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 a lender for an arrangement to pay, 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 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.
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.
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.
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. This means it is normally your best option if you know you have a temporary problem. Perhaps you have been made redundant and need time to find another job.
- 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 but some will refuse if you are continuing to pay other creditors the normal,amount;
- 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);
- 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, for business 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 will often 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 can be 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. The more creditors yiu have, the more helpful a DMP is.
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 set up payment arrangements.
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 has the same effect on your credit record as a debt management plan. See how DMPs affect your credit record for details.
Would a Breathing Space help?
The Breathing Space facility was brought in in 2021. It puts a 60 day hold on your eligible debts, during which time the creditors can’t add interest or charges, take you to court or send round bailiffs.
But unless 60 days will really let you solve your debt problem, you will still need a payment arrangement or another debt solution after that. And the Breathing Space is inflexible – all your debts have to be listed.
Many people who want to set up payment arrangements themselves may prefer to decide which creditors to talk to and possibly ignore creditors who aren’t a problem at the moment.
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 talk to a good debt adviser for free and confidential help.
If you think you can only afford token £1 payments and you don’t this will change for years, then you should take debt advice as there may be better options for you. £1 a month may sound good, but it’s only postponing the problem, not solving it. If you are renting then a Debt Relief Order may be a much better option.
Karen says
Yes I’ve put a complaint in with them I’ve also spoke to someone at westcott they have put my account on hold for 30days for marks to get back to me she was very helpful if I have to continue with westcott will i just set a payment plan with them I can’t understand what’s happened I was told in September they had all the paperwork back and didn’t need to do anything else and my first payment was due today
Sara (Debt Camel) says
I don’t know what has happened either. But the difference between this 0% consolidation loan M&S offered you and a payment arrangement with Westcot is that a payment arrangement will likely harm your credit score…
Karen says
Marks and Spencer have just rang me they are going to sent the paperwork out to me again and set it up again and cancel westcott
Martin says
Hi, I have an arrangement for a loan that they don’t charge any interest on due to the potential mid-selling of the loan. The original loan was with Picture who were unregulated and has since been sold on to multiple companies.
I have raised a complaint that although not charging interest they still take the original contractual amount each month. What has happened is the initial
Loan has been cleared 4 years ahead of time but as I had arrears this is all that is outstanding but is having a massive affect on my credit and potential mortgage.
My complaint is if no interest is being charged the contractual Amount would be reduced and the overpayment would go towards the arrears and not to the capital amount. Same as if the BOE increase rates then contractual Payment goes up and down if reduced.
Am I right in my thinking as I only owe arrears but this is impacting me and if they were to recalculate the arrears would have been cleared years ago and would not have an impact.
Thanks
Sara (Debt Camel) says
Who agreed to stop adding interest and how long ago? Was this via the Ombudsman?
Martin says
Hi the decision was taken by idem who bought the loan and they decided that there was some issues with the sale but as picture sold the loan and were unregulated they could do nothing about it and as a goodwill would reduce interest to 0% a few years back. The loan has been sold on again and my complaint is with the new company..
Sara (Debt Camel) says
have you asked to repay at a lower rate?
Martin says
No I have been happy paying the original amount it is only now that I can see that nothing has been set against arrears. If the interest rate changes then surely the contractual amount changes and money would have been set against arrears and I would have had these cleared and not having a further impact on my credit rating.
Sara (Debt Camel) says
i thought you said no interest is being charged now?
Martin says
I am not getting charged interest but my challenge is when I was being charged 9% interest I paid 600 per month. If interest rate is now 0 I should be paying say 400 with the additional 200 being set off against the arrears. Instead they have left the arrears to carry on. I am not disputing the amount just surely the additional amounts should have gone
Sara (Debt Camel) says
how long ago was this allocation of the overpayments? that you are concerned about? And when was the loan sold to the current owner?
What are the arrears remaining and how much are you paying a month?
Martin says
There has been no allocation to overpayments until recently so 600 per month is going to arrears now. The allocation of the payments has been an issue for years. My statements would show a balance outstanding and an arrears balance and a total. Every month the balance outstanding would reduce but arrears would stay the same. Currently the balance o/s is 0 so everything now goes to arrears. The problem is that as long as arrears show they also record an arrangement too which has massive impacts on credit. Current arrears are about £6k and loan was sold about 2.5 years ago
Sara (Debt Camel) says
So the arrears will be gone in 10 months.
It sounds as though you want to complain that idem did not record your payments correctly? I don’t know how likely that is to succeed but I don’t think complaining to the current creditor is going to be helpful.
Laura says
Hi Sara,
I have raised a complaint with Moneybarn as they have marked my payments as missed for all of 2021 even though they have agreed to a payment plan to clear arrears I had built up from loosing my job in 2020. I paid the monthly amount and an additional £100 to clear the balance, they have said they are not responsible for joe credit agencies report this information and they only report it the payments are a month or more in arrears. Is there anything I can do or you can suggest please? It looks really bad on my report that I have 12 “missed payments” thank you
Sara (Debt Camel) says
what are the arrears now?
Laura says
The arrears are 0 they have been cleared since end of 2021
Sara (Debt Camel) says
and the credit report now correctly shows you as up to date? it was just the reporting in 2021 you are worried about?
Laura says
Yes that’s right because it’s for the whole of year and shows 12 missed payments, I am looking to get a mortgage 2026 and think this will impact it.
Sara (Debt Camel) says
I would be surprised if a mortgage lender in 2026 cares whether you had missed payments for a year or missed payments for a few months followed by a payment arrangement. If the next 5 years on your credit record don’t have any problem you will probably be fine. You could discusss this now with a mortgage broker if you are concerned.
Lukas says
Hi Sara,
Happy New Year.
Quick question: I switched accounts from Halifax to First Direct, and when they did change, I left with unpaid debt in Halifax after my account closed.
Halifax told me that I have 30 days to pay for the outstanding.
I called them, and they are happy to make a payment plan for me.
My question is:
A PAYMENT PLAN ON A CLOSED ACCOUNT WILL AFFECT CREDIT RATING OR HARM THE CREDIT FILE.
Is there any difference between paying in full or setting up a payment plan so I don’t have to pay over 1700?
My biggest concern is I don’t want any negative impact on my file.
Your answer will be appreciated.
Sara (Debt Camel) says
A payment plan will hurt your credit score. If it is possible to pay it in full without borrowing more money, that would be a good idea.
Lukas says
Thank you Sara!
I paid full outstanding to avoid any negative marks.
Many Thanks as always – you saved my credit score !
Bex says
I know sometimes Debt collection companies will accept a lower amount if paid in full. Currently in a DMP, but family may be able to help us.
What would be a reasonable amount for PRA (£5k) and Moorcroft (£15k) to accept if we offered them a jump sum payment?
TIA
Sara (Debt Camel) says
how long have you been in a DMP? How large are the total debts? Do you have a house with equity? How much are you paying the DMP firm each month – is this StepChange?
Liz says
Hi Sara,
During my mortgage application with Barclays last year – they were happy to reconsider me 12 months after the end of the AP but I didn’t realised that agreeing to a holiday payment for an overdraft amount not totalling to more than £1900 would show up on my credit file as an arrangement payment between January 2022 till when I cleared it all in april 2022. Is there anyway I can get this removed from my credit file because I would never have agreed to it if I knew it would impact my credit file. How long does it stay on our credit for?
Sara (Debt Camel) says
why did you need an overdraft payment holiday? which bank was this?