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19/12/2019

Token Payment Plans – Everything You Need To Know

19/12/2019

Token Payment Plans – Everything You Need To Know

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Everyone lives in different circumstances. And in some cases, this can mean it’s hard to keep up with debt payments or even make any payment to them at all.

This could be for a number of reasons, such as illness or unemployment, making it difficult to find a solution. If this sounds familiar to you, then a token payment plan (TPP) could be just the thing you need to get by until your situation improves.  

What is a token payment plan?

A token payment plan is something that a lot of people who are in debt use when they suffer from a drastic change in circumstances. However, this should not be taken lightly, and you should only offer this to your creditors if you predict that you will be able to pick up your payments again within a year.

It’s also important to note that you should not use this as a long-term solution for your debts. They should only be used if you need some breathing space to concentrate on improving your circumstances.

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How much will creditors settle for?

How much you pay towards a TTP is dependent on how much you can afford to pay.

Generally, what you should do, is work out how much you can afford to pay and divide it by the number of creditors you have. This should be done pro rata, which will mean you’ll be paying the most to the creditor with the highest debt.

However, this can get confusing, especially when you then have to start messing around with awkward figures. It’s for this reason that most people tend to stick with the £1 plan, which sees you pay £1 to each creditor to keep it simple.

If you can afford more, we advised to try your best to offer your creditors more as it helps to go in your favour. This way, you can keep your trust with them as it will show them that you aren’t ignoring your debts and still attempting to deal with your debts.

Can a creditor refuse a partial payment?

Unfortunately, yes. As you made an agreement with a creditor, it may be considered a break in your contract.

If they refuse your offer, it’s important to still make the payments to avoid any further trouble. In cases where they do agree, then there will also be a period of limbo whilst your plan is set up.

As such, we suggest that when you make your offer to your creditors to include a copy of your income and expenditure as evidence of your claims. This will help show creditors how bad your situation is and hopefully make it a whole lot easier to work with them.

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Can my car be repossessed if I make partial payments?

The answer to this will depend on whether you own your car or it’s on hire purchase. Most finance providers will consider a token payment as a late payment and may still execute their right to take your car back.

If you own your car outright, then it shouldn’t be affected by a token payment plan. However, if your situation doesn’t improve and you cannot make payments, then the debt may be passed to an enforcement agency and your car could still be seized.

What are the advantages and disadvantages of a token payment plan?

As with everything in life, token payment plans come with their highs and their lows.

Advantages

  • You can include household bills (if you’ve fallen into arrears)
  • Payments are low, giving you the breathing space you need
  • There are generally no fees, so you only have to make the one monthly payment to your debts

Disadvantages

  • You can only set up a TTP if you predict your situation to improve within a year
  • It’s not a long-term solution for your debts
  • They can only be set up if you have little to no money left each month after paying all your essential bills.

What should I do if my situation doesn’t improve?

If you are reaching the end of the 12-month period for your TPP and your situation has not improved as much as you’d have liked, it’s important to sort out a solution as quickly as possible.

There are many solutions out there to help you deal with your debts and that can be completely affordable.

Here are just a couple for you to consider:

IVA

This is a legally binding agreement that allows you to make one affordable monthly payment for a ser period of time – usually five years. This solution freezes all interest and charges on your debts and stop your creditors from taking any further action against you.

Once you have made all your payments, any remaining debt will be written off, allowing you to begin your debt free future.

It’s important to not however, that this is only available to those living in England, Wales or Northern Ireland.

Debt Management Plan (DMP)

This is similar to your TPP. Your payment will be negotiated with your creditors to allow you to make one reduced payment that is then split amongst all the companies included.

DMPs, however, are not legally binding, but it is common for them to freeze interest and charges once you enter into one. The main difference to this solution is that you will pay off your entire debt level and there is no set period of time that you will make payments for.

If you’re struggling with debts and aren’t sure where to turn, contact us today on 0808 2234 102. Our experts are on hand to work through your debts with you from the moment you contact us and help you find a solution that works for you.

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