Below is a reply I wrote to a question received in Email.  This response offers a simple example of the “Pro Rata Plan” that Dave Ramsey suggests for folks whose income is too low to allow them to make even minimum payments on their debt.  If you find yourself (or a loved one) in that situation, I hope this simple illustration is helpful.  -- kgc


> What do I do if I can't meet all my creditors minimums?


This is clearly a tough situation, but there are things you can do.  Dave calls this the "Pro Rata plan," because basically you pay everyone a pro-rated amount, based on the amount you owe them, and the amount you have (total) to pay on all the bills.


I think it's easiest to explain with a simple example.  Let's say we have a total of $500 per month that we can safely allocate to all the bills (IOW after your basic necessities -- housing, food, utilities, transportation -- are taken care of), and 5 creditors to pay:


Total $$$ (after necessities) to apply to bills:  $500.00


Creditor         Balance Min. Pmt.

---------------- ------- ---------

Credit Card       3,200     85.00

Consumer Loan     7,500    320.00

Doctor #1         2,000    100.00

Doctor #2         5,000    200.00

Hospital          1,500     75.00

                 ------- ---------

Totals:          19,000    780.00


So in this example we're $280 (780 - 500) short. 


The next step is divide the balance of each by the total amount you owe to all, which gives you the percentage of the total each creditor represents, e.g. 85 / 19000 = 16% (I've rounded the percentages):


Creditor         Balance Min. Pmt.   %

---------------- ------- --------- ------

Credit Card       3,200     85.00    16%

Consumer Loan     7,500    320.00    39%

Doctor #1         2,000    100.00    10%

Doctor #2         5,000    200.00    26%

Hospital          1,500     75.00     0%

                 ------- --------- -----

Totals:          19,000    780.00   100%


Now we take the amount we have to pay ($500.00) and multiply that times the percentage for each bill:


Creditor         Balance Min. Pmt.   %    New Pmt.

---------------- ------- --------- ------ --------

Credit Card       3,200     85.00    16%    80.00 

Consumer Loan     7,500    320.00    39%   195.00

Doctor #1         2,000    100.00    10%    50.00

Doctor #2         5,000    200.00    26%   130.00

Hospital          1,500     75.00     0%    45.00

                 ------- --------- ------ --------

Totals:          19,000    780.00   100%   500.00


Now we have fair amounts we send to each creditor.  Keep in touch with them on what you're doing and why you're doing it.  Send a letter explaining that you are paying less than the minimum temporarily, and include a copy of these figures with each check you send. 


Some might call and complain, call you and your mother ugly names, etc.  Let 'em!  Stick to your plan, because if you accede to their plan (which is always "send us more money") you'll wind up in the same jam all over again.  Making regular payments and staying in communication with creditors goes a long way towards keeping you out of court.  Of the folks I know of that have used this plan, none were sued (after starting the plan, anyway!)


It doesn't solve the root problem (too little income, too much debt!), but it will help you pay everyone you owe something, even if a small amount, it will help you avoid making promises to creditors that take too much from necessities, and just as importantly, it just feels better to have a plan and to have some control over the situation, even though it's such a tough one.


Some creditors may tack on extra charges at this point; there's probably not much you can do about this, though it's always a good idea to call to explain your situation and ask them to remove the extra fees.  Whether they do or not, don't let them control your plan -- and they will try!


> I am looking for ways to make more money and ways to
> reduce our monthly expenses.


Great, keep at it until your situation improves!  Obviously this pro-rata plan should be used on a short-term basis only.  It's extremely important to get your expenses down and/or your income up to get back to where you can get current with your creditors.


Good luck, my friend.  I hope this helps.




Keith Chuvala
Friendswood, Texas  USA


Link to the Pro Rata Plan Worksheet: