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Getting the interest frozen on your debts could make a serious difference to your finances. Some ideas on how you could achieve that.
If you’ve got debt that’s become unmanageable, the last thing you need is for your lenders to add on a load of interest or extra charges. That’ll make it even more difficult to get back on an even keel with your finances, because whilst the payments you make each month reduce the balance, the interest and any charges add to it again!
This is clearly not a good situation, so what can you do about it? Well, you can try to get the addition of interest every month stopped or reduced, at least for a short while anyway. There are three ways you can go about doing this and, if you’re successful, it’ll free up more money for you to spend on the essentials you need to live your everyday life, which should make it a little easier to cope.
In this blog, we’ll look at getting lenders to freeze interest on your debts, whether a debt solution is the best way to forward or if maybe a 0% interest credit card might be a better option. Let’s get started.
1. Ask lenders to freeze interest
The first, and easiest, way forward is to call and explain your situation to your lenders. If you tell them that adding interest will make it impossible for you to maintain payments, they may be willing to give you a temporary freeze.
The Lending Code could help you here. It's a voluntary 'code of practice' that's followed by lenders and other financial companies. Any company that follows it 'is committed to acting sympathetically and positively if you are experiencing financial difficulties'.
You are also protected under the FCA regulations relating to dealing with customers in arrears. The regulations state that “a firm must treat customers in default or in arrears difficulties with forbearance and due consideration”. And an example of what they consider to be forbearance is suspending, reducing or freezing interest charges.
That can mean a lot of things – but one thing they'll look at is 'reducing or suspending interest and charges if these would cause the debt to increase or lead to the repayment term becoming too extended'.
So, if you're struggling, get in touch and tell them. You'll have to show them that you're offering to pay as much as you can afford – you could offer to complete a budgeting form. And, point out that freezing interest on your debt would really help you repay what you owe. If they agree, even if it’s only for 30 days, it’ll at least give you time to get some debt advice and put a payment plan together.
If you do this, we’d advise that you make sure you:
• tell them if other lenders have agreed to freeze interest on what you owe them.
• get agreements in writing, in case you need it later on.
• make all your agreed payments. If a lender agrees to accept smaller payments and/or freeze interest, they might well change their mind if you don't stick to your new agreement.
2. Think about a debt solution
If you think you’re not going to be able to manage your debts, even with a freeze on interest, it might be time to start thinking about a debt solution. This is because most debt solutions will involve the interest on your balances being frozen and can also mean that your monthly repayments as reduced as well. For example, a Trust Deed, IVA or DRO would freeze interest on your debts while you're repaying them at a manageable rate.
Entering a debt solution is a big commitment, though – and it's only an option if you really can't afford to repay your debts as you originally agreed. It'll also come with downsides, like the effect on your credit rating.
3. Get a 0% credit card
You may have heard about balance transfer credit cards that let you move all your credit card debts onto them, and won't charge any interest on that balance for an agreed period of time. This can be from as little as 6 months, right up to over two years. If you do this, make sure you make a note of when the interest-free period ends, so that you can prepare for the added amount each month, or find an alternative solution to use. Do bear in mind that there may be fees for transferring your balance onto a balance transfer card.
However, if you’ve already started to default on your payments, and that’s been noted on your credit file, it’s likely that this won't be an option as your credit rating is likely to be poor. Lenders are very careful about who they lend to these days, and if you've had problems repaying debts in the past, you might find that you can only get a card with a high interest rate – which defeats the object – or that you can't get one at all.
So, there you have it, three potential ways to try to get the interest frozen on your account. If these fail, or you’re not comfortable speaking to your lenders, why not get in touch with one of our debt advisors. Talking to an expert about your situation can make it all a lot less frightening – and help you figure out the best way to tackle your problems. Use the ‘contact us’ buttons on the left to get in touch.
by Shelley BowersBack to blog home