If you are struggling to cope with the pressure of your personal debts, you could benefit from a debt repayment plan.
A debt repayment plan allows you to come to an agreement with your creditors that will ultimately help you to get out of debt. If you are struggling to cope with your current debt repayments, you may benefit from a debt repayment plan.
There are various regulations in consumer credit law that, in certain circumstances, require your creditors to help you to come up with a repayment plan that will help you to clear your debt. In most cases, when it becomes apparent that you genuinely cannot repay your debts, many will be willing to negotiate a debt repayment plan and, in some cases, write off debt entirely.
How to Prepare a debt repayment plan
Bankruptcy and repossession proceedings always offer a debtor a chance to state his or her case. They may seem mere formalities, but in fact if you appear well prepared and appear to the presiding magistrate to be making a good case, you may get concessions in your favour.
This does not mean that the debts themselves will be summarily cancelled. Unless you can prove something very irregular or illegal took place, the debtor is absolutely entitled to repayment.
Be realistic
There is little point in trying to ask for the impossible. If you do try to argue an unreasonable case, it will be considered that you have not taken the situation seriously enough and do not fully understand your position. Such considerations are not likely to give you a favourable response.
The same applies to your creditors. They want to know what you are going to do to repay them and generally will not accept excuses or pleas to avoid payment.
One effective way of demonstrating your commitment and dealing with your creditors and any possible legal proceedings is by drawing up an effective debt payment plan.
This can sometimes be an arduous process and force you to confront unpleasant facts, but they can be very useful.
The first step is to make an accurate estimate and account of your outgoings. The most effective way of doing this is to keep a spending record over a set period of time.
Apart from being good personal discipline in itself, it demonstrates that you are genuinely seeking to address your problem. Of course, it is essential to be honest with your records. It may be consoling to massage the figures and not to include some expenditure but the only person who will ultimately be affected by this will be you.
Break down expenditure
This account should be as detailed as possible, with each expenditure broken down into different categories. These could include groceries, clothes, dry cleaning, petrol, coffee, newspapers and magazines etc. Needless to say, this must also include any direct debits and of course debt repayments.
Having gathered the data you now need to draw up a plan which will show how you intend to repay your debts, or at least begin repayments. The essential principle in this exercise is that you leave yourself enough to live on, while making repayments - your plan has to be practical.
A good way to ensure you have not left out anything obvious is to show your plan to a trusted friend or colleague. The Citizen’s Advice Bureau (CAB) can give good advice as can the Consumer Credit Counselling Service (CCCS).
What you do not want to have happen is for your plan to contain payment promises that you simply cannot keep because you forgot to include some elementary form of expenditure e.g. forgetting your mobile phone bill or transport expenses.
If your plan is obviously impractical, you can rest assured that your debtors or the magistrates will not take it seriously and may consider you are simply playing for more time. This is a common tactic by those facing severe debts.
If this happens, then you may find yourself in an even worse situation than before, and this time there will be no coming back. You may be considered unfit to manage your finances.
However, if you have provided accurate estimates and do devise a practical repayment schedule, then you are in a strong position.
Favourable view
In the case of the court system, magistrates take a favourable view of those who seem to be genuinely trying to get themselves solvent and do the right thing by their creditors.
The creditors themselves see that you are trying to make a real effort and that there is a realistic prospect of payment. It is in their interest for you to succeed.
A key aspect of any such strategy is a schedule. Make sure you set dates and time limits. If you claim that you will be receiving money from a deceased estate, give a time when this can be expected or if you are going to be getting a new job, make sure you say when it is likely to begin. Open ended undertakings are considerably less convincing.
Of course, having presented your plan and received approval from your creditors you are then faced with the sobering prospect of keeping to it. This is another reason why you must be practical when drawing it up. It is no good coming up with a payment plan which might work for a house-bound hermit who is content to live on baked beans and toast, but bears no relation to the way you actually live.
It is much harder to change patterns of behaviour than it often appears. Planning to save money by giving up drinking and smoking, or a child’s much-loved hobby, can appear great on paper, but can be very difficult to achieve in practice. This is why you must, as far as possible, draw up the plan yourself and not rely on a friend or advisor to do it for you (though it is a good idea to get them to review it).
The good news, however, is that when you see your plan start working it can have effects far and beyond simply confronting your debts.