Informal Debt Reduction Arrangement
An Informal Debt Reduction Arrangement may be suitable if you are having minor problems paying off your debt. It basically involves coming to an agreement with your creditors about lowering your monthly payments to suit you.
If one of the following statements applies to you, an Informal Arrangement may be suitable for you:
- You are able to afford a consistent amount each month, but not enough to meet the settled amount.
- You are temporarily unable to keep up with the agreed monthly payments but will probably be able to resume them within the next couple of months.
- You do not have a large amount of money to spend on repaying your debt each month.
Informal Arrangements are established using a financial statement and splitting your surplus income between your creditors. An example is given below, showing a total debt of £20,000, and a sum of £150 available to pay creditors every month.
| Creditor | Debt | Pro-rata Calculation | Pro-rata Figure | Pro-rata Payment |
|---|---|---|---|---|
| Bank | £10,000 | £10,000 / £20,000 | 0.500 | £75.00 |
| Personal Loan | £2,500 | £2,500 / £20,000 | 0.125 | £18.75 |
| Credit Card | £5,000 | £5,000 / £20,000 | 0.250 | £37.50 |
| Store Card | £2,500 | £2,500 / £20,000 | 0.125 | £18.75 |
| Total | £20,000 | £150.00 |
If you need further help in calculating your pro rata payments, contact your local Citizens Advice Bureau.
The Good and the Bad
Although you can take full charge of the proposal and it is free of charge, your creditors are not obliged to accept this offer and even if they do, they are within their rights to alter or stop the arrangement at any time.
