FACTSHEET How to do a budget to manage debts

FACTSHEET
How to do a budget to manage debts
Torbay Citizens Advice Bureau
Purpose of a budget
A budget can put you in control of your money and it is a good way to get the
most from your money. It shows all the money coming in and what it is being
spent on. It can show where you could spend less and where you can save. You
can also use a budget to work out how much you have available to repay your
debts.
A copy of our electronic budgeting sheet is available on our website to download
– http://www.torbaycab.org.uk/calculate-budget.htm
Step 1:- Information needed to start a budget
Before you start filling in your budget sheet get together all your paperwork to do
with money including: All sources of income, these should include salary and wages after
deductions(normal take home pay), benefits, tax credits, pensions, child
maintenance, non-dependent contributions etc.
 All expenditure(outgoings) details including mortgage, rent, council tax, food,
housekeeping, utilities, travel, motoring costs, clothing, telephone,
maintenance, pets, haircuts, leisure etc.
 People you owe money to. If you owe money but aren’t sure of the amount,
get in touch with your creditors (people you owe money to) to find out.
You'll also need this information for your partner if you are doing a joint budget
and you'll need income details for anyone else who is covered by the budget (for
example other adults living with you).
If you do not know what you spend on 1) regular bills like gas and electricity,
gather together your paid bills for the last year and file them alphabetically(a to z)
in a file or folder with dividers(an expanding file is useful in this
respect)
2) for irregular items of expenditure such as food, pets, leisure
activities etc. you can keep receipts for a month and compile a
spending diary to help to work out your spending patterns and
expenditure (see our factsheet on compiling a spending diary)
Step 2:- You need to determine how often income is received and payments
are made
You MUST record all your spending & income as either weekly or monthly.
Don’t mix the two otherwise your budget will be inaccurate.
Our budget sheet uses monthly figures. When you enter an amount for income
and expenses you must convert payments to a monthly figure e.g. if you get a
paper bill for gas, electric or water they are usually quarterly. To convert a
monthly amount multiple by 4 and divide by 12 (£200 x 4÷ 12 = £66.67)
To convert a yearly amount to a
monthly amount
To convert a weekly amount to
monthly amounts
To convert quarterly amounts to
monthly(payments 4 times a year)
Divide any payments you make once a
year by 12 to give a monthly amount
Multiply the weekly amount by
52(weeks) and divide by 12(months)
Multiply any quarterly figures by 4 and
divide by 12(months)
The electronic budget on our website will do this calculation for you. If you wish to
use the calculator it is available at http://www.torbaycab.org.uk/calculatebudget.htm
Step 3:- How to work out what you have to pay creditors (people you owe
money to)
Once you have calculated your income and identified your outgoings calculate
the difference between the two to see how much you have left to pay your
creditors e.g. (total income is £1500 and total expenditure(outgoings) is £1450.
You therefore have available funds of £50 each month to pay creditors)
If you do not have enough income to cover your outgoings then you need to: consider ways of making savings
 consider whether all your outgoings are essential
 consider if there are ways to maximise your income
See our factsheets on maximising income and reducing expenditure.
Step 4:- Make a summary of your total debts
 Sort out all the paper work you have for everyone you owe money to and
create separate piles/ files for each creditor
 Getting organised is an important process for you to go through and is the first
step in gaining control over your finances.
 Make a list of everyone you owe money to (your creditors) together with the
contact telephone number, address, reference number and total amount you
owe.
 If you are unsure of the amount you owe to one of more of your creditors, you
should contact them before completing the list.
 Add together the total amount of money you owe (don’t panic if this is more
than you had expected). Once you have made your list of creditors you need
to identify which are priority and non-priority debts
Step 5:- Identify Priority debts
From your list of debts now list which of your debts are priority debts. Priority
debts are not necessarily the highest debts you have but they are the ones that
should be dealt with first as they have the most serious consequences if they are
ignored. An example of a priority debt is mortgage or rent arrears, which may
result in you losing your home (called repossession or eviction).
In our budget sheet we have identified priority debts for you. Just enter the
amount you owe and any repayments being made.
Don’t pay more than you can afford and always leave some income spare to put
towards emergencies if possible. If you need advice on what minimum payments
to make, please contact Torbay Citizens Advice Bureau on 01803 297803
If you have not set up arrangements to repay priority debts it is important your do
so. This must be done before setting up payment arrangements for non- priority
debts. See our factsheet on priority debts for how to arrange to repay these
debts.
Step 6:- Money available for non-priority debts
The amount you are repaying towards your priority debts should be taken away
from the amount of available funds you have over each month. e.g. total monthly
income is £1500 and total expenditure (outgoings) is £1450. You therefore have
available funds of £50 each month to pay creditors. You have one priority debt of
council tax and you are paying £20 a month to the Council for this. You therefore
have £30 a month to repay non-priority creditors.
Enter details of your non-priority debts in the budget sheet and any offers you can
make. If you need advice on what minimum payments to make, please contact us
at Torbay Citizens Advice Bureau
Difference between priority and non-priority debts
Priority debts
The law states that some debts are more important than others and give creditors
different options to recover their money. These are called priority debts and
should always be dealt with and paid before less important non-priority debt.
(Always check any insurance cover re: priority debts).
Examples of priority debts
Type of priority debt
Rent/mortgage, secured
loans/charging orders
Council Tax
Magistrates court fines
Electricity / Gas
T.V. Licence
Income Tax
Hire Purchase
Child Maintenance
Court Judgments
Consequences of not paying
loss of home
attachment of earnings or benefits/
bailiffs/prison/ bankruptcy
bailiffs/prison
pre-payment meter / disconnection
fine / prison
bailiffs / bankruptcy / other
loss of car / goods
attach to earnings / bailiffs / prison
attach to earnings / charging order / bailiffs
All other debts are non-priority debts and include debts where the creditor
does not have the extra powers of recovery (for example they cannot take your
home or seize goods). This means they will not have to be treated as priority and
offers should only be made after arrangements have been agreed with your
priority creditors.
Examples of non-priority debts are credit cards, unsecured loans including
payday loans, catalogues, overdrafts, personal loans, water and sewage
charges, parking penalties, telephone depending on circumstances
If you have problems paying your non-priority creditors you should always check
if you have any relevant insurance cover on your accounts
Please note that it is common practice for some non-priority creditors to attempt
to pressure people into paying them before more important priority debts.
Examples are doorstep collectors, collection agencies and call centres. You
should always make sure that your priority creditors have been dealt with before
making arrangements with, or paying any non-priority creditors.
You should always check your creditor correspondence as non-priority creditors
sometimes take legal action including County Court Judgments (CCJs). If you do
receive a Court Claim, you will need to respond within a set time. Don't panic,
check the details before completing and returning the relevant form. If you are not
sure about anything get immediate independent advice.
Further help
Debts: - If you do not have enough income to make debt repayments or you want
help to manage your debts, contact or call our specialist debt unit on 01803
297803.
Budgeting:
 For help to complete budget sheets
 For help to increase your income and reduce costs , particularly, if your
income does not cover your outgoings
NEED FURTHER HELP ON MANAGING YOUR MONEY CONTACT Torbay
CAB on 01803 297803 or email financial.literacy@torbaycab.org.uk for free
confidential advice
Budget Sheet
Name ……………………………………………………………………………………………………………
Address ………………………………………………………………………………………………………...
Number of people in household …………………………………………………………………………...
Income (monthly)
Outgoings (monthly)
Net Wages/Salary(take home pay) Your £
self
Mortgage payment on
your home
Second Mortgage/
Secured loans
Rent/board/lodgings
Council Tax
Gas
Electricity
£
Water
Housekeeping including
food and cleaning
Travel/car
costs(petrol,
repairs,Telephone
tax , insurance,
Home
MOT, bus, train fares
Mobile
Telephone
etc)
£
£
£
£
Net Wages/Salary(take home pay)
Partner
Housing Benefit
Council Tax Support(Benefit)
Income Support/Job Seekers Allowance
Employment Support Allowance(ESA)
£
Working Tax Credit
Child Tax Credit
Child Benefit
DLA/Personal Independence
Payment(Care)
DLA/Personal Independence Payment
(Mobility)
Carers Allowance
Child Support/Maintenance
Pension 1
Pension 2
Benefits other(please state)
Contribution other members of the
household (e.g lodgers, nondependents)?
£
£
£
£
£
£
£
£
£
£
TV licence/rental
Hire Purchase
Building/content
Insurance
Clothing
Prescription/health costs
Maintenance
payments/fines
£
£
£
£
£
£
Total Income
£
Childminding
School Meals
Other (please state)
£
£
£
Other (please state)
£
Other (please state)
£
Other (please state)
£
Total Outgoings
£
£
£
£
£
£
My total income is £…………………..
My total outgoings are £………………
This leaves me an available income of £ ……… for my creditors
£
£
£
£
£
£
Priority debts
Type of debt
Money owed
Rent arrears
Mortgage/2nd mortgage
Council tax arrears
Gas arrears
Electricity arrears
Magistrate court fines
TV licence
Income tax
Hire purchase
Child Maintenance arrears
Court judgements
Total
£
£
£
£
£
£
£
£
£
£
£
£
Payments negotiated to pay
off debts(monthly)
£
£
£
£
£
£
£
£
£
£
£
£
Total payments to priority creditors is £……… per month. When I have made payments to
my priority creditors I have £…….. for non-priority creditors
Non-priority debts
Debt(fill in name of creditor)
Money owed
Other(monthly)
Total
£
£
This is a true record of my financial situation on…………………………….(date)
Signed …………………………………………………..
Table summarising total debts
Creditor
contact(person
or organisation
you owe money
to)
Telephone
Address
number if known
Reference
Number
Amount
Owing(£)
Creditor
contact(person
or organisation
you owe money
to)
Telephone
Address
number if known
TOTAL AMOUNT OF DEBT
Reference
Number
Amount
Owing(£)
£