How to make a debt repayment plan

Now that you've got a few months' worth of nice, accurate spending records, the fun really starts: juggling. You need to create a Spending Plan that is based upon what you really need, what you really earn, plus a segment for debt repayment.

Most people faced with big chunks of debt try to figure it out backwards: 'I'll pay £200 a month.' But if they gave £200 a month to their creditors they simply wouldn't have enough to live on, so the 'plan,' being entirely unrealistic, is doomed from the start.

You need to create a plan that is based on real figures. And you'll see, after you've allotted money for all your expenses, including such categories as clothing, entertainment and health (which might include payments for your yoga or gym class), that in fact you only have, say, £125 a month left for debt repayment.

That's what you have, and that's all you can work with. And here's the good bit. No one can demand that you work with more.

Who gets paid first?

Now, how do you divide that £125 a month? You've got several credit cards, vet bills, money you owe your brother from a holiday you couldn't afford. (Holiday is a legitimate category in your spending plan; put some money into it every month.) You do not pay the most to the person who is the most angry at you. That's neither rational nor fair to your other creditors.

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