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Step 3 - Completing a personal budget
(continued)
The next step in completing your budget is to list and calculate your debts, starting with your priority debts before moving on to your non-priority debts. Remember, your priority debts are those where non-payment could eventually lead to imprisonment, homelessness, or the loss of your essential goods and services and must be dealt with first.
Your priority debts include:
- Mortgage and other secured loans
- Rent arrears
- Council Tax/Community Charge arrears
- Gas and Electricity arrears
- Fines and maintenance payment arrears
- Tax and National Insurance arrears
- Some Hire Purchase (HP) and conditional sale agreements arrears (if for essential goods, etc)
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It is important to point out that, at this stage of the budget, you should only be listing any arrears (missed payments) that you owe to your non-priority creditors, not the normal repayments required to maintain the ongoing commitment (as these should be included in the ‘expenditure’ section).
By now, you should have contacted your priority creditors and collected the details of how much you owe them and what repayments you have to make to pay-off the arrears on your account.
Each creditor should be listed in the ‘priority debts’ section on your personal budget sheet. You should also list the total amount of arrears that you owe and the required repayment you need to make. Once you have done this you should add all of these figures together to calculate the total amount owed on your priority debts, and the total amount of money you need to meet the necessary repayments.
Once you have calculated your total repayment figure, you must subtract this amount from your ‘available income’ to calculate what money (if any) you have to pay your non-priority debts (or ‘credit debts’).
If you are using our online budget calculator, clicking your mouse on the ‘calculate’ button at the bottom of the screen will do the calculations for you. You should make a note of these details before you move on – click on the ‘print’ button to print the page (or if you don’t have a printer, write these details down on a piece of paper). When you’ve done this click on the ‘next’ button to continue.
Nearly there…
Your next and final step in completing your personal budget is to list and calculate your remaining debts – your non-priority debts.
In a similar way to how you listed and calculated your priority debts, you should begin to list your non-priority creditors and the total amount that you owe each creditor in the appropriate columns on your personal budget sheet.
If you have money available to pay your non-priority creditors (calculated by taking your income minus your expenditure minus your priority debts), you must calculate your ‘offer of repayment’ to each creditor is a specific way.
The total amount that you have available to offer your creditors should divided between them so that each creditor is fairly treated, and gets a payment which is proportionate to the amount owed to them. This is known as a ‘pro-rata payment’.
In order to calculate your offer of repayment, you will need to take the total amount which is available for your non-priority debts, multiply this figure by the total amount owed to each specific creditor and then divide this figure by the total amount you owe to your non-priority creditors.
Total available for credit debts x amount owed to creditor / total amount owed to credit debts = offer of repayment
If you are using our online budget calculator, you should click your mouse on the ‘calculate’ button at the bottom of the screen once you have listed your non-priority creditors and the amount you owe each one (do not enter an offer of repayment) – this will then calculate the pro-rata payments for each creditor and the total amount you owe your non-priority creditors.
Once you have done this, you should make a note of these details – click on the ‘print’ button to print the page (or if you don’t have a printer, write down these details on a piece of paper).
Congratulations! You have now completed your personal budget.
Your results
Okay, so how serious is it? No matter how bad it may seem to you, it is important that you realise that even the worse situations can be dealt with and that if you’re feeling overwhelmed by your debts and unable to deal with them, that you seek professional advice immediately and let someone help you – for more information on where to get FREE help and advice, please click here.
Over the next few pages, we will help you to decide on an appropriate strategy for dealing with your debts. There are many ways to deal with a debt problem, but depending on your circumstances (e.g. the results of your personal budget), you may find that only one or two of these strategies will be suitable for you.
To find out more about these ‘strategies’ and how to deal with your creditors, please click here
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