If lenders are queuing up at your door demanding you hand over cash for debts you cannot afford to pay, you need to look at your options.
Many households are facing a tough financial time as bills keep on going up but wages are frozen.
The first realisation is that juggling income to pay bills here and there to the lenders that shout the loudest can only go on for a limited time.
The first step is always to take an honest look at your finances and draw up a reasonable budget that looks after priority bills like mortgage or rent, council tax, utilities and other day to day living costs.
What’s left out of the pay packet, if anything, should be shared among borrowings like catalogues, credit cards, loans and overdrafts.
Work this out ‘pro rata’ - so if the debts add up to £10,000 and there’s a £500 a month in the bank for repayments, then share it out like this:
The formula is:
[Amount owed] divided by [Total of debts] x 100 = [Debt as percentage of total debt]
Then calculate how much the monthly repayment should be with this second formula:
[Cash available to repay debts] times [Debt as a percentage of total debt] from above, then divide the amount by 100 to give the amount payable.
Here’s a worked example from the table above:
£5,000 is owed on a credit card out of total debts of £10,000. The borrower has £500 to make repayments from, so how much is a fair pro rata payment to this lender each month?
£5,000 divided by £10,000 = 0.5
0.5 x 100 = 50%
£500 x 50 = 25000
25000 divided by 100 = £250
Sometimes crunching the numbers ends up with a budget leaving no money available to repay debts.
However the figures work out, there’s always a way to deal with the debts - it’s just that some options may not be available to everyone.
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Notes to editors:
- Money Debt and Credit is one of the UK's fastest growing financial solution companies.
- The company was founded in 2006 on the belief that every client has the right to appropriate financial advice. Since then we've gone from strength to strength and have helped thousands of people with a variety of financial solutions.
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For more information or debt advice contact:
Money Debt and Credit
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Tel. 0800 16 999 46
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