What to do if you can't pay your creditors

Most people are often eager to get their first credit card and spend the money without thinking much about the interests these cards attract, not until they have to make repayments.  While the first repayment may not seem like a big deal, it's until you start noticing your balance getting lower and lower and the interest that it hits you. Paying for your credit card can be a hustle, especially if/when there are other bills to pay. 

With responsibilities suddenly creeping in, the student loan, financial emergencies, your first car loan, mortgage, it doesn't take long to notice the piling debt. Paying off these debts with a meager salary can (and sometimes do) drive people to depression. Read this article - how long does an attachment of earnings order last?

Have you been struggling with an unending debt cycle and don't see a way out?  There are still ways you can handle these bills and debts without leading a miserable life. Here are some things you can do if unable to clear or pay your bills. 

1. Take Care Of You And Your Family (The 4 Walls) 

With creditors breathing fire on your neck, it is easy for one to forget they still have a life beyond paying the debt. As much as the creditor will want to convince you that paying them is more important than having food on your table. It is crucial that you take care of yourself and your family first, then debts can follow. You first should protect your 4 walls in this order

I. Food 

ii. Utilities 

iii. Shelter 

iv. Transport 

Only after making sure there's food, lights, water, and a roof over your head can you start thinking of spending the balance in repaying the debt. 

2. Create A Budget 

What is there to budget when you have no money? You may ask. For starters, a budget will help you manage how money is spent in the house.  It enables one to keep track of money coming in and what it is spent on. That said, creating a budget, and sticking to it, will help you identify and cut down on unnecessary spending, allowing you to live within your means. It will be just a matter of time before the negative balance turns positive. 

3. Stay On Top Of Your Bills  

This is the only way to prevent things from getting out of hand. It may also mean getting a second or third job to supplement your current income. If getting a second job isn't an option, you can then opt to free up some money elsewhere. You can still make ends meet if you: 

I.  Sell your car and get a used but reliable one in its place. 

ii. Organize a yard sale 

iii. Avoid eating out unless you have to 

iv. Move to a smaller house 

v. Switch to the pay-as-you-go phone plan 

vi. Consider getting a roommate to share the bills 

vii. Use the extra money earned or saved to pay any outstanding bills.  

Keeping your bill payments current will make your life easier, allowing you to tackle the heavier load (debts).

4. Pay Your Creditors Have Their Fair Share 

You'll need a solid plan to be able to pay your creditors their fair share. This should, however, only happen after you've sorted all essentials (the Four Walls). Here is a brief outline of how this works:

 Let's say you have £300 as disposable income.  Before disbursing the payments, you first need to figure out each creditor's pro rata (fair share). A pro-rata can be loosely defined as a short-term solution for repaying debts. It would be best if you had a rough idea of how much is owed, then divide the disposable income amongst these, starting with high-interest loans, in ratios. Although you might not have enough for the full monthly repayment, paying an amount towards it should show the creditor good faith and give you some breathing space. 

5. Include A Letter When Sending The Payments 

With your calculations ready, it is time to start sending out the payments. Before you do, make a copy of your math and how you arrived at the figure for each creditor, including total income, disposable income, expenses. The math should include ratios for each creditor you owe money to too. With this done, make copies of the calculations and include them every month with each bill payment. 

While the creditors will definitely not be happy for not getting the agreed amount in full, they certainly won't turn back the payments either. It's worth noting that they will still call and bully you into giving them more money, but don't let that intimidate you or get under your nerves. The last thing you want is to give in to their demands only to be left with nothing for your basic needs.  You also should never agree to allow automatic withdrawal from your bank account to any creditor. They will milk you dry if you agree to this.