment.  For example, losing your home, being disconnected or, in the case of council tax and certain magistrates court fines, being imprisoned.

Non-priority debts include personal loans, credit cards and store cards (as long as these are all unsecured), not because these are not important to deal with but because the consequences of non-payment are not as severe as the consequences of non-payment of priority debts.

After you have listed your debts, check if anything needs dealing with urgently.

STEP 6: Can you make all your payments?

After you’ve looked at your income and expenditure, can you realistically afford to make your contractual payments to creditors and pay off any arrears you owe?  If the answer is no, but you have some excess income, offer that income first to priority creditors.  Then, if you still have some income left after you have done that, pro-rata this amongst non-priority creditors using the following calculation:

AMOUNT OWED TO THE CREDITOR, DIVIDED BY THE TOTAL AMOUNT OWED TO ALL YOUR CREDITORS, MULTIPLIED BY THE TOTAL INCOME YOU HAVE AVAILABLE TO OFFER YOUR CREDITORS.

Pro-ratering basically means that the creditor who is owed the most, receives the largest share of the available income you have and the creditor who is owed the least, receives the least share of the available income you have. 

If you have no available income to offer creditors, after essential expenditure, ask creditors if they will allow you to make token payments, suspend payments for a certain amount of time or, if the circumstances warrant it, request that the debt is written off.

And finally…..remember to stick to your budget or you won’t be able to keep to the offers of repayment you make to your creditors. 

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