IF you have suffered a pay cut or have been put on short time or being laid off, you may no longer be able to pay all of your bills in full. With almost 36,500 people three months or more behind on their mortgages the debt problem in this country is not going to go away any time soon. Despite the gloom, cash-strapped consumers have some power when it comes to negotiating their debts.

How to lower monthly payments
The first step is to prepare a full and honest income and expenditure statement. See a widely accepted example of this form on www.MABS.ie. Record everything you spend money on over at least a two-week period. Get receipts for everything, from coffee to a packet of chewing gum.

Prioritise your mortgage
Your mortgage or your rent are the top priorities and should be paid before all else. Next come utility bills, such as electricity and gas. Any court fines should also be top of the list for repayment. If you have a personal loan for a car or a hire purchase agreement and need the car for work then you need to keep up the payments.

Secondary debts
Secondary debts include credit card bills, credit union loans, personal loans, bank overdraft and store card debt. Secondary debt lenders cannot take your home (unless they get a judgement mortgage against you) but they will be aggressive in their collection efforts.

Make your creditors an offer
Submit your income and expenditure to your creditor. But any repayment offer must be fair and equitable or it will be rejected. Offer a reduced repayment to your creditor based on your net disposable income (your income each month after your have paid monthly bills and met living expenses).
If you are honest with your creditors they are likely to be open to working with you.

Final settlement
Some creditors may consider agreeing to a so-called “full and final settlement”. If a debt is in serious default (180 days past due) then it is likely that the creditor may have written off the debt. Although they have written it off, the creditor may engaged a debt collection agency to try and retrieve it or sold the debt on to a third party.
The bottom line is that the creditor has written the debt off, so any money the creditor can recoup is a bonus.
You may be able to agree and full and final settlement if you inherit money, get financial help from a family member, or have sold your house. In practical terms, a creditor owned,  say €10,000, may agree to accept €7,000 as a final payment to settle the debt.
You will always get a better deal when you are offering a bulk cash amount to the creditor. There are chances you might not get any deal from the creditor if your offer includes a payment plan. If you have cash it is possible to negotiate a significant reduction on your debt amount (it could be possible to negotiate 30% - 50% settlement).
Contact your creditor by letter, email, fax or face-to-face rather than by the phone. Any contact you do have by phone, ensure you time and date the call and obtain the name of the person you are speaking to. Send a follow-up letter after each agreement has been made by telelphone.

Send questions to lastwordfinance@todayfm.ie.