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Debt Negotiation Guide:
Stage OneContact Creditors
Stage Two
Prioritise Creditors
Stage Three
Financial Statement
Stage Four
Make Offers
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This page covers the final stage in the guide to negotiating with your creditors. If you are unsure or not confident about being able to go through this process yourself, you may be best discussing your situation with an advisor from a Debt Settlement or Debt Management company.
Debt Negotiation Guide: Stage 4
Now you have found out exactly how much you owe, and have worked out what money you have available to pay off your debts. You have included your regular payments to Priority Creditors in your calculations, but if you are in arrears with any of these, you must first negotiate with these companies. Do this quickly to avoid further sanctions. This must be tackled before you can work out what you have to offer your Secondary Creditors.
Settlement Letters To Creditors:
Negotiate With Priority Creditors
You must first write to your Priority Creditors again, enclosing a copy of your Personal Financial Statement. You need to reiterate the reasons for your problems, and include a reasonable offer towards payment of arrears. Suggested wording for Settlement Letters can be found on the Letters To Creditors page. If your financial statement shows that you do not have any surplus income to pay off arrears, you must still contact your Priority Creditors and send your Financial Statement to demonstrate why you cannot pay them.
Begin your approaches with the most serious debt (the one that is furthest down the line in terms of possible consequences). Don't offer all your spare income to one creditor, you need to share it out. When you get agreement to a payment amount from the first creditor, build this into your Financial Statement before sending it off to the next creditor.
If the creditor does not agree to your offer, start paying what you have offered anyway, as anything coming off the debt is better than nothing. Don't be persuaded to up the offer to something you can't afford - that is just going to create trouble further down the line when you start missing payments. It is important to get agreement to amounts that you can afford to keep up. This is a new start where you are going to avoid the stress of not being able to make payments, so get the amount right at the beginning.
Settlement Letters To Creditors:
Negotiate With Secondary Creditors
Once you have agreements in place for repayment with your Priority Creditors, you can update your Financial Statement and see what you can spare for your Secondary Creditors. If you find you have no money to spare, then your options for dealing with Secondary Creditors are limited.
Consider whether you have anything of value that you could sell, and whether your circumstances are temporary and likely to improve in the future. If not, it is worth at least approaching your debtors to ask if they will consider writing off the debt. You can back up your inability to pay with your Financial Statement. Failing that, you should talk to a Debt Management Company about Debt Management Plan or an Individual Voluntary Arrangement. These companies will also be able to advise you on whether bankruptcy is your only other option.
Assuming you do have some available income, it is generally accepted that the best way to deal with Secondary Creditors is to share the remaining income out proportionately. This means that your money is divided up fairly in relation to the amount of money owed.
You can work out what you should pay each creditor quite easily using a calculator and the following guidance:
- You need to know what your Available Income is for each month (or week).
- Make a list of all your Secondary Creditors and the total amount you owe each one.
- Add up all the amounts owed to give you a figure for the Total Debt.
- For each creditor, divide the amount you owe them by the Total Debt, then multiply that by your Available Income. This gives you the amount that you can afford to pay them.
Use this calculation as the basis of an offer to each of these creditors. An example of wording for a letter you could use can be found here.
Your Personal financial Statement will show that you are treating all creditors fairly. Don't be persuaded to up the offer for anyone, because you will weaken your position as soon as you are seen to give anyone more favourable treatment. You need to be able to be completely open about the details of your income and expenditure with your creditors, so you don't want to feel that you have agreed to anything with one creditor that would annoy another one. The only approach that is easy to defend is to be completely consistent and fair in how you apportion payments.
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
