5 step DIY guide when dealing with lenders

When you are trying to deal with debts it can be hard to know where to start. To help prevent your debts spiralling out of control we have put together a five-point plan.

This is aimed at those who have low to moderate debt with numerous unsecured creditors.

1. Find out what you owe and to whom

Take your credit cards, loans and bank overdrafts and make a separate list for each of the following:

• those in your name only
• those in your partner's name only (if applicable)
• those in joint names (if applicable)

2. Establish if the loans are secured

Secured loans include mortgages, loans on a property and hire purchases such as those on a vehicle, these are priority debts. Also identify other priority creditors such as utilities and council tax.

Remember if you don't pay secured creditors then you may lose the security (your house for example) and if you don't pay priority creditors such as your electricity or gas provider then you might lose the services they provide. Make a separate list of your unsecured creditors.

3. Work out your disposable income

This is the amount you have available to pay unsecured creditors - credit and store cards and personal loans for example - after you have paid the secured ones in full.

To calculate your disposable income  you  will first need to work out the total family income including pensions, benefits, family allowance and tax credits. Then list all your outgoings, including those to secured creditors.

Once you have subtracted this amount from your income you will see exactly what your disposable income is and what you can truly afford to pay toward your debts.

This will help you assess your options when it comes to dealing with your creditors.

Click on our budget wizard to help you work this out for free.

Also see our updated Lender's expenditure guidelines

4. Work out how much your assets are worth

Now you need to work out what assets you own. This could be your house, even if you have a mortgage on the property. The difference between the remaining mortgage and the estimated value of your house is known as equity, and this is an asset. If the home is jointly owned, however,  then the other named person may well be entitled to half the equity.

For example, if your mortgage debt with your partner stands at £80,000 and your house is valued at around £140,000, then there is equity of £60,000. Once this is divided between you both, you would each have a share worth £30,000.

5. Get in touch with your creditors

If you fail to make payments to your creditors and don't communicate with them, you will be regarded as someone who won't pay rather than can't pay. This leaves your creditors little option but to take legal action against you to recover their losses.

So contact your lenders, who will request the information detailed in steps one to four, and who can then make a decision on how best to help you.

Above all, be realistic and accept there is a problem, which will only go away if something is done about it. If you feel you can't deal with it on your own then see the DebtWizard list of agencies you could consider.

Do you need free debt advice?

We can help with Fee-free Debt Management Plans/IVAs and free debt advice

REMEMBER, it is not a crime to be in debt - always insist that you are treated with respect

Debtwizard's list of do's and don'ts when dealing with creditors.

The following do’s & don’ts may prove to be helpful when negotiating with creditors / lenders.

Do

• Communicate with your creditors as soon a possible and explain what the situation is.
• Whenever possible try to write to them rather than telephone so that there is a written record.
• If you do use the telephone keep a record of what was said and to whom and when
• Keep copies of your letters, some local shops and libraries have photocopying facilities.
• If you do not have surplus income at this stage write and request that creditors suspend any further action and freeze interest on your liabilities for a period such as 3 months after which it can be reviewed.
• Pay your priority creditors before your unsecured debts, such as mortgage, rent, secured, loans, and utilities. More on this here.
• Reply to letters from creditors promptly and enclose any documentation that supports your case, such as Doctor's certificate if signed off work, redundancy letter etc.
• Keep copies of all correspondence, including your letters to creditors, their letters to you and all your credit card and loan statements plus any financial statements you may have. These statements are sometimes referred to as a statement of affairs or a statement of means.
• Reply to any court summonses promptly.
• Attend court hearings with all your documentation and if possible have someone who is qualified to represent you.
• Above all be realistic and accept that there is a problem and it will only go away if you do something about it, either by dealing with it yourself or with the help of the agencies such as those illustrated on this site, click here for details. We can also help you on 0845 225 0025. Think about how you are going to pay your creditors, if you write a cheque and it bounces then you could well be charged around £35 or more by your bank for returning the cheque, what a waste of your money if this were to happen as this could have been reducing your debt instead of compounding the situation. Consider sending postal orders, available through your Post Office or using a repayment book issued by your creditor. Creditors prefer regular payments, even if they are small compared to larger irregular sums.

Don't

• Be intimidated, threatened or bullied into making an offer or promises you know you cannot keep.
• Give up, if a creditor refuses your offer or to stop interest reaffirm your efforts, get them to give up!
• Borrow more money to pay off your creditors unless you have taken professional advice to the contrary.
• Ignore the problem hoping it will just go away.
• Be frightened to ask for specialist help and advice, see who can help.
• If a creditor refuses your offer and is threatening legal action such as bankruptcy then take professional advice immediately, either from Insolvency Practitioners or Solicitors’.

You may find our own unique free budget wizard helpful.

If you feel you can't deal with it on your own then see the DebtWizard list of agencies you could consider.

Debtwizard's Top10 tips

1. Never borrow more than you can afford.
2. Do a budget wizard; learn to live within your means.
3. If you have a problem re-paying a loan then speak to someone sooner rather than later.
4. Borrowing can be expensive so think very hard before you commit yourself to a loan, look at the amount per month you have to pay and check the total amount paid back of the loan, this includes interest, all admin charges and any insurance.
5. Sometimes it’s better to ‘save to spend’ rather ‘borrow to spend’.
6. If you have a mortgage why not think about fixing this on a low interest rate.
7. Avoid borrowing on credit cards as this is a very expensive way of doing so.
8. When you are thinking of buying something ask yourself, 'how am I going to pay for this?', 'what is the cheapest way of doing this?'
9. It is not a race to see who can get to the credit card limit the quickest, make the credit card work for you by paying the balance every month, that way you will not pay any additional costs but get purchase protection under the card.
10. If you don't need it, can't afford it then don't buy it!

The DebtWizard motto;  'live your life within your means, not the lifestyle of your dreams'