Negotiated Agreement
A way to reduce your debt repayments by explaining to your creditors that you’re having difficulties, but want to repay your debt as best you can.
A negotiated agreement may involve either or both of:
- Ongoing payments from your income.
- A one-off payment from a lump sum.
Ongoing payments from income
Your offer should be your disposable income, shared between your creditors pro rata according to how much you owe each of them. This means all your creditors are treated equally.
Your disposable income is how much you can afford to pay your unsecured creditors once you’ve met your living expenses and essential financial commitments.
Ask your creditors to freeze any interest or charges too. They will expect regular updates on your income and expenditure, so they can see whether you can increase your payments.
One-off payment from a lump sum
If you have a lump sum available, but not the disposable income to keep up ongoing payments, you can offer a full and final settlement.
What is a full and final settlement?
An offer of a one-off partial payment to a creditor in exchange for settling the whole debt.
If you do have some disposable income, creditors may still expect some payments from that as well.
Token payments
If you can’t make payments for a while, for example because of a short-term illness, creditors may agree to accept no payments, or token payments of around £1 a month, for a limited period.
Token payments are suitable if you expect your situation to improve within the next 12 months.
Advantages
Fair and open
A fair and open way of sharing payments that creditors widely understand.
Help with budgeting
You don’t need an advice agency to negotiate these payments for you, although one may help.
Your payments can’t be refused
Creditors can’t decline the payments you make to them.
Flexible
You may be able to change your payments again if your situation gets worse or you face unexpected essential spending.
Considerations
Creditors may refuse
Creditors may not agree to what you propose, but it’s always worth asking them to reconsider. They can’t refuse any payments you do make.
You manage it yourself
You are responsible for making all the payments and keeping your creditors informed of your circumstances.
Interest and charges may continue
Creditors may refuse to freeze interest or charges, but it’s worth asking them to reconsider.
Impact on your credit rating
Making reduced payments breaks the terms of your credit agreements. This will affect your credit rating if your creditors tell the credit reference agencies.
Debts may increase
If you can only afford small payments, they may not even cover the interest or charges, so your debts will grow.
A short-term solution
The less you pay, the less likely creditors are to accept the arrangement in the longer term. Token payments are usually only accepted for 3 to 6 months.
The full debt is still owed
You remain liable for the full amount of your debts, unless you have negotiated a full and final settlement.
How we can help
We don’t arrange negotiated agreements directly, but we can tell you whether one or another solution best suits your situation. If a negotiated agreement is right for you, we will refer you accordingly.