How to Use the Pro-Rata Plan

Baby Emergency Fund

Baby Emergency Fund

What do you do when you cannot even afford to pay the minimum payments with your creditors?  This can be a very stressful situation.  Having the tools to be able to handle this situation is critical to keep your stress down and give you hope that you can work your way through this.  You have come to the right place if this is where you or someone you know is at.


What is Pro-Rata?

The actual definition of “pro-rata” means the fair share of what you have.  How this works when you owe money is you are going to pay each creditor a percentage of what you owe as a whole (giving each creditor their “fair share”).  Below is an example on how to use the pro-rata plan.

Total Income:                                $2,500         Total Debt:                                          $3,000
– Necessities Only Expenses:      $2,400         Total Minimum Payments:                    $150
= Disposable Income:                      $100

Creditor  Payoff  ÷  Total Debt  =  Percent  X  Disposable Income  =  New Payment
Kohl’s       $600            $3,000               20%                   $100                             $20
Master      $900            $3,000               30%                   $100                             $30
Visa          $1,500         $3,000               50%                   $100                             $50

What Do I Send My Creditors?

Once you have completed your pro-rata plan, you will know what you can send to each creditor for that particular month.  Be sure and send each creditor a copy of this plan along with a cover letter stating your current financial hardship, copy of your budget and of course the check to make your payment

You only want to do this with your unsecured debt.  DO NOT use this on your mortgage or any car loans you have.  Typically, when you calculate your pro-rata plan, the pro-rata payment will be less than the minimum they are requesting.  Your creditors are not going to be excited to receive this.   However, they usually will cash your checks, and this will keep you away from more serious trouble (as long as you do not use this as a long term strategy).

This is not a long term solution.  There are two main reasons why to use the pro-rata plan:  1)  To be able to pay something to the creditors you owe instead of not paying them anything  2)  This buys you time to go get some extra money through selling assets, extra jobs or overtime.  You will be able to sleep better at night knowing you did the best you could with what you have.  Now this will give you the strength and encouragement you need to find ways to get more money coming in and get these debts out of your life!

Share how the pro-rata plan has worked for you.

Justin Bennett

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