Introduction

Putting your income and spending in to writing may sound frightening, but it will help to get the problem in perspective.

At the end of this pack is a DIY Financial Statement, which will assist.

Everybody's financial situation is different and so you will need to adapt the financial statement to your own situation, however the priorities mentioned above apply to most of us and should be listed carefully.

Try to set down your figures so that they are all weekly/fortnightly/monthly, (whichever suits you best) even if you pay your bills at differing times. This will help you to establish what needs to be set aside for each bill.

You should consider the following points:

Realistic spending
You may have to consider if some of your expenditure could be cut down, but do NOT put unrealistically low figures, especially for housekeeping. You need to put together an affordable and sustainable budget in order to avoid your financial problems just carrying on.

Housekeeping, clothing and shoes
Many people try to cut back on housekeeping in order to pay other debts. It is important to have a realistic budget for housekeeping. Similarly, a realistic figure must be included for clothing and shoes even if realistically nothing much is spent on these items on a weekly basis. Eventually these items will need replacing and the money should be budgeted for.

House upkeep and emergency costs
It is impossible to budget accurately for costs that you may or may not have in future, but if possible try to set something aside for repairs to your home and for emergency costs, and list this on the financial statement.

Family and personal costs
Think about the cost of entertainment, tobacco, alcohol, children's pocket money etc. Any provision must be sensible and reasonable.

Payments to unsecured creditors
Do not list these in the 'essential expenditure' section, list the creditor's name and the sum owing in the 'creditors section' - what can be paid to them will be dealt with later.

Disability needs
Benefits such as disability living allowance and attendance allowance are intended to cover the care and mobility needs of a disabled person. While they could be listed in order to show the person's situation, they should then be cancelled out by the same sum being listed as disability needs - creditors should not regard them as available income.

Spare income
Take your total expenditure away from your income and you have your spare income.

Pro-rata offer
An offer of repayment needs to be made that treats all creditors in an equitable manner, i.e. they receive payments that are in proportion to what they are owed. This is called a 'pro-rata' offer.

The formula for this is quite straightforward. You need to have the figure for your spare income, each individual debt listed, and also a total of all unsecured debts.

The payment is worked out as follows:

• List the debts and add up their total
• Divide individual debt by total debt
• Multiply the result by the spare income figure

If you have no spare income (for instance if you are on income support), it is wise to make a token offer, which will show that you are willing but unable to make a payment. You can use the same process as above, but substitute a figure of perhaps £5.00 per month for the spare income. The outcome may look a bit strange, but it is a good illustration of the situation and shows that you are willing but unable to pay.

Freezing Interest

When contacting the creditor to offer a reduced repayment, it is essential that you ask the creditor to freeze interest on the account. Freezing interest will mean that your reduced payment pays something off the sum owing, and the overall debt does not get any bigger.

Your creditors may question items of your spending, and they may even demand a higher payment than you have offered. Their demands may not always be reasonable, and this requires some thought and some negotiation.

If it is possible to make some form of payment, even token payments, whilst negotiating, this may create some goodwill.

If you are sure that you have set the details out correctly and offered a pro-rata repayment, it is best to stick to your offer as the repayment plan treats everyone fairly. If one creditor gets better treatment than others the entire plan can fall apart as everyone will want bigger payments.

If your creditors will still not accept the repayment plan, seek further help.