Token payment plans

A token payment plan involves offering a small sum to your creditors each month instead of the usual amount for a short time.

You might want to do this if you’ve encountered a temporary issue with your finances e.g. you’ve lost your job or you can’t work due to ill health.

Generally, people tend to offer £1 per month to each creditor.

Creditors are usually only happy to agree to this for up to 12 months, so it’s best-suited to people who are confident they’ll be able to get their finances back on track within a short time.

You can only use token payment plans for non-priority debts, such as:

• credit cards
• personal loans
• overdrafts
• store cards
• catalogue debts

A token payment plan might be a good option if your financial problems are temporary, and it would make it easier for you to manage your day-to-day expenses and keep up with priority bills like rent.

Creditors tend to appreciate being kept in the loop if customers are experiencing financial difficulties. And offering a token amount rather than simply missing payments shows that you’re making the effort to take responsibility for your debts.

But a token payment plan may not be the best option if you’re facing longer-term financial issues, or you can’t keep up with priority debts.

In cases like these, get debt advice.

Creditors don’t have to agree to a token payment plan but they may be more willing to if you can provide proof of your financial difficulties.

Create a budget to show them your income and outgoings. And explain why you can’t make your usual repayments. This could be backed up by evidence such as medical documents, letters from your current or most recent employer or a benefits claim.

All this helps to show you’re acting in good faith and might convince a creditor to accept a token payment plan.

Yes. Reduced payments will be recorded on your credit file.

After multiple reduced payments, creditors may also issue a default notice. Both reduced payments and default notices stay on your credit file for six years.

That can lower your credit score and make it harder for you to borrow in the future.

If your financial situation doesn't look like it’s going to get any better, come to us for debt advice. We can run through the various options available for dealing with debt.

We can also help you with budgeting and check if you’re missing out on any benefits that you may be eligible for.