Make a list of all your debts. Check the bills or reminders that have been coming through the post and go through your bank statements to see what direct debits are being taken out of your account.
Sort these into priority debts and non-priority. If you don’t pay priority debts you could lose your home or lose essential services. Priority debts include
- mortgage payments,
- secured loan payments
- rates payments
- car payments, if you need your car for work or to earn money
- electricity and heating bills
- child support and maintenance payments
Most other debts will be of lower priority. While these debts are important and your credit rating will suffer if you don’t pay them, the consequences of repaying these debts late are not as severe. Store cards, credit cards, cable and satellite bills should all go in this category.
Once you’ve worked out who you owe money to write to each company. Explain that you are getting advice about clearing your debts. Ask your creditors to hold any action until you have sent them proposals for clearing your debts.
Making the most of your income
If you’re not working or you’re working but don’t earn much you should visit a benefits advice agency to make sure you’re getting all the financial help from government that you’re entitled to receive.
You should also check with your employer that you’re on the right tax code and see if there’s any possibility that you could work extra hours to increase your take home pay.
If you have a spare bedroom in your home, you could think about taking in a lodger. You can earn up to £7,500 tax free each year but you’ll need to get your landlord’s permission. You should only do this if you’ll be comfortable having someone else living in your home. A lodger who is related to you won’t usually be able to claim benefits to help with the rent.
Working out a repayment plan
Once you’ve worked out your household budget and you know which debts are priorities you can look at how much you can afford to pay each of your creditors. Your priority debts should be paid off first.
If you’ve any money left over after paying an agreed amount to your priority debts you can make payments towards your other debts. The largest debts should get the largest amount repaid each month. Write to your creditors and send them a copy of your financial statement. Explain how much you have left once you’ve paid your priority debts and suggest an amount that you can afford to repay each month.
If you’re not sure who you should pay first or how much you can afford to pay, get advice from an advice agency that specialises in money and debt advice, like Debt Action NI or Stepchange. It can sometimes be difficult dealing with creditors, particularly if they continually contact you. If you’re finding it tough to manage on your own, get help.
When you’re having money problems it can be tempting to apply for a payday loan. We’re surrounded by adverts for these services and they can seem like a quick fix. These are incredibly expensive ways of borrowing money. If you’re thinking about getting a payday or short term loan, consider these options first
- can you borrow money from your local credit union?
- can you get an advance at work or ask for some overtime?
- can you apply for a Discretionary Housing Payment to help you with your rent?
- can you apply for discretionary finance support to help with your expenses?
If you’re regularly using payday loans to pay your bills, you need to get help from a debt adviser.
Converting monthly payments to weekly payments
If you're working out a household budget, you'll need to make sure all your figures are either monthly or weekly amounts. To change a weekly figure into a monthly amount you'll need to multiply by 52 then divide by 12. So, if you spent £15 per week on train travel, your monthly train travel is £65. If you aren't a fan of mental arithmetic, let our converter tool do all the hard work for you.
Budgeting tools to help you
The key aspect of budgeting is being honest and realistic, whether you’re listing your income or your outgoings. We have developed a number of online tools to help you with the budgeting process and allow you to create a simple financial statement on screen.
Use our budgeting tools to work out your household finances. For each of these tools, you also have the option to download a PDF version for printing and completing offline.
- Income Calculator
- Spending Calculator
- Short Financial Statement
- Income Form (IF1)
- Expenditure Form (EF1)
There are lots of other free tools that can help you set up a household budget and understand your household income and expenditure. The Money Advice Service has loads of really useful online tools that can help you manage your finances better.
The budget planner from the Money Advice Service is a really useful tool, that asks for lots of information about your expenses and can show you how much of your income you're spending on bills, travel, children and socialising. It should take about 20 minutes to complete.
You can use the Cut Back Calculator to see how much money you can save each month by making small sacrifices. Cutting down on one 80p chocolate bar a day will give you an extra £25 each month to put towards your mortgage.
If you've got a smartphone, have a look for free budgeting apps that will help you keep an eye on your finances while you're out and about.