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The Debt Management Process

If you're in debt and struggling with money then you may want ask your creditors if you can reduce your payments. Personal circumstances change all the time, sometimes it’s just a temporary dip in our income but other times it could be something more long term like an illness or redundancy. Money worries are one of the biggest causes of family and relationship breakdown in the UK, it can cause stress and depression and can be extremely detrimental to your health. If you are unable to make payments whilst maintaining a reasonable standard of living then it's best to take immediate action and write to your creditors to explain your situation. Don't struggle, avoid payments or bury your head in the sand because this will only lead to negative outcomes in the future.

When you take out credit you can't for see the future therefore you can't be certain that you'll always be able to make the payments. When you created the credit, in the form of a loan or credit card etc, the creditors actually built the risk of your failing to pay back the credit into the cost or interest rate.

When dealing with legal matters such as credit contracts it is essential that you maintain a high level of integrity, this means that you are clear and honest with your creditors and diligent with your communication. Our debt templates are built specifically to help you to correspond with your creditors in a clear and concise manner.

This guide and our templates are designed for those who wish to manage their own debts, if you are unsure about managing your own debt it may be best for you to seek out free advice from one of the debt charities such as StepChange or Citizens Advice. You can also find more links and information on the .gov website.

Before you start

You can call your creditors and make arrangements over the telephone, however we recommend making all communications in writing so that you have a written record of all your dealings with the creditor. Should your relationship sour for any reason then you have a written record as evidence.

Before you contact your creditors you'll need to have all your financial incomings and outgoings. We're going to create a financial statement so you'll need to work out exactly how much income you or your household receives and how much you're spending.

If you have been contacted by a creditor already because of a missed payment but you don't have all the information yet then we recommend that you send a letter explaining your situation and advising them that you will be back in touch soon with more details and an offer, you can do this using the basic debt template Tags: letters, mail, how to
Go to the template

Step 1 : Make a Financial Statement

The first thing you need to do is make a budget and financial statement. You need to know exactly how much money you receive and how much you are committed to spend - honestly is the best policy, don't underestimate your expenses because it will have a huge impact on your available funds. Use the financial statement template work out your budget, split your outgoings in to priority debts and non-priority. Priority debts have to be dealt with first, then your living expenses and finally the unsecured creditors can have an equal share of what is left over.

Don't agree to anything that you can't afford to pay or that you will continue to struggle with.

The tool will suggest a new offer of payment based on your left over income and the size of the debt.

Create the document and attach it to your initial letters to your creditors. Tags: letters, mail, how to
Go to the template

Step 2 : Write to your creditors with an offer

Once you have completed your financial statement you will have a clear idea of how much you can afford to pay each month. You send a copy of the financial statement to the creditor and make them a new offer that you can afford. Tags: letters, mail, how to
Go to the template

Step 3 : Await the creditors response

they will either agree or disagree - they may think that your spending money on the wrong things. If they disagree, take on board what they say and review your spending and budget again. If you believe that your offer is fair and that you don't have any more money spare just write back with your statement and affirm that you have been honest and made them the best offer that you can afford. Tags: letters, mail, how to

Step 4 : Make the changes

Change your direct debt to the new payment and don't miss a payment whilst your on a reduced payment. Tags: letters, mail, how to

Step 5 : If your circumstances change again

If your circumstances change again - write to them again! Don't struggle making payments you can't afford simply update your financial statement and make them a new offer based on your current circumstances. If your situation improves and you can get back to the original agreed payment then there is no need to increase you payments above that level. Tags: letters, mail, how to
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Step 6 : Request an Interest Freeze

After a couple of months of regular payments we can now write back and and ask for our interest to be frozen. Tags: letters, mail, how to
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Step 7 : Reviews

After 6 months they may request a review, again, just keep your financial statement up to date and send it to them. Tags: letters, mail, how to
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Step 8 : Outsourcing

If your new payment falls below a certain level they may decide to sell or outsource your debt to a third party such as a debt management company. Tags: letters, mail, how to
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