Prepare a financial statement
The key aspect of budgeting is being honest and realistic, whether you’re listing your income or your outgoings. A financial statement, containing a listing of your income and expenditure, is a starting point for dealing with debt and making a sustainable repayment proposal.
It can be difficult to get it right at first and you may need to go over your bank statements to make sure you have all the usual expenses covered, but it is certainly worth the effort.
We have developed an online tool which allows you to create a simple financial statement on screen, however if you’re relying on an adviser to assist you with your case you may want to consider using the extended financial statement available as a PDF download here.
A
spending sheet may help you itemise your personal and household expenses, such as:
• mortgage repayments
• rent
• rates
• energy bills
• food
• clothing
• entertainment
• car costs
• etc...
You should list all your expenses, no matter how small, when creating your spending sheet. Try to make allowance throughout the year for one-off items such as school uniforms – these expenditures can make a big difference at the end of the month.
Once you have your outgoings listed, you may be in a better position to realise where you may be able to make some savings in the future.
You will also be able to compare the amount on your spending sheet to your income – the difference will represent your excess amount which can then go toward paying off your arrears.
It is very easy to underestimate what we spend – being realistic and listing your expenses accurately will give you a practical basis for your financial statement and any future repayment proposals.
Following the same principles of the spending sheet, the
income sheet lists all of your sources of income, such as:
• wages / salary
• benefits
• pensions
• savings
• maintenance payments
• rent
• tax credits
• child benefit
• insurances
• etc...
The income sheet can come in handy not only to give you the total figure of the money that is at your disposal, but also as a measure to ensure that you are getting all the money you are entitled to, such as benefits and tax credits.
After considering your finances and drafting a financial statement, you will need to negotiate a realistic offer with your lender. The level of offer will depend on your disposable income, as indicated in your financial statement.
You or your adviser can submit a proposal to your lender. Keep your priority debts ahead of non-priorities, and don’t overestimate how far your money will stretch – your offer will not be sustainable in the long run if you can’t afford to buy food at the end of the month.
If, after framing your financial statement, you realise that you do not have any disposable income left to go towards the arrears, you or your adviser should consider writing to the creditors asking them to:
• suspend interest and charges,
• suspend recovery, or
• accept token payments,
• write off the debts.
You should consider giving your lender a copy of your financial statement, along with copies of agreements reached with other priority creditors. It is best to keep or at least confirm all communication with your lender in writing, to prevent any misunderstanding.
Even if you can’t make the full payments your lender expects you to, it’s always better to pay as much as you can than letting the arrears, and extra charges that come with them, get out of hand.
