The single-most important step when dealing with debts is to ensure that you work to a realistic personal budget. This should ensure that you have enough money from your income to cover your essential outgoings such as housing costs, bills, groceries, travelling costs, clothing and health-related costs. Once you have calculated how much these outgoings amount to you can see what is left to offer your creditors. The greatest mistake that is made by individuals is that they ensure that they ensure that they pay their debts in full each month and then try to live on the remaining about of their money. There is insufficient income to make ends meet they will start to use credit to get through the rest of the month, and hence the cycle continues. The only way to start moving to a debt-free future is to break the chain. It should be noted that if your credit agreements are unaffordable you are likely to have to offer your creditors reduced payments, this is very likely to affect your credit score. There are people who are so obsessed with their credit scores that they refuse to admit that they have to make reduced payments, instead they borrow from credit source to satisfy another – and so the debt escalates until they can borrow no more. Borrowing from Peter to pay Paul isn’t the solution. The sooner a workable budget is in place, the sooner the debt stops growing. 

There is an excellent personal budget sheet on the National Debtline website:

http://www.nationaldebtline.co.uk/england_wales/budget_sheet.php?country=england_wales

You may notice that the budget sheet has space to list income from a partner. This isn’t something that you have to include unless both of you have debts that you would like to sort out together or you simply choose to list both incomes. If you wish to include your own income you should ensure that you list your share of the essential outgoings. 

It is vital that you ensure that the figures you list for your outgoings are reasonable, this is especially the case for items such as housekeeping, clothing and sundries. You can include figures for the likes of satellite/cable television and smoking etc. so long as they are not excessive (e.g. no ‘premium’ channels). The credit industry, debt advice industry and court service have guideline figures that they adhere to – your offers of reduced payment are likely to be rejected if your outgoings are too high. It is also important to ensure that you have enough money to live on, this budget needs to be workable. 

As a rough example, here are some guideline figures for housekeeping:

Single person:    £150-£250 per month
Couple:    £250- £420 per month
Each child:    £100- £150 per month

It is also vital that you factor in enough money for the outgoings which you may not pay on a frequent basis, these can include road tax, insurance, MOT, vehicle servicing and TV Licence. You can include nominal amounts for items such as childrens’ clubs, birthdays & Christmas and sundries & emergencies. 

Do spend a fair amount of time going through your budget, it’s vital that you can stick to the amounts that you have listed; this way your offers of payment to the creditors should also be amounts that you can afford to pay each month. They will want to see a copy of the budget to ensure that your offers are realistic. They will also want to see what other creditors you have and how much you owe them. 

Once you have calculated how much your essential outgoings come to you should take that figure away from your income. The amount that you are left with is called your ‘surplus’. If you are left with nothing, or a negative figure, don’t panic – you still have options which will be outlined in a later blog posting. 

If you need further support and assistance with regards to completing your budget please get in contact with your local Citizen’s Advice Bureau or one of the debt advice charities:

National Debtline:     0808 808 4000
Consumer Credit Counselling Service:    0800 138 1111

Once you have got your budget sheet in order you are nearly ready to start approaching your creditors. There is only one more thing to do before that, see the next blog entry!