Ways To Pay Off Debt -
Creditor Negotiation Guide:
Stage 3: Financial Statement

See Also: Recommended Guides For
How To Negotiate Debt Settlements

See Also The Home Budgeting Tools Page

This is a very important step in the debt management process. While you wait for replies from your creditors you need to get an accurate and up to date picture of your exact financial situation. You can't properly plan how to move on if you do not fully understand the circumstances you are in.

You are basically going to create a list of all the things you have to spend money on and all your sources of income. This will show you exactly what you have left over to offer to creditors. This is your Personal Financial Statement and is a vital tackling your debt problems.

I have provided a Personal Financial Statement Form to help you, which you can print off and fill in. Do read the detail on this page though, as it contains information that you need to complete the form properly. You will need Adobe Reader to open the form.

Make a list of all your outgoings. You can do it weekly or monthly, but stick to one or the other and don't mix it up. To convert weekly figures to monthly ones, multiply by 52 then divide by 12. To convert monthly figures to weekly ones, multiply by 12 then divide by 52.

If you have figures for either income or expenditure that vary from month to month, you need to put an average figure into your Personal Financial Statement. To work out an average monthly amount, just add four months' figures together and divide by four (or six months and divide by six, etc).

This is where the prioritising of your creditors in the previous stage of the Debt Management Help guide comes into play. You need to include the normal payments to your Priority Creditors (do not include any arrears), but do not include the Secondary Creditors you identified. You first need to work out what money you have available to offer them.

When preparing your list, bear in mind that you will be sending your Personal Financial Statement to your creditors when you are negotiating what to pay them, so it must be realistic.

Personal Financial Statement - List of Income:

This should include:

• Wages/salary for yourself and any partner (only include your net pay that you actually receive). If this varies, put in an average
• Any benefits you receive (child benefit, tax credits, disability or sickness benefit, etc)
• Any maintenance you receive
• Contributions from family members, lodgers, etc

Personal Financial Statement - List of Expenditure:

This should include:

• Your Priority Debtors:
• Mortgage or rent
• Any endowment policy
• Secured loans
• Child maintenance that you have to pay
• Council tax
• Electricity and gas charges (these will vary with the time of year - work out an average)
• Court fines
• Water rates
• TV licence

• A realistic amount for housekeeping (to cover food, school dinners, cleaning materials and toiletries, pet food, sweets, children's pocket money, clothes and shoes, etc)

• Other Living Costs:
• Petrol and other vehicle running costs (don't forget irregular and annual costs such as servicing, car tax, car insurance, MOT, etc)
• Other travel costs (buses, trains, etc)
• Any rental agreements
• Telephone charges (inc mobile)
• Prescriptions, dentists, opticians, etc
• Childminder/nursery costs
• Life insurance, pension contributions, building and contents insurances, etc
• Cigarettes and alcohol

Now you can add these up to find figures for your total expenditure and total income. Deduct the expenditure from the income and see if you have anything left to pay your other creditors.

Personal Financial Statement - Review Your Expenditure

Some costs you will have little control over, but with others you can make a real difference. Focus on your Living Costs and ask yourself if you really need to spend what you currently spend. Substantial savings can be made by simply choosing supermarket economy products instead of name brands in all of your grocery shopping.

If you ever buy meals at work, consider what you could save by taking in something made at home instead.

Cut up any credit cards so that debt cannot grow.

Transfer any credit card debt to a card with lower (or zero) interest rates. For more information on credit cards, visit the Credit Card Debt section of this site. The best offers will be short term reduced rates, so you will need to move to another card just before the special terms run out. You can find up to date information on the latest credit card offers on moneysavingexpert.com

Compare your energy suppliers and see if you can find a cheaper supplier. Do the same with all your insurance policies.

For more money saving ideas see the Money Saving Advice section of this site.

Personal Financial Statement - Review Your Income

Consider whether there are any other ways of increasing your income. Are there any benefits you are entitled to but not claiming? These might include Job Seeker's Allowance, Income Support, Child Tax Credit if you have children, or Working Tax Credit if you are working but on a low income.

Have you any scope to take on an additional part time job? Is there space in your house for a lodger? Have you grown up children living with you who could contribute to household costs?

There is a website that lists lots of charities that provide aid to people in need, such as emergency payments, travel expenses, household appliance replacement, clothing, etc. You can find this at www.turn2us.org.uk

Go to the next stage in your debt management help guide which covers Making offers to creditors.

If you prefer more detailed guidance on the process of how to negotiate with creditors to write off a large part of your debts, please refer to the page on how to Learn Debt Negotiation

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