What is the Minimum Amount I can Pay a Creditor
If you are experiencing financial difficulties and have to reduce your payments to creditors, then you would want to make a payment of at least £1 to each creditor. Having said that though, a creditor will not accept a token payment without evidence! However, if your situation as become so bad that you can only afford to pay each creditor a minimum of £1, then they will accept that amount. Just on a side note, any reduced payment will affect your credit score.
Creditor Accepts £1 Per Month in Payment
In the letter below, you can see that Capital One will accept monthly payments of £1.
Income and Expenditure Pro-rata Split of Payments to Creditors
When completing and Income and Expenditure, payments to creditors are calculated on a pro-rata split. When paying multiple creditors it means dividing the available funds among the creditors based on the proportion of each creditor’s outstanding debt. In other words, each creditor is paid a percentage of what they are owed, relative to the total amount owed to all creditors. This method ensures that each creditor is treated fairly and receives a portion of the available funds based on the amount they are owed.
In the sample Income and Expenditure below, after all income is added up and all the expenses are take away, this leaves £24 (yellow) available for the creditors. On the right hand side, you will see the creditors and the balance owing to each. In the Payments column, you will see how much each creditor will get on a pro-rata split. So in this case, the largest creditor will get £8, then the next largest will get £4 and so on.
With this information, you are now able to tell the creditor exactly how much you can afford to pay them. When dealing with creditors, it is always best to do this in writing.
Dealing with DCA’s and Creditors in Writing
When dealing with Debt Collection Agencies (DCA’s) or Creditors, it is always best to do it in writing. Often when dealing with a creditor over the phone, they will try to increase the payment, in return they will leave you alone for a month. However, doing it that way, will leave you short for one or more creditors.
Stopping Interest on My Debts
So, write to your creditors and explain your situation to them, also include the Income and Expenditure as supporting evidence. It is also worth requesting that all interest is stopped. (I respectfully request the freezing of any interest on the outstanding balance for the duration of the plan in line with section 14 of the British Banking Code.)
It is always advisable to reply to every letter that you get from creditors, this will show that you are serious in wanting to resolve the situation. You will also find that the many phone calls will slowly reduce, thereby giving you more time to think and a bit more peace.
Additional Evidence for DCA’s
There may be very valid reasons as to why you are in this situation, where you are no longer able to make normal payments to creditors. So, if you do have additional information, it may be a good idea to send copies to the creditors. Do not send originals, as you may need them in the future.
DIY Debt Management Plan
For more information on doing your own debt management plan, this post may be of interest: DIY Debt Management Plan.
Will a Creditor Accept a Very Small Monthly Payment
Yes, once you have completed your I&E, this should then be sent to a creditor showing how much you can afford to pay them each month. Once a creditor has seen that you can only afford say, £1.00 per month, then they will accept that payment for a period of time. This is usually reviewed every 3 or 6 months, you will have to then send them a revised I&E.
Will a Reduced Payment Affect My Credit Rating
Reduced payments to creditors can significantly impact your credit rating, as it suggests to credit bureaus that you may be struggling to fulfil your financial obligations. Late payments, missed payments, or payments that are less than the agreed-upon amount can all negatively impact your credit score. In addition, defaulting on a loan or credit card can lead to collections actions, judgments, or even bankruptcy, which can have even more severe consequences for your credit rating. It is essential to communicate with your creditors if you are struggling to make payments, as they may be willing to work with you to develop a repayment plan that is manageable for your financial situation. Seeking professional financial advice may also be beneficial in understanding your options and developing a strategy for improving your credit rating over time. Would suggest that first port of call for advice would the the CAB.