If you stop making repayments on an unsecured loan, your lender may sell your debt onto another creditor, known as a debt collector.
Debt collectors don’t have any special powers to help them collect debts, but they may be more persistent in chasing you and more willing to start legal proceedings against you.
One thing they are unlikely to do is to disappear, and so if you’re struggling to pay them back, you might start thinking about ways to negotiate for repayment terms that you can afford, using a payment plan.
What Are Payment Plans?
A payment plan is an agreement between lender and a borrower about how the borrower should pay back the money loaned to them.
When you take out a loan, you’ll agree to a formal payment plan which details how often you should make repayments, how they are calculated and how much they will cost.
In an ideal world, you would make payments according to this plan for the lifetime of the loan, until you have repaid everything you owe plus interest.
However, in reality, things don’t always go this smoothly. There are many reasons why the original loan terms could become unaffordable. If this happens, you may find yourself struggling to keep up with payments and may even default on the loan.
If you default or are behind in your repayments, your lender may sell the debt to a debt collector, or hire one to chase you for the debt. Debt collectors have no special powers but can be very persistent in trying to recover the funds.
Sometimes this persistence pays off, as debtors feeling under pressure may find some way to come up with the money. However, chasing debtors is an expensive business.
If a borrower can provide evidence that they are willing and able repay their loan with smaller payments over a longer period of time, a debt collector may choose to accept this offer instead of wasting more money chasing it up.
The way to provide this evidence is in the form of a personal budget and suggested a payment plan based on how much you can realistically afford.
You can do this yourself, or if you’re not sure where to start, you could enlist the help of a debt counsellor, who will work through your budget with you and negotiate with your creditors on your behalf.
Do Debt Collectors Have to Accept My Plan?
Debt collectors do not have to accept payment plans. Their job is to try and recover the money owed to them as quickly as possible, so in some cases, they may be more than happy to take on your suggestion of a plan but are under no legal obligation to do so.
What to Do if a Debt Collection Agency Won’t Accept a Payment Plan
Unfortunately, debt collection agencies are under no obligation to accept payment plans and can decline to renegotiate your debt.
If you are rejected by one debt collector but have multiple debts, you may still be able to reduce your debt burden by speaking to your other creditors, who might be willing to take it on.
Otherwise, you may wish to consider other ways of reducing your debt. A debt consolidation loan allows you to move all of your debts into one account and could help to manage up to £25,000 of debt.
You will need a reasonable credit rating and regular income to apply, and the debt would still be subject to interest rate charges and, depending on the provider, account fees.
A zero-interest balance transfer credit card is also an option for those with a fair credit rating. This allows you to transfer your debt onto a credit card on which no interest is charged for a set amount of time.
The interest rate after the introductory period is often quite high, so you will need to work out how much of your debt you can afford to pay before the end of the interest-free period.
If neither of these options seems suitable for your circumstances, you could consider working with a debt counsellor, who will work with you to find alternatives and help you manage your debt reduction.
Can I Get Help With Setting Up a Payment Plan?
Yes. If you are not sure about how to prepare your payment plan, have lots of debt or simply aren’t confident in your negotiating skills, you could ask a professional debt counsellor to help you.
A debt counsellor will work through your budget with you to establish an affordable repayment plan and will liaise with your creditors on your behalf.
If you owe money to more than one company, they will also handle your payments for you; so you can just make one payment to the counsellor, and they distribute it among your creditors.
Some debt counsellors charge a fee for their service, but this can normally be rolled into the total debt and paid for gradually if you don’t have the funds to pay for the service upfront.
How Can I Make a Payment Plan?
Write a Budget
The first thing you’ll need to do is work your monthly earnings and outgoings. You should base this on your bank statements to make it as accurate as possible.
Separately, it could be helpful to list all of your debts, including details about how much you owe, how much you pay each month and who you owe it to.
It could help your case if you have other evidence which points to why you’re struggling with repayments. It could be that you lost your job in recent months, or you’re suffering from chronic depression.
If so, a copy of your redundancy notice or a doctor’s note would support your case and help convince the debt collector that your request is a fair one.
Work Out Your Debt Budget
Refer back to your budget and work out how much you have left every month after you’ve paid your priority debts (such as a mortgage, rent, council tax) and other essentials such as energy and groceries. This number is how much you can afford to spend on all of your debts per month.
To work out how much you should offer to each creditor, work out the percentage they should be paid out of your total debt budget.
For example, if you owe:
- £50 for overdraft
- £150 credit card
- £100 personal loan
Then your total non-priority debt spending is £300 per month. Expressed as percentages, you should spend:
- 16% on overdraft
- 50% on credit card
- 33% on a personal loan
You can then work out what is a fair amount to offer each debt collector or creditor based on what you can realistically afford.
In this example, if you could afford to pay £100 per month, you could offer to pay £16 for your overdraft, £50 for your credit card and £33 for your personal loan.
Contact the Debt Collector
Once you have all this information together, you can contact the debt collector to try and negotiate a new payment plan. Taken all together, the information you have collected may help to convince the debt collection company that your offer is reasonable based on your circumstances.
The collector is not obliged to accept your payment plan, and it is possible that they will ask you pay more than you have offered, especially if they see expenses in your budget which they consider to being ‘non-essential’, such as a gym membership or clothing.
If you can afford to cut back on these items, it could be a good idea to do so in order to help reduce your debt.
However, you should not allow the debt collector pressure you into paying something which you cannot afford- or you’ll only end up repeating the cycle.
How Can Love Debt Free Help?
Here at Love Debt Free, we have partnered with some of the UK’s leading Debt help companies.
They have already helped thousands of people reduce and manage their debts, and they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these debt help companies, click on the below and answer the questions.