How to Divide Money between Creditors

When you have identified which of your debts are urgent and which are secondary, work out a reasonable amount that you can realistically afford to pay towards clearing them. If you think you can manage £100 per month, for example, and you have five creditors (people or organisations to whom you owe money), divide the money between them. Give more money to your urgent debts, especially to those owed the most money, and divide the rest fairly between the others. Don’t worry if the amount you can afford to pay each creditor looks small in comparison to what you owe. Your creditors will prefer you to pay a smaller amount regularly than promise larger amounts and keep letting them down.

Check the interest rate you are being charged for each debt. Wherever possible, prioritise the debt with the highest interest rate first. In other words, if you are paying 10 per cent interest on one debt and 15 per cent on another, then allocate a larger proportion of your money to the debt with the 15 per cent interest.

When you have worked out the amounts you can afford to pay, write to all your creditors. Make sure that you write to everyone, because if you make agreements with only some of them, the ones you’ve left out will still cause problems later. Write to all of them instead of telephoning, and keep copies of your letters. In this way you’ll have written proof of your attempts to sort the matter out, and that proof will be helpful if things ever get to court. However, if you have an impending prosecution, or are about to have your electricity or gas cut off, time is of the essence, so in this case you should telephone first, get the person’s name, and then follow it up with a letter.

In your letter to your creditors, explain your situation politely and tell them why you can’t keep up the original level of repayments. Offer them reduced amounts (considerably reduced if necessary) and explain that as soon as your financial circumstances improve you will increase the repayments. Enclose a copy of your chart showing your expenditure and income. Your creditors will probably ask you for this anyway, and providing it in advance will get things moving more quickly. It will also demonstrate that you have calculated your figures accurately and are making a reasonable attempt to resolve the situation.

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About the Author: Marie Mayle is a contributor to the MegaHowTo team, writer, and entrepreneur based in California USA. She holds a degree in Business Administration. She loves to write about business and finance issues and how to tackle them.

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