Negotiating reduced payments to your debts

If you cannot afford the normal monthly payments to your debts, the first thing to consider is negotiating reduced payments that you can afford.

Priority debts

If you have any priority debts, you need to try to pay these back first. Once you have done your budget sheet, you could offer the creditor your normal monthly payment, plus a bit more to cover the arrears.

You should seek help from a money adviser if you have any priority arrears as these can be urgent.

Non-priority debts

Once you have come to an arrangement with any priority creditors, you will then be able to see how much you have left over for the non-priority debts. You can make an offer to all of the creditors to pay them back at a rate you can afford.

The fairest way to split your leftover money is on a pro-rata basis. This means the creditor you owe the most money to would get the highest offer and the creditor you owe the least to would get the smallest offer. A money adviser would be able to help you work this out.

If you have very little left over once you’ve paid your essentials and any priority debts, you could offer a very small amount or token payment. This could be as little as £1 per month.

You should write to your creditors to make your offer, and ask them to freeze any interest and charges they may be adding to the debt. You should also send them a copy of your budget sheet to show them you are offering them all you can afford. Keep a copy of your letters in case you need them.

The creditors don’t have to accept your offer, but they cannot refuse any money you send them. They may say the offer you have made is not enough. However, make the payments anyway and write back asking them to reconsider.

Important points to remember about self-negotiating with non-priority debts

• Creditors don’t always accept offers straight-away. Even when you have made an offer, they will often still call you asking for payment. This can be quite stressful.
• You have to remember to pay each of your different creditors the amount you offered every month. A standing order will ensure you do not miss payments.
• None of the debt is written off using this option. Depending on how much you owe and how much you can afford to pay back every month, it may take much longer to pay back your debts.
• Missing payments or making reduced payments to a credit debt such as a credit card will affect your credit rating. This means it will be harder for you to get credit again in the future if you need it.