What is a Negotiated Agreement?

This is a way to reduce your debt repayments by explaining to your creditors you’re having difficulties – but want to repay your debt as best you can.

Negotiated agreements may involve either or both of:-
  • Ongoing payments from income.
  • One-off payments from a lump sum.

Ongoing payments from income

Your offer of repayments should be your disposable income shared between your creditors pro-rata based on how much is owed to each. This means that all your creditors are treated equally.

Your disposable income is defined as how much you can afford to pay your unsecured creditors once you’ve met your living expenses and essential financial commitments.

Also, ask your creditors to freeze any interest or charges. Your creditors will expect you to give them regular updates of your income and expenditure so that they can see whether you can increase your payments.

One-off payments from a lump sum

You can offer to make a full and final settlement if you have a lump sum available – but not the disposable income to make continuing payments.

A full and final settlement is where a borrower makes an offer of a one-off partial payment to a creditor in exchange for the full settlement of a debt.

However, if you do have some disposable income, creditors may expect you to make at least some payments from that as well.

Token payments

If you can’t make payments temporarily, for example because of a short ­term illness, creditors may agree to accept no payments or token payments of say £1 a month, but only for a limited period. Token payments are suitable if you expect your situation to improve with in the next 12 months.

Negotiated Agreement Advantages

Fair and open
A fair and open way of sharing payments, widely understood by creditors.

Help with budgeting
You do not need an advice agency to negotiate these payments for you; although one may help you.

Creditors can’t decline payments

You may be able to vary your payments again if your situation gets worse or you face unexpected essential spending.

Negotiated Agreement Considerations

Creditors may refuse
Creditors may refuse to agree with what you propose, but it’s always worth asking them to reconsider, although they can’t refuse any payments you make to them.

Complicated to self administer
You are responsible for administering all the payments yourself and keeping creditors informed of your circumstances.

Ongoing interest & charges
Creditors may refuse to freeze interest or charges, but it’s worth asking them to reconsider.

Complicated to self administer
You are responsible for administering all the payments yourself and keeping creditors informed of your circumstances.

Impact on Credit Rating
By making reduced payments you are breaking the terms of your credit agreements. This will affect your credit ratings should your creditors inform the credit reference agencies.

Debts may increase
If you can only afford small payments, they may not be enough even to cover interest or charges, and your debts will increase.

Short term solution
The less you are paying; then the less likely creditor will accept the situation in the longer term. Token payments are only likely to be accepted for 3-6 months.

Full debts to be repaid
You remain liable to pay the full amount of your debts; unless you have negotiated a full and final settlement.

How We Can Help We do not directly offer this solution. We can advise if breathing space or another solution is most suited to your situation. If a breathing space is appropriate, we will refer you accordingly.