In an earlier post I talked about getting my head into the right place, conditioning myself to the harsh reality of being in debt and getting my mindset prepared to move forward.
Part of my initial preparation included creating a rough plan, an outline, as to how I would move forward. Being a visual person, I need to see things laid out in front of me, so sitting down at my computer I drafted, what I believed to be the most urgent of tasks.
Below I've added a copy of my first plan. I've de-personliased some of the content but you'll see that with a very broad brush I've detailed some actions that I wanted to discuss with my wife. At the time of putting the plan together I didn't know if I was going to act on all of the points or in which order.
| Serial | Task | Requirements | Remarks |
|---|---|---|---|
| 1 | Determine full extent of debt | Bank statements, Credit Card Bills, Loan Details, Contact details for all above, Account details for all, intrest rates for all | Include any loan or credit card wihich is in a personal name |
| 2 | Identify all ACTUAL income | Pay statements, Benefit paperwork, Pension paperwork | Do not include any non-regular income: i.e ebay sales, extra work income. |
| 3 | Prepare a full and accurate monthly budget | All utilities bills, bank statements, insurance paperwork and other non-loan payments | Factor in an allowance for non-monthly payments on a pro rata basis, i.eHeating Oil, petrol, Factor in a weekly spending allowance for both. |
| 4 | Prepare & send 'repayment offer letters | Details at serial 1 will populate all letters. | Maintain a record and copy of all letters sent and responses. Offer of repayment to be based on a prorata basis of available funds. Adjust DMP and budget against each response |
| 5 | Write to bank on car Finance | All car finance paperwork | Request a settlement figure and confirmation that car can be sold and outstanding finance can be cleared. |
| 6 | Assess other outgoings for savings | All utilities bills, bank statements, insurance paperwork and other non-loan payments | Look at every monthly outgoing for a possible cheaper alternative. |
| 7 | Other options for income | Ebay Options List | Ebay wherever possible, pay off fees on route to maintain correct income. Possible additional work but remain within capabilities. |
Task 1 - Determine Full Extent Of Debt
As detailed in the plan, this was a simple administration task that involved pulling all the details of our credit cards, loans, statements and bills together. My wife and I created a single spreadsheet that listed the credit card / loan provider, the outstanding amount owed, the account details, the minimum monthly repayment and the current interest rate.With the detail clearly laid out, we then created a monthly expenditure sheet with all of our income and outgoings laid out. This included an amount set aside for items that are paid less frequently. Credit card & loan payments were listed separately.
Once we were able to clearly see how much we had coming in, what bills had to be paid, what our total debt amount was and how much we had left after essential bills. For the purpose of this exercise, unsecured debt was not classed as an essential.
So we ended up with four totals:
- Total Monthly Income
- Total Monthly Essential Bills
- Total Available Cash After Essential Bills
- Total Amount Owed To Credit Cards / Loans
Task 2 - Math Time
We needed to work out from the total of our debt, what percentage each credit card payment was, by way of an example with some notional figures.
5 credit cards total debt =£47,500
Card 1 Outstanding Balance £10,000 - as a percentage of total debt = 21%
Card 2 Outstanding Balance £7,900 - as a percentage of total debt = 17%
Card 3 Outstanding Balance £11,500 - as a percentage of total debt = 24%
Card 4 Outstanding Balance £4,500 - as a percentage of total debt = 9%
Card 4 Outstanding Balance £13,600 - as a percentage of total debt = 29%
This provided us with a pro- rata percentage for each debt. Our total available cash after essential bills is what we had available to service our debt. We wrote to each card provider and offered them a repayment based on their pro-rata percentage from this available cash. So to continue with our example above with a notional figure of £800 available cash, each card provider was offered the following.
Card 1 @21% of £800 - Repayment £168
Card 2 @17% of £800 - Repayment £136
Card 3 @24% of £800 - Repayment £192
Card 4 @9% of £800 - Repayment £72
Card 5 @29% of £800 - Repayment £232
Note: If the provider accepts your offer then you are likely to get a strike against your credit score, do not send a repayment offer letter if you are not prepared to accept an adverse credit score, this could stay on your record for up to 6 years, it has for us and we are prepared to take this pain.
An example of the letter sent to all creditors is detailed below.
Dear Sir,
I write with regards to account number xxxxxxxxxxxxxxxxx. I am
currently experiencing financial difficulties and I am unable to make the repayments
required by my current credit commitments.
I have enclosed a copy of my Income and Expenditure form.
This includes both my expenses and a list of other creditors who I am required
to pay. I have calculated all the payments to my creditors using the pro rata
method.
I ask that you will accept my repayment offer of £xx.xx per month. My first
payment will be made on the 9th October and by the 9th of the month thereafter.
If any charges or interest are being added on to the
account, I ask that these charges are frozen in order to allow my repayments to
start reducing the balance I owe.
I would be grateful if you would look favourably on this
request.
I look forward to hearing from you soon.
Yours Sincerely
xxxxxx
Written by Money Saving Tips
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