Get out Of Debt Plans - Complete Overview, Tips, FAQs & More

Being in debt can be very troubling especially because of the fact that sometimes, it’s quite confusing about how you’re supposed to pay off your debts. 

Sometimes, making payments and communicating with creditors isn’t as obvious as it should be. 

In this post, I’ll be going over what steps you need to take when setting up a debt solution for yourself and which aspects you need to be aware of when negotiating with creditors.

Table of Contents

Calculating How Much You Earn and Making a Budget

When planning how you’re going to address your debt, the first step is to assess how much income you’re bringing in on a monthly basis. This will give you an estimate of whether or not you can afford to make monthly payments towards your debt(s) or not. 

Here’s how you can calculate your surplus (or disposable) income for each month: 

  • Step 1: Calculate your total income.

Start by adding up all the sources of income you get every month. Ensure that you cover everything such as wages, benefits, pensions, etc. If you have some forms of income that you’re paid for on a weekly or 4-weekly basis, you’re going to need to convert those figures into calendar monthly figures. 

In order to do this, you’ll need to multiply the weekly figure by 52 and then divide it by 12. 

  • Step 2: Calculate your essential monthly costs. 

Once you’ve calculated how much you earn, you’re going to calculate how much you spend every month. 

Start by noting down all of your essential bills. These could include mortgage payments, rent, council tax bills, utility bills such as gas, electricity, etc. 

These bills should be highest on your priority list since they have the most dire consequences if you pay them late or miss a payment. 

It’s important to note that any debt payments you’re making that are NOT going to be a part of the debt solution you’re opting for should also be included in these essential costs. 

For example, you can’t include child maintenance fees into a DMP, you still have to pay them separately. Thus, these child maintenance fees would be considered to be a part of your essential costs. 

Older bank statements and receipts can help give you an idea of what you spend your money on every month and how much. 

If you’re unsure of what you’re spending your money on every month, try to sit down and make a list of everything you buy on a monthly basis. 

  • Step 3: Deduct the expenditure from the income. 

Once you’ve calculated how much you earn and how much you spend every month, you need to subtract the latter from the former. 

The resulting value will tell you where you stand in terms of your ability to pay off your debts. 

If you have money left over, then you can use this surplus for your monthly payments to your creditors. 

On the other hand, if you’re spending more money than you’re earning, then you may need to stick to a stricter budget. 

For more information on making a plan to address your debt, you can click here.

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Negotiating Debt

Once you’ve calculated how much you can afford to pay as part of your monthly payments each month, it’s a good idea to communicate with your creditors and try to get them on board. 

Depending on how much you can afford to pay, you may be able to get your creditors to agree to lower monthly payments. Your creditors won’t have a problem with lower monthly payments as long as they can see that you’re doing all you can to make your payments. 

You may need to provide them with evidence of your financial circumstances such as by sending them copies of wage slips and/or bank account statements.

When it comes to credit cards, it can be a good idea to just call the credit card company and explain your situation to them. You’d be surprised at what can be achieved with a simple phone call when it comes to credit cards. 

Depending on the provider, you might be able to secure a lower interest rate for yourself which could save you a lot of money. 

Additionally, if you can’t afford to pay any money at all, then your creditors may also give you a payment break or holiday. This would be in order to facilitate you so you can get your finances in order. 

For more tips on negotiating with creditors and setting up a payoff plan, click here

Debt and Financial Planning

If you’re making more than you spend, there’s not a lot to worry about. You can easily utilise the surplus income to pay off debt in instalments. 

However, if you’re spending more than you earn, then you have two options: 

  1. Opt for a debt solution which involves writing off all of your debts such as bankruptcy or a DRO
  2. Cut down on your spending and stick to a stricter budget. 

While the first option may seem tempting, it’s the one that will hurt you in the long run. While it’s true that going bankrupt or opting for a DRO will result in most of your debts being written off, it will also cause your assets to be seized. 

Not to mention, they will stay in your credit report for six years. Thus, for six years, your credit score will be affected by it and you’ll have trouble securing any form of credit such as a credit card, mobile phone contract, etc. 

Hence, if it’s possible, the second option is definitely worth considering. 

If you can cut down on your spending and squeeze some surplus income in every month, not only will it improve your quality of life but it will also enable you to opt for other debt solutions that might keep your assets protected such as an Individual Voluntary Arrangement (IVA). 

For more information on getting out of debt through financial planning, go here.

Conclusion

The best way to become debt-free is to make sure you’re aware of all your finances and plan your approach accordingly. 

There are many ways to get your debt(s) written off but you have to assess yourself to ensure they’re appropriate for your unique financial situation or not. 

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