First things first:
Work out exactly what’s coming into your household.
Work out what your regular bills are – the rent or mortgage, gas, electricity, phone, food etc. Don’t forget things like the water bill and the TV licence that you pay once a year. If you get paid monthly work out how much you need to put aside each month to cover the bills.
Is there anything you can do to increase your income? Perhaps you could take in a lodger or ask your adult children to pay towards the bills from their income. Check with you nearest advice centre that you are claiming any welfare benefits you are entitled to and that you aren’t paying tax that you shouldn’t be paying.
Go through all your bills. Is there anything you can do to reduce them? Sometimes when you have the whole picture you can see where to make savings, but you may have already cut back as far as you can.
Do the calculations:
Subtract the amount you pay for your bills from the household income.
Add up the total amount of money you owe and make a list of all your creditors.
Get the priorities straight:
Work out which debts are priorities and must be paid. These are the debts that if they’re not paid could land you in trouble. If you don’t pay the mortgage your lender could repossess your home. If you don’t pay the rent you could be evicted. The gas and electricity could be cut off and you can be fined for not paying your council tax bills.
Make arrangements with these creditors to pay off the arrears by paying a little extra as well as your usual monthly amount. They will usually want you to pay an amount that will clear the arrears in a year to 18 months. Alternatively they may demand that you have pre-payment meters installed – set to a level where to pay for what you use plus a bit extra on top towards the arrears. If you can’t come to an arrangement you are sure you can afford and stick to get advice.
When you’ve done all that you will see how much, if any, is left over to pay towards your credit debts. Divide that amount up so that you pay everyone in proportion to what you owe them. For example if half of your total credit debt is to one firm, offer them half of the amount you have left for clearing your arrears. If you owe another creditor a quarter of the total amount, offer them a quarter. Write to them all explaining the situation you are in, what your budget is and how much you can pay off the arrears each month. If they don’t accept your offers get advice.