As we navigate life, it’s impossible to ignore occasional calls for credit. Be it a short term loan to cover unexpected but emergency expenses, or a large loan to assist with life event costs, like a mortgage. There are several times in a person’s life that they will need to access some form of credit. Unfortunately, these times can often coincide with one another which results in you having more than one creditor to repay.
Collating your loans and credit facilities to establish which repayments need making when, and how much you owe each creditor, and even if you have enough disposable income to make your monthly repayments can be a daunting challenge and one that some may choose to ignore for fear of being overwhelmed. While it can be intimidating, ignoring your debts will only exacerbate the situation.
We’ve put a few steps together to help you manage your money and repay multiple lenders in an easy and sustainable way. We are not debt advisors so we cannot offer individual advice, however if you would like circumstance-specific information on how to deal with your debts, we would suggest getting in touch with a free debt advice charity such as StepChange.
The first step in tackling any financial affairs is creating a budget. For a general understanding of your monthly finances, a basic budget will usually suffice. This includes your income, rent/mortgage, energy bills and food expenses. However, if you are trying to get a good grip on your financial circumstances and create a rigid plan for your contractual payments, then your budget will need to be much more detailed. You can use free online budget planners or simply write a list, including all of the following fields. You must be honest, and it might be a good idea to use a previous bank statement to check for any payments you forget about or subscriptions you aren’t aware you’re even paying.
|
Income (after tax, inc. wages, benefits, tax credits) |
£ |
Prescriptions |
£ |
|
Rent/Mortgage |
£ |
Hairdressing/Beauty |
£ |
|
Water |
£ |
Pet costs |
£ |
|
Electricity |
£ |
Fuel, parking, tolls |
£ |
|
Gas |
£ |
Car Insurance |
£ |
|
Council Tax |
£ |
Car Tax |
£ |
|
Landline |
£ |
Car Finance |
£ |
|
Mobile phones |
£ |
MOT |
£ |
|
Internet/broadband |
£ |
Public Transport |
£ |
|
TV Licence |
£ |
Leisure (e.g., gym membership) |
£ |
|
Home Insurance |
£ |
Subscriptions |
£ |
|
Grocery Shopping |
£ |
Bank account fees |
£ |
|
Takeaways |
£ |
Overdraft Fees |
£ |
|
Cigarettes/Tobacco |
£ |
Credit Card min. payments |
£ |
|
Clothes and Shoes |
£ |
Other loan repayments |
£ |
|
Toiletries |
£ |
Savings |
£ |
Depending on your circumstances, you may need to include child maintenance or court fines, for example, so you can add or remove all of the relevant fields. The more accurate a budget you create, the more likely you are to stick to any proposed repayment plans.
Once you’ve created a budget planner, it’s worthwhile seeing if there are any areas where you could reduce your outgoings. Things like subscriptions, tobacco and takeaways are usually easy areas to start with. Do you need three different streaming services, or could one suffice for a few months while you get back on track with loan repayments? Can you try to cut down on smoking costs? There are several free tools available on the NHS website to help you reduce or quit smoking (it’s a health saving as well as a financial one!). Takeaways are a great little treat at the end of a hard week, but they can often cost as much as an entire week’s worth of food shopping, so try being strict where you can. You don’t need to say goodbye to these things forever, just while you’re readjusting your budget and trying to pay off your borrowing.
Savings can be made in almost every category, but it can often take a bit of time to research and switch providers. If you’ve got a few hours here and there, it’s certainly worth checking if you could be getting cheaper deals elsewhere. And we always suggest getting other quotes for things like insurance before accepting your renewal quote from your current provider. It’s rare that customer loyalty is rewarded with reduced insurance premiums these days.
Once you’ve got a solid budget and you understand where you can be saving money, the next step is to assemble a list of your creditors, the total amount you owe each creditor and the contractual repayments each month. You might find you can afford to meet all of your repayments now you’ve saved a little extra cash here and there. If this is the case, think about why you may have missed payments before. Often, it’s because your repayment dates don’t align with your payday. With revolving credit facilities (such as credit cards), you can usually change the date your payments are due. If you aren’t able to change any loan repayment dates, then think about opening a new basic bank account to transfer your loan repayment funds into once you get paid. You can then leave the cash in the account for your lenders to collect as and when has been agreed. This can also help reduce stress levels surrounding making payments as the money will be allocated and untouchable, so you can’t accidentally spend it. Just remember to check that the lenders have those bank account details to collect your repayments from.
On the other hand, if you’ve looked at your budget and made a few savings on your outgoings where you can, and you still don’t quite have enough to meet all of your credit repayments each month, it’s time to get in touch with your creditors. It may seem daunting but they’ll want to help you repay.
Often, if you can reduce your monthly repayments to your non-priority lenders, you might not have to adjust your priority bills at all. Non-priority debts are generally unsecured, and include credit cards, short term loans, unsecured bank loans and even catalogue loans (such as buy now, pay later schemes). HMRC, although unsecured, is a priority debt.
From your budget sheet, you can calculate your disposable income. This is the amount left over from your income once you’ve paid all your essential expenditure and priority creditors. Your disposable income will be used to pay your non-priority debts and often the quickest way to repay multiple lenders at once is by calculating pro-rata repayment amounts. This takes into account the size of each debt, so the larger debts will have larger repayments than the smaller debts. For example, if you have two debts, one for £100 and one for £300 and you have £100 each month to repay the debts, then the first creditor will receive £25, and the second creditor will receive £75. Pro-rata payments often mean all of your borrowings will be repaid in full at the same time.
Contacting your lenders might seem a scary prospect but remember that your creditors want to help you repay your loan, especially if your current repayments are no longer affordable. Either email or call your lender, explain you are experiencing financial difficulty and propose the pro-rata payment you worked out from your budget planner. Some lenders may accept your proposal straightaway, and some may require more information about your circumstances or how you concluded your pro-rata amount. The more information you provide, the better understanding your creditor has and so the better they can help you.
In some cases, your creditors may freeze your balance to help you repay the debt more quickly although they aren’t required by law to do this. Plus, if you are only experiencing short term financial difficulty, it might be in your best interests to keep the account running at normal operation, on the assumption you will be able to resume your contractual payments in the near future.
If you arrange a repayment plan for a loan or other credit facility, it will be recorded on your credit file so you should only set up an alternative arrangement if you cannot afford your contractual payments. Make every effort to reduce your normal outgoings first: although it might be tough for a few months, it’s better to settle your loans in full without unnecessary alterations to your credit file. However, if you really can’t afford your repayments – maybe you took out one too many loans or you lost your job – then contacting your creditors and explaining your circumstances is something you should do as soon as possible. While repayment arrangements may affect your credit file, so will missed payments so try to contact your lenders before your next repayment date.
Once you have settled most of, if not all of, your debts – both priority and non-priority – think about how you can protect yourself against similar financial difficulty in the future. Perhaps it’s time to start putting a little more into your savings each month or even just get into the habit of regularly switching providers and actively trying to reduce your everyday expenditure.
There’s no shame in experiencing financial shortfall from time to time. Tackling your debts head-on and actively trying to improve your financial health will help massively to create sustainable money management skills.
A guide to managing your money: Paying off debt
A Guide to Managing your Money: The Invisible Spending
A Guide to Managing Your Money: Top Money Management Tips
A Guide to Managing Your Money: Budgeting
For more money management guides and information about credit products, view the Polar Credit Info Hub.