QUESTION

I am currently in the process of negotiating with my creditors, in an attempt to resolve a financial "sticky patch". I am currently in. Some of my creditors have agreed to freeze the interest on the outstanding amounts, but others have not.

The ones that agreed to do so, I just asked them to. Is the normal policy when attempting to get interest charges frozen, just to ask, or is there some standard format in having interest frozen.

Reply

First, creditors do not have to freeze interest. A bank will have an overdraft rate of interest (and a horrendous unauthorized overdraft rate), a money lender will have protection under the Consumer Credit Act to charge default interest, and businesses can charge 'late payment interest' after 30 days from invoice date.

The interest that continues to be charged on debts that are 'substantially' overdue, old or impossible to pay off fall under the grey area of what is 'fair and reasonable'. If you have a £700 debt and monthly interest of £5.01 and you are paying £5 per month you will, obviously, not discharge the debt. And more importantly, as it is the debt will take about 12 years to clear without further interest being added.

The term of 3 years to settle just about any consumer debt seems fair and reasonable - unless your situation changes. Lenders that set up repayment terms of 20+ years are more numerous than you would expect. It is fair and reasonable to offer all creditors a repayment plan that will end on the third anniversary - again unless the situation changes. I would like to see the freezing of interest as a mandatory action and there is some agreement from a number of lenders/creditors.

Another way of dealing with the interest is to offer, say, £5 per month until you 'sort things out', and then recommence paying interest and a larger monthly payment when you can. But if you do not approach the lender they cannot refuse in the first instance.

Many thanks to Colin Duguid of Debt 24.com who is taking the time to provide this information as a service to homeworkers.