A typical payment arrangement is an agreement to repay a credit card, catalogue or loan in affordable monthly amounts. This is also called an arrangement to pay.
You can ask for an arrangement to pay from the original lender or a debt collector.
The key points are:
- an arrangement is needed if you can’t afford the normal debt repayments;
- do not offer more than you can afford;
- ask the lender (or the debt collector) to freeze interest and not add any charges;
- it normally harms your credit record.
This article looks at making an arrangement to pay, including how to do this, how much to offer and what if the creditor says No.
Is a payment arrangement right for you?
Debts this doesn’t cover
The arrangements discussed here are for “normal” loans, credit cards and catalogues.
Bills such as tax, rent, council tax and utilities are different, see What is a priority debt? for a list of these. Here setting up an arrangement to pay is a very good idea, but you may need to pay more to get the creditor to accept your offer. You have to negotiate these priority debt arrangments first, and your credit cards and loans may then have to accept a token £1 a month payments until your priority debts are cleared.
Where a lender has some extra security, they will normally refuse to accept a lower amount and freeze interest:
- mortgages and other loans secured on your house;
- guarantor loans or logbook loans; and
- car finance by HP (including PCP) or leasing.
If you have problems with any of these, talk to a debt adviser about your options.
What about overdrafts? An overdraft on an account you aren’t using any more is just like any other bank debt and you can ask for an arrangement to pay that. Or if the overdraft has been passed or sold to a debt collector.
But if you are still using the account though, you need to talk to the bank about what they can suggest – and if it doesn’t seem helpful, think about switching to another bank. Overdrafts can be very tricky to clear.
The advantages of a payment arrangement
- a payment arrangement for a few months gives you time until your income or expenses improve so you can resume normal payments;
- for longer-term problems, a payment arrangement where interest is frozen lets you clear the debt more rapidly and in a more affordable way;
- you can increase or decrease what you pay if your situation changes;
- most creditors will accept a payment arrangement and agree to freeze interest if you explain your circumstances;
- having a payment arrangement means you normally get few letters or phone calls from a creditor; and
- it is less likely a creditor will take you to court for a CCJ than if you ignore a debt.
Some disadvantages of a payment arrangement
- a lender may reject your offer or refuse to freeze interest (see below for what to do if this happens);
- it may take a long time to repay your debts, even if interest is frozen. In this situation, it is better to take debt advice now than to spend years not making much progress;
- a creditor may take you to court for a CCJ even if a payment arrangement is agreed. This is unusual – it is more likely for larger debts and if you are buying not renting as the creditor can then get a charging order on your home;
- you have to deal with your creditors – some people don’t mind this, others prefer to get some help (see below);
- arrangements may be for a short time such as 6 months. This is a nuisance, but if at the end of it you explain your situation is the same, the arrangement is normally renewed;
- your credit rating will be affected (see below).
How much should you offer?
National Debtline’s Your budget takes you through setting up a personal budget, converts your income and expenses so they are all monthly, works out what offers you should make to your creditors and generates a budget sheet to send to your creditors.
The offer to a creditor depends on how much money you have left after paying for essential expenditure and paying priority debts. This is divided between your credit card and loans, so that the larger debts get more of the money. This is called a pro rata division and your creditors will think this is fair. They will also understand that priority debts will get more.
If you have little money left, the budget tool will suggest:
You could offer a token payment of £1 per month to each of your creditors. This may only be a short-term solution but it can give you some time to work out your other options.
Your budget has to be realistic for many months, so don’t put in really low expenses that you won’t be able to live on. If you aren’t sure, phone National Debtline and talk to them about what figures are reasonable. Make sure you save your budget, in case you want to change/add something later and create a new budget sheet.
Phone or write?
If you want to phone, it’s best to have worked out a rough budget beforehand and decided how much to offer each creditor. A creditor will often want to talk through your budget with you. Having one in front of you will mean you are more confident and less likely to agree to pay more than you can afford.
Also work out a short description of the reason you have problems to tell the creditor. “My hours have been cut” or “My wife has gone on maternity leave” or “I am behind with council tax and my electricity bill and need to clear these arrears” – just say what has happened, you won’t be judged.
If you prefer to write, you can send a letter but email is faster, cheaper and you have a record of what you have sent. Enclose a budget sheet – this shows the lender that you are making a fair offer.
National Debtline has useful template letters you can use. Here the most important ones are:
- making a pro rata offer to creditors
- making a token offer to creditors.
What if the creditor doesn’t agree?
You can’t make a creditor accept, but if you have sent the creditor a budget sheet and you are making pro rata offers to all your creditors, they normally do. So don’t worry about this problem until it happens, as it may not!
In practice, you often don’t have any better options. If you can’t afford to make the normal repayments – which your budget shows – then don’t get into more difficulty by paying more than you can afford. So make it clear that you are not going to increase your offer.
Sometimes a creditor will refuse to make a payment arrangement if you are up to date with the debt. This is annoying when you are trying to do your best but the answer is simple – miss a payment. Cancel any direct debit, standing order or continuous payment authority with your bank and contact the creditors again in a month.
Sometimes a creditor will refuse a payment if they think it’s more than you can afford. If this happens, talk to a debt adviser about your other options.
What is the difference between a payment arrangement and a Debt Management Plan (DMP)?
Not much!
In a DMP, you go to a firm such as StepChange and ask them to set up the payment arrangements with your creditors, and you then just pay the DMP firm one amount monthly which they divide between your creditors. See A guide to DMPs for more details.
The end result for you – and for your creditors – is much the same. Some people like a DMP firm sitting in the middle and organising it as they don’t have to deal directly with their creditors. Some people prefer to do things themselves. If you have a lot of creditors it can be easier to get a DMP set up, but if there are only a couple it’s not that much hassle to do it yourself.
Creditors are not allowed to refuse to set up a payment arrangement with you and say you have to have a DMP. And they can’t refuse to freeze interest if you are trying to make a payment arrangement and say they only do that for a DMP.
A payment arrangement also has the same effect on your credit record as a debt management plan. See how DMPs affect your credit record for details.
Need some help with this?
If this is the first time you can’t make a debt repayment, or you haven’t paid anything for a long while, you may be worried.
It normally won’t be as bad as you think!
Creditors are used to this, it is part of their business that some people can’t manage to repay on time and their regulator says they have to treat customers in financial difficulty fairly.
But if it makes you feel very anxious, or you have many creditors it feels difficult and confusing to speak to them all, or you aren’t sure if an arrangement to pay is right for you, or a creditor refuses to accept your offer, then there are places where you can get free and confidential help:
- go to your local Citizens Advice if you would like to talk to meet a debt adviser in person;
- phone StepChange if you would prefer to talk to a debt adviser on the phone.
Complain if a creditor doesn’t freeze interest
Are you worried about debt management?
Escaping from the payday loan trap
Jane Clack says
Hello. I was discussing this the other day with a credit union representative – only a small debt continued cycle of payday loans. Same lender! Client has ample funds to pay and knows this but has been paying £150 per night out twice a week in the past. Credit union person said would be far better to take out a credit union loan and consolidate all other debts – not many but a loan with his reputable bank and a credit card he pays off in full as only ever about £50 on it. So we can say consolidation is a way of clearing debt when affordable but not when having to change banks in my opinion. What do you think?
Sara (Debt Camel) says
I’m confused.
“paying £150 per night out twice a week” to a payday lender, that’s a bit odd? If this is a continued cycle of loans from the same lender, then an arrangement to pay plus an affordability complaint would seem the best option.
I can’t see the point in consolidating a credit card which is repaid in full.
Not sure what the relevance of changing banks is – apart from being able to include an overdraft in an arrangement to pay? (Hang on, I forgot to mention overdrafts in the above article, will just go and add a bit…)
Jane Clack says
No the reason he has not got enough money at the end of the month is that he is spending £150 on nights out twice a week. Young chap enjoying life! He borrows £700 from this payday lender and has to pay back £844 at the end of the month! He also smokes as he has a lot of spare time on his hands! It was well affordable and if he did not go out and cut down on the smoking he could pay it back but just does not want to have to budget. I cannot see how we could go for affordability with this one. My suggestion was he should repay in 2 instalments and only go out once a week!
He likes his bank and is repaying a loan which he has with them – it will finish in 14 months and the credit card is with the same bank. The credit union adviser said he should put the loan into the consolidation with them and pay it off earlier! He has no overdraft with them!
Sara (Debt Camel) says
ah!
Well you know having time on their hands isn’t the only reason people smoke…
Then consolidating the payday loan and the bank loan may be sensible – but I can’t see why he would include the credit card.
Laura says
Hello Sara,
I’ve recently been made redundant and contacted littlewoods as I can’t afford the full repayments at the moment. I’ve offered to pay £50 a month until I can hopefully get a job after Xmas but they have said this isn’t acceptable and I should seek third party advice. I don’t have any other debts that I can’t meet so what should I do now? Any advice
Sara (Debt Camel) says
Are they saying £50 a month isn’t enough? Or are they saying you can’t afford to pay £50 a month?
What sort of other debts do you have?
Laura says
Thank you Sara, wAsnt sure where to post.
They didn’t say. I’m actually deaf and trying to sort this through there secure webmail has bordered on shambolic and now it’s offline saying they can’t tale any more messages. Been trying to sort this for 6 weeks.
They didn’t say. I can afford £50 although we are now living off one wage. We have mortgage, car loan and one bank loan which I feel are more a priority. I have never been out of work before so I don’t want to say £100 and then I can’t make that as I don’t know how long this is be, but I can afford £50 and said I would pay more if I could which I would do. I’ve written a paper letter because it’s starting to really stress me out, interest getting added etc when I’ve said the situation claiming not getting these secure messages?!
Sara (Debt Camel) says
I hope your letter explained you are deaf so you can’t use the phone?
re priorities. A debt adviser will say that your mortgage is top priority and next is the car loan if it is HP/PCP or leasing, as you could lose the car if you don’t keep up the payments.
A normal unsecured bank loan however is not a priority debts. Whose name is the bank loan in? And whose name is the catalogue in?
Laura says
Yes I’ve made it clear to them I’m deaf and sent my certificate because they must think I’m lying as they still try and call me etc. The bank loan is in both our names but the catalogue is in mine, I don’t know why but would prefer just to pay the bank loan until I’m back in employment. I’m looking at the website and I think I could gave had unaffordable lending. My credit limit on catalogue was almost 6k and I worked part time and was raising my son. Kept increasing. Quick other question the interest free period is coming to a end on a item is there anything I ca do about that given the situation?
Sara (Debt Camel) says
I’m sorry but Littlewoods are within their rights to say that they won’t accept a lower payment from you and freeze interest if you are making a full payment to the bank loan – this is not treating your creditors fairly.
A 6k credit limit is high but you may find it hard to win an affordability complaint if your credit record is good.
The interest free period coming to an end – when it ends if you haven’t paid the whol amount you will be charged interest. this will probably be backdated to when you bought the item.
Milky says
I got into debt with the water to the tune of £1000 in 2010 began repaying them back. In 2017 they registered this as a payment arrangement on my credit file. I only discovered this when making a mortgage application. I asked when my mom was dying to reduce the payments to be able to help her and visit and also to save for a mortgage the irony. I was not informed it would affect my credit when I spoke to them about it over the phone. Is this treating customers fairly when they are most vulnerable by omitting it. I am sure they would say it’s in our terms or on our bill but shouldn’t they say when take your card details to set it up?
What if anything can be done
Sara (Debt Camel) says
Did you tell them you wanted to be able to reduce your payments in order to save for a mortgage?
Milky says
No -I did not tell them
Their data officer is contacting within 5 days
It was a while ago can’t remember what I said, I was not in financial difficulty on both occasions just difficult circumstances and wanted all the money possible to help my parent and the other was just pay minimum on everything and then use rest of income to clear a debt at a time.
Sara (Debt Camel) says
OK well tell the data officer that if he listens to your call recording, he will hear that you were never informed that your credit record would be affected and this seems unreasonable as you had had a payment arrangement for years and your credit record had not been impaired.
Milky says
Thank you I have spoke to the data officer and he immediately said he would remove it as I was not informed of consequences.
I did not have to quote him a word from data protection act GDPR on the Right to be Informed.
I also did not complain it was done in the first place clearly flouting the above acts
Joseph says
Sara, does going into a payment arrangement with a company affect/show on your credit file?
Sara (Debt Camel) says
Normally it does. Which isn’t a reason to avoid them – you can’t carry on borrowing, so if you don’t have enough money to make the loan repayments and get through the month, then your alternatives are to not pay at all or make a payment arrangement, either of which will affect your credit record.
Of course if you win the affordability complaint – and the last loan still owing is the loan that is most likely to be determined to be unaffordable – all negative marks should be removed.
Joseph says
Sara, Following on from my comment above: I’m completley free of payday loans now, and now all in all only owe 2 student overdrafts (co-op 2K and TSB 1.5K and a capital one credit card of £800). I just want to pay off these at something around £170 a month, but want to come to some agreement with these comapnies to allow me to pay it off but at the same time don’t want to enter into a DMP or something that will affect my credit score and it’s really not needed as I am not in any sort of financial trouble. So i’m not in any money trouble, i just want to pay it off in a structured way without it looking bad on my credit file? These are the final 3 things i have left (Debt wise).
Sara (Debt Camel) says
An arrangement to pay has exactly the same effect on your credit score as a DMP. A DMP is just a group of arrangements to pay organised by a DMP firm. If you aren’t in any financial trouble you don’t want an arrangement to pay.
The credit card is easy – assuming you don’t intend to use it! If the minimum payment is £24 (I just made that up, it depends what the interest rate on the card is), then set up a standing order to pay them £30 a month. paying a fixed amount every month is then very easy for you and it saves a fortune in interest. And it will all be helping your credit score. This calculator can show you how long it will take if you pay 25,30,35 a month https://www.capitalone.co.uk/support/repayment-calculator.jsf
The overdrafts can also be simple if you aren’t using either account. Just set up a standing order for more than the charges every month and the balance will drop. Alternatively, you could ask a bank if they could give you a loan to clear the overdraft and then repay that – depending what rate they would give you and what the overdraft fees are, this could be cheaper.