Working Out A Repayment Plan
It is important to know when you take out a loan or other debt how you plan to repay it.
How much you’ll pay to borrow money depends on
- how much you need, and
- how quickly you plan to repay it.
Use an online calculator to work out the true cost of any borrowing.
Top Tip! Use the APR to compare products when taking out credit. The lower the APR the better! But also look at how much it will cost overall for the timeline you have, for the most accurate picture.
What they must tell you
When you take out a loan, by law you must be told -
- how much you’ll have to repay in total
- how much you’ll have to pay every month
- the interest rates, any fees or charges and the APR.
While you should find this information on the credit card or loan company’s website, they must also tell you in the pre-contract credit information form (the SECCI).
If it’s not on the website, the firm will need to send it to you before you enter into the agreement and explain key elements of the agreement.
In the case of credit cards, these figures will be based on certain assumptions about how you’ll use the card.
Once you understand what you need to repay in total and how these costs will increase each month, you can decide on a timeframe towards paying it off in full.
You can either -
- Pay the most you can every month (but watch out for any early repayment fees!)
- Or pay an affordable amount over more months (potentially costing more in interest)
Making a budget
- Write down your income. Be sure you have factored in tax, which is automatically deducted from your paycheque each month.
- List your reoccurring monthly bills such as rent/mortgage, gas, electric, water, and council tax. These are the essential bills you must pay on time.
-
List your subscriptions – TV licence, broadband, mobile phones, Netflix, Amazon Prime, etc. These are the non-essential reoccurring bills which, if you want to pay off your debt ASAP, you may be able to suspend these services and put the money to better use. Use the Money Advice Service’s quick cash finder tool to see how quickly you could find and save money by simply cutting back on some of your regular spending. Be it takeaways or lottery tickets, it could add up and help you with your repayment plan.
- Ringfence a reasonable amount for living costs such as food and transport. The rest is how much you can afford to repay a month.
- Map out your new repayment plan. Notice the date you’re now aiming to repay the total debt by, and motivate yourself to stick to your budget! Don’t forget to factor in the interest to your repayment plan. This tool can help.
Top Tip! When you’ve decided on the figure you’re planning to repay each month, be sure to set up a standing order or direct debit for just-after payday. This way you won’t be tempted to spend it.
Read How To Make An Effective Budget for our full guide.
Contact your creditors
Tell them if you’re struggling and ask them to work out a modified payment plan so your repayments are more manageable. They may agree to suspend interest or reverse fines charged to your account.
Consider Debt Help
Consider contacting a debt relief service for advice and one-to-one guidance.
Consider debt settlement programs very carefully and seek advice before committing to a formal repayment plan. There may be consequences such as affecting your credit score or limited leniency in the repayment schedule.
Read more about debt help:
- Where To Turn For Help
- Take Action On Debt
- What Is Bankruptcy