Easing debt woes
Never bury your head in the sand if you have trouble keeping your payments up to date, writes Frank Conway
IF you cannot make the minimum payment on your debts, you must take action to stop a difficult situation becoming worse.
There are some useful tips you should keep in mind if you are thinking about approaching your creditors:
- Be prepared.
- Be confident.
- Be persistent.
Anecdotal evidence suggests that in some cases, unsecured creditors such as credit card providers may get paid before a mortgage provider simply because they were more persistent.
This is despite the serious consequences of not paying a mortgage.
If you begin to experience difficulty paying your bills as agreed with your creditors, being proactive and engaging with your creditors is the most important decision you will take.
Talking with your creditors is one of the most important first steps you can take to ensure that you protect your financial future and open a path to becoming debt-free.
Before you begin to talk to your creditors, you will first need to establish your current financial position, particularly your income and expenses on a month-by-month basis.
When done properly, it will help you understand your weekly, monthly and annual spending.
And when completing an income and expenditure analysis, it is important to track your day-to-day spending habits on items such as impulse food and clothing purchases over a two-week period.
The best way to do this is to simply take a receipt each time you make a purchase and save it for when you begin your income and expenditure review.
To complete your income and expenditure, make sure you have recent pay stubs.
Pay stubs provide a volume of information, not least how much you earn but also what deductions are being taken out.
In addition to your pay stubs, you will require recent bank statements (for each bank account you own). These will reveal a range of payments that may be taken out by way of standing order/ direct debit. You will also require recent copies of your utility bills (gas, electric, phone and don't forget your mobile phone -- whether it is bill pay or top-up).
Now you should be ready to complete your full income and expenditure.
Once your income and expenditure is completed, the next step is to begin contacting your creditors, particularly those you may be experiencing difficulties paying.
Remember, all are likely to be prepared to listen but each will also want to see full evidence of your current situation, which is where your income and expenditure comes in.
Using an accurate and detailed income and expenditure will allow each creditor to make an informed decision whether or not they will be prepared to work with you.
Each of your creditors will have well-trained staff but don't be put off by this. The important point is if you are well prepared, then you can talk to them with confidence as you present your case. A creditor's ultimate goal is to ensure they get paid.
This is where the accuracy of your income and expenditure comes in. It is very important you do not overstate or understate your income or expenses.
It is also important that you talk to all of your creditors and not just one or two if you have five or six different debts.
Talking to all of your creditors will ensure that you have a greater chance of success in reorganising your finances and if you have begun to experience problems paying your debts, your financial survival.
If you reach a new repayment agreement with your creditor, it is extremely important that you stick to it. Again, this is why using an honest and accurate income and expenditure is key.
If your situation improves, contact your creditors to let them know and look for ways to pay off your debts sooner.
If, on the other hand, your financial situation gets worse, also make sure you let your creditors know.
Be consistent, be honest and keep that dialogue open at all times. As net take-home pay is likely to be squeezed for many people during 2010 and spectre of mortgage rates increases looms, budgeting and financial planning will become more important than ever.
Having the skills and tools available to help plan and manage household finances and talk to creditors if and when problems arise will be more important than ever.
You can prepare a personal income and expenditure with the Irish Mortgage Corporation Budget 360 calculator.
Frank Conway is a director with Irish Mortgage Corporation, 01 669 1000.