Pro Rata Plan

Dave outlines the basics of the pro rata plan to Joy since she doesn't make enough to pay her minimum payments.

QUESTION: Joy asks when you would use the pro rata plan. After paying her basics, she has $600 left. The total of her minimum payments is larger than that. Dave describes the pro rata plan to her.

ANSWER: You use the pro rata plan if you can’t make minimum payments on your bills and get current. When you lay out your income and pay your food, utilities, rent and gas, what’s left over is what you have to work with; it’s disposable income.

If you had three debts of $5,000, $2,000 and $3,000, that’s $10,000 in debt. The one that is $5,000 is 50% of the problem, so it gets 50% of your disposable income, the $2,000 gets 20% and the $3,000 gets 30%. The people to whom you owe money are going to scream about not being paid in full right then, and it will ding your credit, but so will not paying your bills.

This plan will work for a few months until you sell some things and pay off bills and get your income up. It will be nasty and bad, but you’re doing all you can do. Also, because there is activity on the account, that will keep them from suing you 99% of the time.