A reader asked if he should offer a £1 a month token payment to his debts, wondering if his creditors would ever accept it.
The simple answer is that you should make token payment offers:
TO non priority debts WHEN it is all you can afford.
BUT if you don’t expect your situation will improve soon, you may have better debt options.
In 2024 millions of people can’t afford the normal debt monthly payments because of bills and other price increases. You aren’t alone.
Contents
What is a token payment?
Normally if you can’t make the usual monthly debt payments, you should work out what you can afford to pay and divide that amount between your debts pro rata. This means that you are paying most towards the largest debt.
But there is no point in messing around with calculations that would pay £2.35 to one debt and 68p to another.
By making the same £1 payment to both debts it’s easy for you. Creditors can see what you are doing and you are showing that you aren’t ignoring any debts.
The “token amount” could be more if you can afford it. With £17 to divide between two loans and a catalogue, you could offer each of them £5 a month.
You can’t make token payments to priority debts
Token payments only work with consumer debts such as loans, credit cards and catalogues.
Priority debts such as rent, mortgage, council tax, energy bills and car finance have to be treated differently. There is a list of priority debts here.
If you have priority debts, the ongoing bills need to be paid in full each month. A credit card lender will accept that you have to pay the car finance and the rent in full, even though you are only offering £1 to the card.
If you have any arrears on priority debts, you have to get arrangements in place first, so you can work what, if anything, is left for your non priority debt. This is the typical approach:
- make arrangements with each of the priority debts to repay any arrears as quickly as possible;
- while priority debts are being repaid, you make £1 a month token payments to your other non-priority debts;
- when the priority debt arrears are clear, you continue paying the ongoing priority bills in full but can increase your payments to the non-priority debts.
If this seems tricky, you need debt advice fast. The article on priority debts has ideas about where to go to get help with the different types of priority debt.
“Will a creditor really accept just £1?”
Yes! The regulator suggests that lenders should accept:
token payments for a reasonable period of time in order to allow a customer to recover from an unexpected income shock, from a customer who demonstrates that meeting the customer’s existing debts would mean not being able to meet the customer’s priority debts or other essential living expenses (such as in relation to a mortgage, rent, council tax, food bills and utility bills).
And recently they have emphasised:
We don’t want to see customers pressurised into unaffordable and unsustainable plans.
So if £1 a month is all you can afford, that is what your lender or debt collector should accept.
All non priority creditors have to accept that paying your priority debts and everyday living expenses have to come first.
“Do creditors want proof?”
A lender or a debt collector will often want to go through your income and expenditure with you.
You make this faster and less stressful if you have done this yourself in advance. Try National Debtline’s Money Steps. This helps by:
- suggesting types of expenses you may forget about;
- converting everything into monthly amounts;
- sorting out your debts into priority debts and non priority debts;
- working out how much to offer each debt, so the priority debts will be paid in full and the others may only get token payments;
- you can download it to show lenders and debt collectors.
You can also show proof you are getting benefits or your P45 to show you have lost your job or bank statements. But many creditors don’t ask for evidence.
“My creditor says I can’t afford £1!”
Sometimes this happens!
If you have big problems with your priority debts – and in 2022 many people are very worried about their mortgage or rent or car finance – then you may not even be able to afford £1.
Some lenders will then refuse the token payment you have offered and agree to freeze interest. This isn’t anything to worry about.
“How long can I make token payments for?”
Token payments aren’t going to clear your debts!
If you make token payments for a few years, your debt problem isn’t going to go away or get smaller. You will still get some letters and phone calls.
Many creditors will want to talk to you again after three or six months, to see if your situation has changed,
Think of this as a temporary plan. It can be your best option where you hope things will get better:
- you have lost your job;
- your childcare costs will fall next year;
- your self-employment income has fallen.
Another common situation is where you have a priority debt that has to be repaid first.
For example, you may arrange to clear your council tax arrears by paying an extra £80 a month for ten months. That doesn’t leave you with enough to make the minimum payments on your credit cards, so you offer a token payment to your two credit cards. When your council tax arrears are cleared, you can then stop making the token payments and divide the extra £80 between your credit cards.
But if you know nothing much is going to change for a long time, then it’s good to look at other debt options, such as bankruptcy or a debt relief order.
“Will creditors freeze interest?”
This is the key question. If your creditors add interest or extra charges, you will be getting deeper into debt each month.
The answer is that creditors don’t legally have to freeze interest, but most creditors will!
Sometimes a creditor won’t accept a token payment straight away. They may say it’s not enough, you need to pay them at least £15 a month before they will agree to freeze interest. Ignore this! If all you can afford is £1, then that is all you should pay.
If a creditor hasn’t frozen interest after a few months, put in a complaint to them.
“Will this harm my credit record?”
Yes. If you can’t make the normal payments to a debt, your credit record will be harmed. It will show that you have missed a payment, made a payment arrangement or have defaulted.
There isn’t a way around this problem.
Borrowing more money to repay your current debts gets you into much bigger problems the next month.
Try not to borrow money from friends and family, because you aren’t going to be able to repay it any time soon. It’s better not to drag them into your mess.
“What about my overdraft?”
You could ask your bank to reduce your overdraft charges to £1 a month, but it’s usually simpler to ask them to halt charges for 6 months or a year. They will often agree to do this if you have priority debts providing that your overdraft isn’t increasing every month.
If your bank refuses, then the easiest option is to get a new bank account with a different bank. This could be a basic bank account, you won’t be refused one because you have a poor credit record. Then switch all your income and expenditure over. Your old account is then just another debt and you offer them £1.
“Will my debt be sold to a debt collector?”
After a while, many creditors will decide your problems aren’t temporary and will sell your account to a debt collector.
This is often a good thing! If you are making monthly payments, this just carries on with your new creditor. It’s often easier to reach an agreement with a debt collector than the original creditor.
There is no point in struggling really hard to pay more than you can afford to try to avoid your debt being sold. It’s likely that the debt will still be sold if you pay £20 a month, it isn’t only the £1 token payments debts that are sold.
“Will I have to go to court?”
This is theoretically possible but this is very unlikely to be soon if your Income & Expenditure statement shows you can’t afford to pay more.
If you talk to a creditor they will very rarely decide to go for a CCJ quickly. If you stop paying and don’t communicate, things get more difficult more quickly.
The only common exception here is if the debt relates to your business and the creditor knows you have a house with equity.
As time goes on, a creditor may be more likely to think about going to court if you are still making low payments and appear to have a good income or a house with equity. This is another reason why long token payment plans are not a good idea. But don’t let this possibility stop you from making token payments initially if they are your best, temporary option.
“Should I end it as soon as possible?”
Because a token payment plan will never clear your debts, it’s not a good long-term option. So don’t get comfortable with making those £1 payments, it can’t last!
If your income goes up and you have priority debts, you should concentrate on clearing those first before you stop the token payments to other debts. So clear those rent arrears and council tax arrears, even if you have a payment arrangement in place for the priority debts, it is better to pay more and get rid of them sooner.
And after that it is good to save up a bit of an emergency fund.
But then look to increase the payments to your debts that are only getting £1.
When you have only made token payments for a few months and a debt hasn’t defaulted or sold to a debt collector, you may be able to go back making the normal payments and interest will again be added.
If you can’t afford that much, or the debt is defaulted or sold, it’s a case of increasing the payments you can make and the interest should still be frozen.
Talk to a debt adviser if you aren’t sure
If you have priority debts – rent/mortgage problems, council tax arrears, difficulty paying utility bills etc – then those are your big problems.
If you don’t have priority debts, then token payments can often be your best option if your problems are just temporary. It may sound scary to offer a credit card just £1 a month but this is probably going to be much easier than you think.
Talking to a debt adviser can help you see what your options are. This includes which of your debts it might be good to offer a token payment to.
See Where to get good debt advice for who to talk to.
Can you get an overdraft refund?
Worried you can’t pay the car finance?
Could a Debt Relief Order help you?
Andrew says
I’m a bit confused – while will making token payments ( so a debt management plan) not ever become status barred?
I’m on a dmp where I owe £11 k. the default was 2 years ago so will this debt no longer be showing in 4 years? meaning I could just stop paying DMP and it will no longer matter in terms of my credit report?
I’m paying 50 a month at the moment.
Thanks
Sara (Debt Camel) says
Hi Andrew,
If you are making low monthly payments, such as a token amount, the debt will never become statute barred.
After 4 years the debt will no longer be on your credit record, but as it isn’t statute barred, the creditor can still take you to court for a CCJ, which would be on your credit record. See the article for more details https://debtcamel.co.uk/paying-old-debt/
Andrew says
Hi Sara, thank you for your reply.
So, the date of default is showing 2 years ago. In 4 years time will this debt no longer exist on my credit report?
secondly, would I be able to apply for a mortgage then as my file would be clear and I could just continue to pay the loan off monthly on the DMP.
Thanks
Sara (Debt Camel) says
Yes the debt will drop off your credit file in 4 years.
But a mortgage lender will still want to know about it, see this article on getting a mortgage in a DMP https://debtcamel.co.uk/dmp-mortgage/ .
karl says
If I make a token payment to my creditors will my credit record clear still when the original 6 year time ends in 2019?
Sara (Debt Camel) says
If there is currently a default on the record, it will drop off after 6 years if you are making token payments. Once the debt drops off, you still owe the money as https://debtcamel.co.uk/debt-not-on-my-credit-file/ explains.
Georgina says
Hi I’m going into a token plan as I have 7 payday loans and 3 personal loans and an overdraft.
All I am worried about is after I have paid the remainder of my council tax arrears (which is only £160) I am going to be stuck with all these bills again?
It confuses me a bit as it shows I have no where near enough money to pay for all these debts per month. And I really do not wish to declare myself bankrupt as I am only 21 and I really didn’t think my situation was anywhere near this bad?
Thanks
Sara (Debt Camel) says
So the token plan is to repay the priority council tax debt? That is a good plan.
At the end of repaying that, you should have a bit more money so you can then offer “pro rate” payments to your other creditors, not go back to paying the full amount. Have you set up the token payments yourself or are you using a firm?
As you seem to have had a payday loan problem, read https://debtcamel.co.uk/payday-loan-refunds/ and see if you make any claims for refunds.
Your overdraft, I hope you have now opened an account with a different bank with no overdraft?
Keeley smith says
I have a county court paper I’m going to offer a pound a month. I have disability’s do I have to disclose my pip and just tell them I’m on ESA. I use my pip on things that I need
Sara (Debt Camel) says
Read https://debtcamel.co.uk/ccj-monthly-payment-form/ and then I suggest you talk to National Debtline on 0808 808 4000 about how to complete the court forms.
David Taylor says
Hi I got defaulted on 23/03/2011, I have been making a token payment of £1 a month organised through citizens advice as the bank rejected my £120 a month proposal. For some reason creditors are still seeing the default on my account, do I have to apply to get it removed of my credit file?
Sara (Debt Camel) says
It sounds like a default date either hasn’t been added to your credit records or it isn’t correct. Check all 3 credit reference agencies https://debtcamel.co.uk/best-way-to-check-credit-score/ and read https://debtcamel.co.uk/debt-default-date/ for what to do.
H says
Hi, my partner had a default from Barclaycard about 6 months ago, he has since given them medical evidence to show that he was signed off work by his doctor due to mental health issues and that’s why he was unable to continue his monthly payments. They have frozen the interest and he has now set up a token payment of £1 a month, with the view of hopefully being in a better position next year. They said they will review in 12 months and would consider a settlement figure then. I would like to know if his default will drop off in 6 years, but as he is now doing a token payment will his credit file show the token payment for 6 years after the token payment has stopped (i.e. next year if he settles his account in a years’ time)? As we would like to be ready to apply for mortgages in perhaps 2 years’ time if we are ok financially and health-wise by then. Thank you
Sara (Debt Camel) says
Has his account been marked as defaulted?
H says
Hi, yes his Barclaycard account has a 6 month old default
Sara (Debt Camel) says
The default will drop off 6 years after the default date. If you want to get a mortgage together you need to wait until the default is at least 3 years old AND has been Settled for at least a year. At that point some lenders may be happy.
Margaret says
What does token payment mean I have been paying 10.00 a month for over 4 years of a det car financewhich is 3.700.90 they have sent me a letter saying after sending them a income and expenditure form I have a deficit of £2.55 and they are unable to carry on taking 10.00 a month and they want a token payment ?
Sara (Debt Camel) says
They have realise that you can’t afford £10 a month because the Income & Expenditure form you sent them shows that you are spending £2.55 a month more than you have coming in.
I suggest you ask if you can reduce your £10 a month payment to £1.
Do you have other debts as well as this one?
David says
Sir
I have taken out loans over the last few years. I have had to leave my full time job to care for my Mother who had stage 4 Cancer. I am left with only a small pension and my repayments take all this away.
If I go to stepchange and ask for a token payment plan will I get phone calls from my creditors or do stepchange deal with it. Also I have a car value £4000 which I need to keep as we live in a rural area and we have many Hospital appointments. Also I’m looking for a part time job either day or night work and won’t be able to without a car.
Sorry for the questions but I’m at a very low point in my life and need advice.
David
Sara (Debt Camel) says
There tend to be some phone calls at the start, but then they stop. Keeping a car isn’t a problem with token payments.
So do talk to StepChange!
Sarah Lee says
Hi,
I’m confused about what I should do whilst I’m waiting for my DRO to be processed. This is up to 5 weeks. Do I inform my creditors with a temporary payment arrangement letter? If so do I tell them I’ve applied for a DRO?
I’ve cancelled my dd’s with my creditors, and opened a new bank account with a different bank as I am overdrawn with my current one.
Thanks
Sara (Debt Camel) says
The simple thing is to do nothing. It’s hardly worth trying to set up a temporary payment arrangement for so short a time. Talk to the adviser setting up your DRO if you have any rent arrears, council tax arrears or other debts you are particularly worried about.
Dave says
Hi Sara, I’m in a bit of a mess and not sure what to do. I wonder if you could help me please.
I was a driving instructor & had a car accident in 2018. I was rear ended on a motorway by a man from Poland who had no insurance. Since then I have been unable to return to work and we have fallen into quite a bit of debt, and I’m at breaking point.
I’ve taken out loans to cover our shortfall, in the hope that I could physically recover and go back to being a driving instructor and pay it all back, but it’s been impossible. I also have an ongoing claim with the Motor Insurance Bureau to try and get some compensation, but it’s taking forever.
Our debts; We have a mortgage with 9 and half years left – £1010 per month
I have a Tesco loan – £250 per month (£12,000 – taken out in April 2019)
A Nat-west loan – £125 per month (£7,500 – taken out in 2018 – £5,200 balance)
A Nat-west credit card – £2,500 maxed out.
And a Capital One credit card – £2,500 maxed out.
£22,000 in debt – costing me over £500 per month, not including the mortgage. We also have the regular bills and council tax to pay etc.
Our only income at the moment is my wife’s £300 per week, and we now get a bit of help from tax credits.
I can’t afford to take out another loan.
Because of my wife’s work and other involvements we won’t be able to go bankrupt or insolvent. What should we do please?
Many thanks
Dave
Sara (Debt Camel) says
Would you be well enough to do any other sorts of work?
You may be eligible for council tax support – look at your local council’s website for how to apply.
You have to stop borrowing. Token payments to all your debts may be sensible until you know what compensation you may get back. But I think you should talk to StepChange and go through it all with them and see if they agree: https://www.stepchange.org/how-we-help/debt-management-plan.aspx.
Lola says
I’m claiming ESA (mental health) and have no other source of income. I’ve been unemployed since July 2019.
What letter can I use for creditors that are chasing me for money on really old loans going back to 2011.
Sara (Debt Camel) says
Was 2011 the last time you made payments to the debts? Are they loans, credit card, overdrafts or things like mobile and utility bills?
Lola says
So one of the loans I stopped paying back in 2011. I believe that it could be statute barr as there has been no contact for 9 years. I requested to see all my data from them, which they did do, however they have recorded on the call list that they contacted me back in March and we had a 50 minute phone call. That definitely didn’t happen as they don’t have my telephone number. I’m filing a complaint with the FO.
The Capital One credit card debt was sold to Cabot. In actual fact it’s been sold multiple times to different companies. I’ve been paying £1.00 a month for nearly 5 years and it will take me another 16 years to repay it in full.
All the rest of the debts which are loans, and catalogues, I stopped paying £1.00 back in January 2020. There were about 18 creditors. Cabot is the first to be writing to me to say ‘welcome to Cabot!’ I’ve had 2 letters asking me to contact them or set up a repayment plan. Nothing threatening as yet.
Due to mental health issues I will never return to work full time.
Sara (Debt Camel) says
how much do the debts add up to in all? Are you buying or renting? If renting, private or social housing?
Lola says
Roughly £20,000 spread over 20 creditors. Out of those 20 creditors only Cabot and Quickquid are pursuing me at the moment. In 2016 Citizens Advice Bureau advised me to offer all creditors £1.00 which I did, as they all have to be treated equally and fairly. Some of them got back to me accepting the offer, some didn’t, they fell by the way side. Just recently 2 creditors wrote the debt off without me even asking them to.
My circumstances have changed now. I was made redundant in 2016 and have only worked part time. Due to a personal upheaval in my life I stopped working in July 2019.
Rent, private.
Sara (Debt Camel) says
So you have two options to reduce the number of creditors and two options to then deal with the ones that remain.
Reducing the number of creditors:
– you could ask them to write off your debt. See https://debtcamel.co.uk/debt-options/less-common/write-off/ which looks at what to say.
– if a creditopr doesn’t agree, if the debt was a credit card, catalogue or a loan, then ask the debt collector to produce the CCA agreement fot the debt. If they can’t, the debt is unenforceable in court and you can simply not pay it. See https://debtcamel.co.uk/ask-cca-agreement-for-debt/ which explains in detail about this and has a link to the exact wording you have to use to make this request.
Dealing with the remaining debts:
– if the debts are now under £20,000 you could opt for a DRO. See https://debtcamel.co.uk/debt-options/dro/. This wipes out the debts but harms your credit record for the next 6 years.[EDIT – in July 2021 the limit for DROs changed to £30,000]
– if there are now only a couple of debts remaining you may decide to just go back to paying them £1 a month token payment,
sunny says
I am trying to request my creditors to freeze interest and repay all of them in small amount every month. If they don’t agree and they want to take me to court how soon they can do it? this is my first instance that I will be defaulting.If my creditors decides to make me bankrupt what will be my situation?How soon they can do it?
Sara (Debt Camel) says
Here is an article on token payments: https://debtcamel.co.uk/token-payment-debt/.
If you explain your age, health problems and that you have recently been made redundant because of coronavirus it is VERY unlikely any creditor will think about going to court. You have no money – going to court doesn’t magically mean that you suddenly get money to pay them.
The only creditors that will often be difficult ar secured creditors (car finance, good on HP) and guarantor lenders.
And it is VERY VERY VERY unlikely any personal commercial lender would choose to make you bankrupt. It costs them a lot of money, you would have to owe over £5000, and they still wouldn’t get any money back from bankruptcy.
Are there any creditors you are particularly worried about?
sunny says
Thank you very much Sara. I am having second thought over going to bankrupt. Worried about Barclays? Have personal loan,credit card,overdraft.Total £14000.Have been paying loans EMIs to them since November 2015.your article on token payment is very good and now I have clear picture about it.thank you very much for that.
Enkay says
Hi Sara, hoping you can give me some advice, please.
I have been a homemaker for most of the last 10 years and started my university degree education couple of years ago.
I have studnet loan and maintenance loan, which is not why I am writing here (I will start paying those after getting a job).
I am here to ask about the £10k of card debt I have between 5 lenders.
I applied for credit cards quoting household income (my husband is in full time employment). As i dont have any income, my husband gives me money which I use to make the payments. Mostly, I have paid little over the minimum payments, so i basically paid the interest.
I have also used whatever money I had saved from the maintenance loans to reduce the card balances.
My husband now does not want to pay towards the card payments, as he wants to save as much he can given the current covid situation. He fears he will be made redundant and so should save as much possible.
My query – will my husband be held responsible for paying my debts? can the lenders take him to court if I default on the payments?
We live at the same address, but the credit card applications were all made in my name. His name was never used and we dont have any joint account or financial link whatsover.
Will a default on credit record affect me getting my student and maintenance loans for the remainder of my degree?
Sara (Debt Camel) says
will my husband be held responsible for paying my debts? can the lenders take him to court if I default on the payments?
No & No.
Will a default on credit record affect me getting my student and maintenance loans for the remainder of my degree?
No it shouldn’t.
Can I suggest you talk to StepChange about your options?
Enkay says
Thank you.
I saw in one of your posts that Citizens Advice gives advice in webchat, which I prefer as I have a toddler.
I will contact StepChange. The debts have been stressing me out for years, talking about it makes me feel depressed. I probably have paid almost the same amount of debt in interest if not more.
Kaur says
Hello, wanted some advice I have never been in default or had payments missed my payments to credit cards were on time always. I have 7 credit cards and a loan. I am on esa and pip benefits as have been ill for many years. Live with my daughter on rent and have no car or assets. All was going well until COVID last year and my daughter lost her job and we have nothing she pays her share of rent with housing benefit and her jobseekers as we don’t get full benefit I pay for all the bills we borrow for food. I have been on payment freeze up until now but after next month it will be 6 months and I’m worried as I have such large debts no way to pay and now my daughter has lost her job with this climate DONT know when she will work or get on track. Can I offer all the creditors £1 token payment as my pip s used for my illnesses as I have health problems and need certain things daily. So only esa left which I have to pay bills etc priority bills With this stress me and daughter are arguing and don’t know if we’ll keep renting together so won’t have any financial help from anyone. Please help at my wits end of what I will do have severe depression as well as other illnesses.
Weatherman says
Hi Kaur
That sounds like a really stressful situation, I hope you and your daughter are managing OK.
So, you’ve not yet fallen behind with any of your payments, but the freeze is coming to an end. The FCA say that your lenders should offer you ‘tailored support’ if you won’t be able to keep up your repayments once the payment holiday finishes. So I would start by contacting them (before the freeze finishes, if you can) and explaining the situation, then see what they say. They might be happy to accept token payments, but these are usually a temporary solution if your financial circumstances are likely to improve.
Really, it sounds like you could do with someone taking a look at your whole situation and seeing what the best option for you is. National Debtline can do that, and help you to find the best way forward: https://www.nationaldebtline.org/
Sara (Debt Camel) says
Yes I agree with Weatherman. Your creditors are very likely to accept token payments at the moment, but this is just “kicking the can down the road” and I think it would be very helpful for you to take full debt advice on your options before deciding on token payments.
Claudia says
Hi!
I’m using a debt management agency and they have negotiated smaller affordable payments for me. It’s only £50 a month and my debt £30 K. So After a year I am no where near paying it off. My circumstances worsened during this year as I lost my job due to covid. I am wondering how long will the agencies keep receiving this money and if eventually they would close my case seeing that I have no means to pay all that. Does it ever happen?
Sara (Debt Camel) says
Are you buying or renting?
Claudia says
Hi. I’m Renting from housing association.
Sara (Debt Camel) says
I think you should talk to your debt management firm (who is it?) about insolvency options. £50 a month will never repay that mountain.
As you are renting from a housing association, then a debt relief order could be good for you. At the moment it only applies if your debts re under £20,000 but this may be increased in May to £30,000. Alternative bankruptcy is a simple process nowadays, you don’t have to go to cort, and many people find it much more painless than they expect.
Unless you are very close to pension age or you have major health problems it is unlikely your creditors will agree to write off a lot of your debt. from their point of view, things could change and in a few years you might be able to make much larger payments.
Claudia says
Thank you. I will be speaking with my debt adviser soon as out plan ends in March and I received a letter that one of the banks is closing my account and sending to a collection agency. They said I would have to negotiate with this agency from now. I was just worrying about it and saw your posts. I’m with a local adviser, Mid Sussex Debt advice.
Sara (Debt Camel) says
ok, don’t worry about your debt being sold, it normally isn’t a problem at all.
Mr LP says
Hi Sara, £160k unsecured owed to mainstream banks. Relied on family, but can no longer afford payments (hence not a ‘sudden shock’) – mental health bad. Bankruptcy/IVA not options as job in FS and mortgaged property my elderly parents live in would be at risk. Take home £5kpm, but can show only £300pm (max) is affordable across all unsecured creditors – due to living elsewhere for work (rented flat) and covering bulk of living costs (wife and toddler.) So proposing a pro-rata repymnt plan (token pymnts?) with each creditor. No arrears/missed pymnts on anything so far. My repymnt plan likely to be accepted, given 45yrs payback? Any reason for worry if refused? I’m 41 but can clear all in 17yrs. Financial position will only improve materially in 4yrs (so arguably not a temp prob) when HMRC debt & nursery costs end. Is this ‘better position in 4yrs picture’ even worth presenting to enhance chance of offer acceptance? If £300pm offer is rejected (given high income, high debt, long payback), what then? Would I be risking formal action despite making the token pymnts or would I be protected? If no court risk, any downside, in relation to securing creditor agreement to plan, from offering less pm? Are they as likely to refuse £300pm as £100pm (if the IE form shows it)? If so, in my interest to only offer £100pm at this stage? Would the lower repayment now perhaps even be helpful for purpose of securing future reduced FF settlements?
Sara (Debt Camel) says
Would I be risking formal action despite making the token payments or would I be protected?
With very large debts and a house as an asset, yes there is some risk of CCJs.
Are your parents paying rent? If not, why not? Are your parents claiming any benefits?
Why can you not rearrange your living arrangements so you live with your wife and child?
Low F&Fs are unlikely when you own a house with a lot of equity.
Mr LP says
Thanks very much Sara. Sorry, the word limit prevented me from explaining my situation more fully.
So my 75 year old parents aren’t paying me rent because they have limited income themselves – however, they do cover all living expenses associated with the property (such as council tax, energy, any small repairs etc) – so all I pay is the mortgage.
I do live with my wife and child in rented accomodation 500 miles away from my mortgaged property. I live there for work.
When you say there is ‘some risk’ of CCJs with large debts and a house as an asset (only £50k of equity btw), how much risk is ‘some’ risk? Especially given that I would have declared that I am in financial difficulty (and suffering mental health), given that my IE form would be showing that my offer is all I can afford, given that no single creditor of mine is owed more than £35k, given that I would have not fallen into any arrears before engaging in a repayment plan (so full and early co-operation) and given that I would be honouring my repayment offer (whether the creditors agree to it or not). Is the risk of formal action, in these circumstances, any higher than, say, 5%? And, actually, is there not any protection from formal action for debtors given these circumstances? My unsecured creditors are all bound by the FCA regs after all.
Mr LP says
No they’re not claiming any benefits. Both are retired and rely on small private pensions plus state pension. My father is also in a debt management plan (with no spare income) and has been for over 5 years. Any particular reason why you’re looking for detail on this point?
Are you able to give your thoughts on the various questions I’ve asked?
Would my repayment plan offer of £300 per month across all creditors have much chance of being accepted, do you think, given that it effectively reflects a 45 year payback period (plus difficulty doesn’t appear to be temporary and income is high)?
If unlikely to be accepted, is there any downside from just offering, say, £100 per month (evidenced on the IE form) at this initial stage to make day-to-day life less tight?
If either offer is likely to be rejected, in what ways should I be worried about potential formal action?
As mentioned on the last thread, what likelihood do you think there would be of formal action given all the circumstances I’ve outlined?
Would the fact that my financial position is likely to improve meaningfully in no less than 4 years be helpful for the purpose of securing agreement from creditors to my repayment plan?
Given the details I’ve included, do I need to be particularly worried if the creditors don’t agree to my repayment plan?
Sara (Debt Camel) says
Any particular reason why you’re looking for detail on this point?
Because what you are proposing is not likely to sound reasonable to your creditors.
Token payments are there for someone as a temporary solution who cannot afford to pay more. But from your creditors point of view you are choosing to house your parents instead of making repayments to your debts. They will understand you have to house your wife and child, they are your dependents, but your parents are not. You could sell the house, pay off a large chunk of the debts and use the money from the mortgage payments you are no longer making to increase the monthly offers to your creditors.
It is understandable that you don’t want to do that! But in this situation some of them may decide they are far from happy with what you are proposing and go for CCJs and then charges over your house.
So I was asking questions to find some way of improving the situation. I think your parents need to take benefit advice. If they were to pay you a commercial rent, they may be able to get help from the benefit system to do this. Your father should also look at an alternative to a DMP – possibly a Debt Relief Order. I suggest they talk to their local Citizens Advice about benefits and debts.
It is definitely NOT in your interest to try to get away with offering as little as possible at the moment.
And, actually, is there not any protection from formal action for debtors given these circumstances? My unsecured creditors are all bound by the FCA regs after all.
No. Not in your situation.
Mr LP says
Thanks Sara – very helpful and points well made.
All of what you’ve described (charge over the house etc) typically apply when debtors fail to engage/ignore creditors, don’t offer repymnt plans, fail on agreed repymnt plans etc, right? In my situation, no arrears, engaging with creditors early, in genuine financial difficulty (evidenced by IE forms), offering up a repymnt plan (which will be met). Given all this (showing willing), would my unsecured creditors seriously not be in breach of FCA regs by refusing a repymnt plan and fast-tracking to court simply because me paying a mortgage on a property I own that my parents live in doesn’t, in their opinion, sound reasonable?
Selling the house and paying off a % of my debts would leave my parents homeless. Surely that can’t be a course of action an unsecured creditor can pursue for a debtor showing willing? This isn’t a BTL investment property here.
So you think if I include some rent from my parents in my IE and creditor offer, it will likely reduce the risk of creditors using that as basis for moving to CCJ? Or would the rent point be irrelevant because my creditors view will likely be that I have an asset I can sell? I actually thought unsecured creditors were prevented, under FCA regs, from pushing for assets to be sold to meet unsecured debts – hence the term ‘unsecured’.
Certainly not trying to ‘get away’ with offering as little as possible. Do you think £300pm would be considered unreasonable?
Sara (Debt Camel) says
From the point of view of any creditor that looks into your situation – which may be any of them with larger debts – you are only seem to be in financial difficulty because you are choosing to house your parents, which you are not legally obliged to do. This is not “genuine” financial difficulty.
They wouldn’t be homeless as the local council would be obliged to house them because of their age. They may not want that and you may not want that. I understand that, but you should not kid yourself that what you are thinking of offering is reasonable.
Unsecured creditors can, unfortunately, choose to get a CCJ and then a charging order. I don’t like that, but what I think isn’t relevant here, the fact is this can happen.
It may not, but when you owe VERY large amounts and will have very odd looking I&E (with both rent and mortgage costs) and a mortgage suggesting that yoh own an assets, it would be very unwise to think low payment offers will be accepted.
If you can get several hundred pounds in rent payments each month from your parents to add to the £300 you can currently afford, that is looking more serious as an offer. Especially it will go up when the HMRC debt is paid off.
Your creditors would prefer you to have a BTL as there would be more money available for them….
jimbob says
Just set up a token payment plan through Stepchange. Vanquis Bank have rejected it with a simple reply disputing the budget. Anybody else had this happen and what it means and what to expect has happened and will happen next
Sara (Debt Camel) says
is this in place of the DRO that has been revoked?
have you complained to Vanquis?
jimbob says
Yes in place of DRO to be revoked. Insolvency Service have said they will inform creditors of revocation on 4th of Feb. Sent email to Vanquis asking what are they are disputing about the budget.
Sara (Debt Camel) says
Vanquis probably are totally puzzled that you seem to be trying to set up a DMP when you are in a DRO. Just wait a while.
Have you sent Vanquis a complaint?
jimbob says
I personally believe we have a very strong case for irresponsible lending. Interest refunded if case won would leave 700 left on Vanquis and wipe out or exceed balance on other 2 cards. Other debt totals amount to 600. Thus out of 7k inheritance 5.7k would be left for my daughter to use as she likes. That seems to me a good reason to persevere. But i cannot envisage how difficult it is going to be in the months ahead with creditor reactions.
Sara (Debt Camel) says
ok, you just need to develop a thick skin for your creditors communications and them adding interest. Let her buy what she needs now & keep records of the purchases in case she does need to go bankrupt. Don’t let the money drop below the cost of the bankruptcy fees.
jimbob says
Thanks for all your help. I certainly have a thick skin especially with Vanquis. Not so much my daughter. How important is the type of spending she does before possible bankruptcy consideration. For example uk caravan break. First time bedroom decorated in 17 years. If shorter term solution was to be seen as less stressful for someone with a diagnosed mental health condition i would not want her to have done something with severe consequences.
Sara (Debt Camel) says
I have said before that I cannot give you advice on exactly what spending would be seen as acceptableto the Official Receiver in bankruptcy.
But the only thing that can go wrong if the OR thinks she should not have bought X or spent Y is that she may get a bankruptcy restriction order – see https://debtcamel.co.uk/bankruptcy-restriction-order-bro/ for more about these. A LOT more people worry about them than ever get them, And if she does, will it really make any difference at all to her life?
But once again you are thinking too far ahead. Her DRO hasn’t yet failed. You don’t yet have the creditor responses to her complaints.
jimbob says
OK thanks. My daughter always has the idea she is going to jail for spending other peoples money and not giving it back. I then go into protection overdrive and as you say think way ahead to all scenarios. We may have got a good and effective Stepchange adviser last night who may have reassured her. Basically said not worry too much about overspending but try to save some to allow for a few better options it could allow to satisfy the creditors.
Sara (Debt Camel) says
My daughter always has the idea she is going to jail for spending other peoples money and not giving it back
There are very, very few debts you can go to prison for not paying, they are listed here https://debtcamel.co.uk/prison-for-debt/. I doubt she has any of them!
That sounds like good advice from StepChange last night.
Sara (Debt Camel) says
I assume the 7 debts total 10k, not that they are at average of 10k.
The proposal to settle debts one by one later when you have a job may not be seen as reasonable by your creditors.
My suggestion would be that you talk to StepChange about a debt management plan. Negotiating repaying on 1 or 2 debts is relatively simple – on 15 it isn’t. A DMP will have the same effect on your credit score as payment arrangements will.
I also suggest you should be paying your family some money each month to cover energy, food etc.
It sounds as though you have been in a mess for a long while – debts have already been sold to debt collectors, 6 (!) phone contracts etc. Unless yopu expect to get a well paid job soon, a DRO may be much your best option to get a clean start. But it’s your choice.
Dave says
Hi Sara ,
Silly question time , sorry
How can I inform my creditors that I will be moving to token payments due to financial hardship ? Email , telephone, writing ect ?
Also , how would I go about making the actual payment ?
Thanks as always
Dave
Sara (Debt Camel) says
Most people phone them up.
National Debtline has a token payment letter you can use here https://nationaldebtline.org/sample-letters/token-payment-or-no-offer-payment/. You can send by post or email.
Do work through National Debtline’s My Budget sheet as the article above says. That will give you numbers you can talk to a creditor about or you can send it off with a letter or email.
Sometimes the lender will agree to take the token payment by direct debit. Sometimes you can set up a standing order.
Do you expect your situation to improve?
Lyn says
Sarah I hope you can assist me with my situation.
I had fallen to a loan fraud scheme through Monzo where I was deceived via fraud to take out a loan of 7k with interest is 11,500 and an overdraft of £1400 on my Monzo account.
My Personal existing loan at HSBC of £7000 for a family emergency was also swindled by the Fraudster thus i need to loan another £5000.
All in all I am in more or less £25k debt including interests. Which is sad because I fell into this situation via Fraud and I was relocation to London for a new job and has just ended my previous work contract.
I wrote to Monzo to review the Fraud Investigation and I requested if I can do Token Payment for now as I dont have the means to pay the loan and I felt it unfair to pay the money I did not loan and utilize myself. They gave me a 30 day breathing space but did not acknowledge my Token Payment request. My question is Can I still request for a Token Payment once the Breathing Space has ended?
I am going to request for Token Payment as well for HSBC. But my salary is still going in on this account so I am going to open a new account and move my salary there before I request for Token Payment for HSBC is that correct? Thank you.
Your input is really appreciated especially for the nature of how I suddenly found myself in debt. I am looking for a DRO but I have not been in the UK for three years as I am only here for a sponsorship work visa and the sole breadwinner for my family back home.
Sara (Debt Camel) says
I hope you have reported both frauds to Action Fraud.
Can I still request for a Token Payment once the Breathing Space has ended?
Yes
I think you should talk to your local Citizens Advice. They can help with advice about your options. You do not have to have lived in the UK for 3 years to get a DRO.
Lyn says
I have reported it to Action Fraud but sadly they can’t help me with the Fraud tho they have given me advice. I am presently with Step Change for assistance and was advised to apply for a DRO should I go for it? I was looking for Token Payment for now as I am not sure how DRO works esp for me who might leave the UK in the next year to come.
Sara (Debt Camel) says
Action Fraud will have given you a reference number – you can give this to Monzo.
I think you should talk to your local Citizens Advice about a DRO, they will help you look at the implications and make a choice.
jacky says
Hi.
Whats the difference between Token payment plan and DMP?
Do they affect the same the credit report?
If defaulted after 60-90 days do they clear after 6 years?
Thanks.
Jacky
Sara (Debt Camel) says
A token payments plan pays the same very samll amount to all creditors.
A DMP is where you have more to pay so the amount is divided up pro rata beteeen your creditors so the larger ones get more.
You don’t really have a choice between these – if you can only afford token payments, you cant magic up the extra money to pay more.
All defaults clear from your credit record after 6 years.
Janet says
Hello
To make token payments do I need to change the amount of my direct debit to the token amount or should I cancel the direct debit and make manual payments?
Sara (Debt Camel) says
what sort of debt is this – is there a place online where you can set what you want the DD to be? Sometimes this is possible for credit cards. For loans the lender normally sets the DD amount.
Janet says
Hello Sara, its credit card debts. I have reached the stage where I cant afford to pay any of them after years of moving the balances around my cards with 0% interest transfers, but gradually as 0% was refused to me the interest kept compounding. Now with my overdraft maxed out too I see no other way forward but to request token payments. I have opened a new bank account to pay my priority debts from and dot know if i just amend the amount of my direct debits with the companions, set up the direct debits from my new account or pay manually in some way. Thankyou for your advise.
Sara (Debt Camel) says
I would generally recommend just cancelling all the direct debits and contacting them offering a token £1 a month and asking them to freeze interest.
is anything likely to change in the next year or two? are you buying or renting? do you have a car on finance?
Janet says
So I write to ask them to freeze my interest and not pay a token payment until they write back? Wont it be bad if I miss a monthly payment even if only a token amount if they dont contact me within that time? I wont to keep everything in written form for future reference so dont wish to call anyone.I am not sure when my situation will change as I am self employed and the pandemic killed my business but there was still stock to sell off and the small amount coming in helped covering some costs. But the last six months sales have dried up completely hence getting deeper into trouble.
Sara (Debt Camel) says
I think you should talk about your situation and your options with Business Debtline, see https://www.businessdebtline.org/. They can talk you through your options and they have templates you can use to contact your creditors.
Thomas B says
Hello and good afternoon,
I’ve started to get the ball rolling with lower my debt payments by emailing all my creditors that my financial position has changed and I am not able to pay off the agreed amount per month. Currently, my working hours have been reduced and I now have one dependent. I asked if I could pay token payments; £30 towards loans and £1 towards my overdrafts for 6 – 12 months.
One creditor has got back to me and is pushing for me to enter in a debt repayment plan until 2030 paying £30 per month. I didn’t want this I only wanted to pay a lower amount for a few months until I get my working hours back up.
Would entering the debt payment plan hard my credit score? It’s already low.
Just to confirm – when paying token payments do I simply need to send my letter on intent, pay them on the day my amount I can afford for the amount of time I’ve stated?
It seems that alot of them are wanting me to enter these payment plans and I just forsee that as being the wrong move long term.
Any help would be greatly appreciated.
Sara (Debt Camel) says
One creditor has got back to me and is pushing for me to enter in a debt repayment plan until 2030 paying £30 per month
£30 just to that creditor?
have you offered just 31? Can you may any more for the next few months?
How many loans and overdrafts do you have? Could you list them?
Why have your working hours dropped and how sure are you will be increased?
Thomas B says
Yes £30 for the loan and £1 towards the overdraft – this particular creditor is Monzo.
Loan 1 = 4500
Loan 2 = 6000
loan 3 = 2300
Overdaft (with my bank) 1500
overdraft (monzo) 1900
The business I work for is going through a tricky period. It was either take redundancy or decrease hours. My boss envisions that it will pick up again in 3-6months.
Thanks for getting back to me Sara.
Sara (Debt Camel) says
who are the lenders for the other loans?
Thomas B says
118 118
Tesco
Monzo
Sara (Debt Camel) says
I don’t think you can rely on your income recovering fast. And as you have had to borrow from 118 – a very expensive bad credit lender – I think you were already in some difficulty before this drop inincome. Your credit score is already low – there is nothing there worth trying to protect.
I suggest you cancel current payments as they are unaffordable and talk to StepChange (https://www.stepchange.org/how-we-help/debt-management-plan.aspx) about a debt management plan for all the debts. It may start out as token payments then you can increase them in a few months.
Also have a look at making an affordability complaint against 118 and possibly the other lenders – see https://debtcamel.co.uk/refunds-large-high-cost-loans/. This isn’t just for the stupidly expensive loans like 118, I have seen a lot of tesco claims won in the last few months. BUT these are not an alternative to a DMP – they take many months to go through as a lot of good claims are rejected by the lenders and have to go to the Ombudsman. But winning any will remove the interest from your debts and so speed up a DMP.
Thomas B says
okay – just to clarify. I have contacted all my loan companies and told them I can not pay the amount each month. So I should cancel the direct debits and send them what I can afford (and stated in the letters)?
I’ve heard that StepChange add fees on to the payments which would prelong my debt?
Thank you for the heads up about affordability complaint.
Sara (Debt Camel) says
I’ve heard that StepChange add fees on to the payments which would prolong my debt?
They don’t! I have no idea where you heard that.
If you are having trouble getting your creditors to accept your offer, going through StepChange is the simplest and less stressful option. If you cant make the minimum payments, cancel the DDs and talk to StepChange.
There are a lot of commercial DMP firms that do charge fees, but StepChange don’t – all the money you pay to them is distributed to your creditors to reduce the amount you owe.
Thomas B says
Thanks Sara. I will look at StepChange.
I also read your article on ‘is it a lot of work running your own Debt Management Plan?’ I feel like I’ve already started this. I’ve sent letters / emails to loan companies, cancelled DD, and set alerts/alarms every month to pay them with my affordable amount. I might register with the CABmoney website too. Do you see this as a good starting point for me?
Sara (Debt Camel) says
I can’t say a DMP is the right option for you. Talking to StepChange would clarify that, whether you use them or go self managed.
And if you are having difficulty with your creditors accepting offers it’s may be simpler to use StepChange at the start. And the more often you expect your circumstances may change, the better it is having StepChange as the intermediary dealing with your creditors.
But if you want to DIY, fine.
Ness says
Hello. Thank you for your amazing work here.
I have several unsecured debts amounting to circa £30k defaulted from 2018/19. To avoid ccj, I have reached out to original creditors and I have been token for about 4 years now. The debts have been sold several times but I have not engaged with most of the debt buyers. I have continued paying the tokens to the original creditors (only one bounces back).
The defaults are not dropping off my credit file, rather it is showing the new credit buyers like new accounts. My situation is not going to change as a full time working single mother of three with little or nothing left after priority bills and family upkeep. I am paying £1800 rent which I could be paying on a mortgage instead. What would you advise, please?
Sara (Debt Camel) says
do these debts show as defaulted on your credit record? what are the default dates for each debt?
do you have a deposit for a mortgage, or this just a hopeful dream?
Ness says
Thank you, Sara
I have default confirmation of 24/01/2020 and 25/09/2020 for 2 of the debts and the others should be around the same time.
I don’t have deposit so just dreaming for now. Even if I did, the state of my credit would not bring that dream to reality. I would like to know if continuing with the token will prevent the defaults dropping off of my file.
Sara (Debt Camel) says
The new debt purcahsers should show the same default date as the original lender. Do they?
The debts will drop off your credit record 6 years after the default date, even though you are still making token payments.
But once they have dropped off, you have to carry on paying them, or the creditor can still go to court for a CCJ.
And any future mortgage application will reveal these old debts as the lender will see the payments on your bank statements.
So carrying on with token payments really solves nothing. It is not a good long term strategy.
You have two options. One is to talk to a debt adviser about a Debt Relief Order. 6 years ago 30k would have been too much for a DRO, but now it is well under the new 50k limit. Read https://debtcamel.co.uk/debt-options/dro/ for more about this.
The other option is much less certain, but if the debts have all been sold it’s worth trying… It is to ask the current creditor (not the original lender) to produce the Consumer Credit Act Agreement for the debt. If they can’t, the debt is unenforceable in court and you can stop paying. See https://nationaldebtline.org/get-information/guides/credit-agreements-getting-information-ew/ for more about this and it has a template letter which you should – follow the exact wording in that letter.