How can I freeze interest on my debts?

For many people, the most challenging part of dealing with debt is the interest that builds on top of the money that’s already been borrowed. This can make the process of paying back debt feel endless and people can easily land in what’s called ‘persistent debt’ – when only the interest is being paid, not the debt itself.

Why do I have to pay interest?

Freezing interest would make things much more manageable for most consumers, but this is not in the creditor’s interest, as charging interest keeps things profitable for them. That said, there are certain ways you can freeze interest – we’ll talk you through how each of these options works, from the main Debt Solutions available in the UK to self-care options.

Talking to your creditors

In the UK, most credit companies adhere to certain codes of practice that require them to consider lowering or freezing interest if a consumer appeals for them to do so. These are voluntary codes, which means that creditors do want to assist where needed and make your debts easier to deal with.

Generally, this would require a compelling reason, and you must be able to demonstrate that you are struggling financially. The appeals are dealt with on a case by case basis, so you would need to speak with your creditors directly to enquire if this can be possible for you. It’s also possible for you to contact them more than once to request this.

Debt Solutions

Individual Voluntary Arrangement (IVA)

With an IVA, interest and charges get frozen – this is one of the most common reasons people state for choosing this debt solution.

Once you have proposed an affordable monthly payment to make towards your debts, and your creditors approve, then any future interest and charges will be frozen. There are also no further charges, as any associated costs and fees are included in the monthly payment. On top of this, any remaining amounts are also written off following the completion of the IVA.

Debt Management Plan

A DMP involves you making monthly payments towards your debts, usually through a DMP provider. If the plan is approved then you can begin to make lower payments to your overall debt, but your creditors would not necessarily freeze your interest. This would be at their discretion. In the end, this could mean that your debt total could still continue to increase over the duration of the plan, and your end date may also continue to be pushed back because of this.

Protected Trust Deeds

A Protected Trust Deed is a solution in Scotland that is similar to an IVA. It lasts four years in total, during which time you make affordable monthly payments towards your debts and your creditors freeze any interest and charges.

It’s important to note that this will only be the case when the Trust Deed has a ‘protected’ status. With a regular Trust Deed, your creditors would not be obliged to agree to all of these aspects and interest may continue to be added.

DROs and Bankruptcy

These solutions involve your interest being frozen for a period of time whilst your application is considered. With a Debt Relief Order, this is for 12 months. Bankruptcy is similar, but the duration can vary depending on circumstances. If approved, then your remaining debts, along with interest and charges, can be written off – although, with Bankruptcy, certain possessions of yours may be sold first in order to recover money to pay creditors.

If your DRO or Bankruptcy are not accepted, then your creditors will be able to start applying interest to your debts once again. They are even able to backdate the interest for the period of time that your application took, so you could end up with a larger amount of money owed than you started with.

Debt Consolidation

By taking out a consolidation loan, you can deal with your debts in one go, making your debt level more manageable as you’ll owe money to one creditor rather than multiple.
This sounds simple, but acquiring a loan to cover the total amount of your debt can be difficult, as new lenders might be reluctant to lend money out. This is because if you are already in debt, this will be reflected on your credit file and any lender is likely to check in order to decide whether to lend to you or not.

This will not necessarily be impossible, but if a new lender does decide to offer you a loan, then it’s highly likely that this will come with a very high-interest rate. In the end, you may actually end up paying more interest than you were beforehand.

Know your rights

When taking out any loan, both you and your creditor will have signed a credit agreement, meaning you both commit to sticking to the terms. If ever you’re in doubt about the interest or charges that you are paying, you can always take a look through your credit agreement to ensure that everything is being adhered to.

If you do feel that your creditor has breached any conditions, then you can seek independent advice from charities or the FCA (Financial Conduct Authority).

There are also generic regulations that creditors must follow – for example, you must never be made to pay more than 100% of your original loan back in interest.

Reach Out

As outlined, you can speak with your creditors directly if you feel you are struggling with the amount of interest that you are being charged. This may be for temporary help if you are temporarily experiencing financial difficulty, or you may be able to reach another agreement with them.

Alternatively, if you are struggling to deal with all your debts, you can reach out to debt experts such as ourselves. We can go through available debt solutions in greater detail with you. As IVA Specialists, we can help work out if you qualify for this solution and can have interest frozen this way, or whether another route is more suitable for you.