Pro Rata Debt Calculator
Total Debt: 0.00
Total Funds Available: 0.00
Coverage: 0% of total debt
| Creditor | Balance Owed | Share (%) | Payment Amount |
|---|
What is Pro Rata Debt Distribution?
When you are unable to pay your debts in full, "pro rata" distribution is a method used to pay creditors fairly based on what you can afford. The term pro rata means "in proportion." Instead of paying one creditor fully and ignoring others, you split your available disposable income (or a lump sum) among your creditors based on the percentage of the total debt that each one represents.
This approach is commonly used in Debt Management Plans (DMP), informal arrangements, or when offering a full and final settlement offer to multiple creditors with a limited pot of money.
How the Calculation Works
To calculate a pro rata payment, you first determine the total amount of debt owed to all creditors combined. Then, you calculate the individual share of that total for each specific creditor.
The formula is:
(Individual Creditor Balance ÷ Total Debt) × Available Funds = Payment Amount
For example, if you owe Creditor A $2,000 and Creditor B $8,000, your total debt is $10,000. Creditor A holds 20% of the debt ($2,000/$10,000), and Creditor B holds 80%. If you have $500 available to pay them, Creditor A receives $100 (20%) and Creditor B receives $400 (80%).
When Should You Use This Calculator?
- Reduced Monthly Payments: If you are negotiating lower monthly payments with creditors because of financial hardship.
- Lump Sum Settlements: If you have received a windfall (like an inheritance or tax refund) that covers less than the total debt, but you want to offer it as a settlement to clear all accounts.
- Fairness to Creditors: Creditors are more likely to accept a reduced payment offer if they see that all creditors are being treated equally based on the amount owed.
Tips for Negotiating Pro Rata Payments
When sending payments based on this calculation, always include a breakdown (like the one generated above) to show the creditor how you arrived at the figure. Explain that you are treating all creditors fairly and paying exactly what your budget allows. This transparency can help prevent aggressive collection action.