If you are already struggling to pay off a huge amount of your debts, the additional hiking interest and charges become another hindrance in your way.
One way out of this is by asking your creditor to freeze the interest and charges temporarily.
If your creditor does not agree to do so, there are a few other ways you can get your interests lowered down, some of which I will be walking you through.
What Does it Mean to Freeze Interest?
When your creditor freezes your interest and charges for you, it means that they allow you to pay your debts without worrying about the high interests that you have to pay along.
So, for a particular period of time, all interests on your debts cease and the only payments you make are used to get rid of your debts.
To ask your creditor to freeze interest on your debt, use our free letter template.
However, to have your creditor approve your request for freezing interests, it’s better to adopt a debt management plan and then reach them out.
For example, when you use a DMP to pay your creditor the owed money, you pay the amount easily by paying smaller instalments, but this makes the process a little longer. Other than this, the interest and charges also become higher.
But again, another added ease is the fact that these plans make it easier to convince your creditor to suspend your debts until the plan ends and you are debt free.
If not, they still help you get your interests lowered down significantly.
Does a Creditor Have to Freeze Interests If I Request?
Remember that your creditors don’t have to freeze your interest and charges necessarily. You can request them to do so by writing them a letter, but that is the extent of your power.
If they reject your request however, you write them again.
For them to approve your interests suspension request, you need to really have a compelling reason – and what better than presenting your struggling financial situation. Another way to have this done is by adopting a debt management plan.
With a DMP, it is comparatively easier to have your debt suspension request approved.
In some cases, the creditors might reject your request to have your interests frozen. But at the same time, they might offer you a significantly lowered interest as compared to the interest and charges you were paying before.
Debt Solutions to Reduce or Freeze Interest
To help you get rid of debts on time and also with ease, there are a number of debt solutions present officially that can legally walk you through these financially challenging times.
Let’s discuss some of the most commonly employed debt solutions:
Individual Voluntary Arrangements
Individual voluntary arrangements are a form of debt solution that can work on both monthly instalments and/or a lump sum.
In IVA, a creditor and a debtor together come up with a particular plan for payment, which is usually high but affordable. The amount is settled by a middle man – who is necessarily supposed to be an insolvency practitioner.
A DMP can also be employed to ease the process further, but it’s just an added financial pressure. Besides, an insolvency practitioner is all you really need to settle the legal arrangement.
Know that if you are unable to pay the complete debts back within 4-5 years of the IVA, the remaining debts are cancelled.
Trust deeds are very similar to IVA, the only difference is that trust deeds aren’t available in all countries of the UK.
Another difference would be the fact that all trust deeds do end after 4 years, and any leftover debts are written off. Trust deeds also settle on lower instalments as compared to IVA.
Debt Payment Plan
Debt payment plans are the same as DMP.
In debt payment plans, you are provided help through a very well-formulated plan to get rid of your debts through small monthly payments. Smaller payments mean longer plans, but they make timely instalments an easier task.
Additional advantages of debt payment plans are that they help convince your creditors to either freeze your interests or at least lower them to a considerable extent.
The additional fees do pose an added struggle, but it is easy to pay that amount off through the proper plan. Besides, additional fees come with every other debt solution plan.
Debt Relief Order
Debt relief orders are an extreme solution to very poor financial conditions.
This is when you give up on your payments and declare your financial condition bad enough to not be able to pay any amount of debts on you. On a debt relief order, you are legally allowed not to pay off any debts if you can’t afford to pay for them for a period of 12 months.
If your monetary conditions do not change, or worsen, then the debts are completely written off your credit.
Are Interest and Charges Added to My Debt Fair?
Interest and charges that are added to debts are completely fair to the debtor unless the credit takes certain actions – which might be false, or so on.
Let’s put it this way:
When you sign a loan, there are certain terms and conditions set by the creditor and the financial conduct authority. As long as the creditor charges you extra fees and interest and charges based on these terms, it is fair to you and you cannot call them out for it.
However, if your creditor goes on to increase your interest and charges later for no specified reason, then it is unfair to you.
Similarly, if they make you pay high interests whilst knowing that you are going through extreme monetary struggles, you can take debt advice from the financial conduct authority as it might seem unfair.
Your creditor might as well add interest and charges for certain legal actions they have taken for the debts. If they ask for the fair amount, then it should be fine with you.
However, if they ask you to pay more amounts than the actual costs, or for fees of actions they never took, then you should again seek help from financial conduct authority.
Can You Freeze Interest on Credit Cards?
Yes, freezing credit card interest is possible.
If you have worsening financial conditions, you can ask your credit card company to freeze interest on credit card.
They might reject the request, or lower the interests, but you can write them a letter of appeal again to freeze credit card interest, as it is in accordance with the financial conduct.
Can You Freeze Debt?
You can suspend the interests on your debts and also have additional charges, fees, fines, etc., suspended, but the suspension of debt is not possible.
However, if you are going through extreme financial difficulties, you can either adopt the debt relief order, or have the debts written off completely.
Freezing Interests With a Debt Management Plan
Debt management is actually a form of debt advice and solutions to help reduce financial pressures on you by helping you get rid of debt easily.
Such plans and solutions don’t cancel your debt or request your creditor to write it off your credit. They just provide you with a well-formulated plan to help you keep track of your instalments, and so on.
For instance, they convince your creditor to accept lower instalments from you. They also help get your interests frozen, or at least lowered down.
While you can apply to suspend interests, it’s safer to reach out through management plans, as the chance of getting request approval is slightly higher.
However, know that when you are utilizing a debt solution such as a management plan, there are added interests on the debts. But they are easier to pay back because of the longer and smaller instalments.
What happens if I don’t pay interest?
If you fail to pay your interests for whatever reason you might have, you will end up being in worse financial conditions.
This is because on not paying interests, the interest becomes higher and even some additional fines and late fees are added to your credits.
How much interest are creditors allowed to charge?
In the United Kingdom, the highest or maximum interest rate that creditors are allowed to charge under the criminal usury statute is 25%.
How does debt and interest affect my credit score?
Debts are a very important factor in determining your credit scores, this is because 30% of your score comes from debt.
Now, of course if you have a good payment history for all your debts, you will have a higher credit score.
When your credits are high, it is easier for your new creditor to give you a loan on a lower interest rate – all based on your good history at making timely repayments.
Can creditors refuse a debt management plan?
Your creditors can reject your debt management plan if they think that the DMP isn’t the best way for them to get back their money.
Mostly, when creditors refuse to accept the DMP, they are willing to sell their debts to debt collectors.
Does freezing interest affect credit rating?
Getting debt solutions like debt management plans, or having your debt interest and charges suspended is a good way to pay back the owed amount in an easier way, but it is not good for your score.
But if you take a look at things with a long term perspective, then this lower rating is better than having an even worse rating due to late payments of decided instalments.
What is persistent debt?
Persistent debt is when you pay more money for interests, fines, late fees, etc., than for your actual debt.
You are said to be in persistent debt if you have been doing the above following things for 18 months, and this is when you know you have to increase your monthly instalments to get out of debt.
Getting rid of debts is a struggle. Especially when there is always a chance of falling into persistent debt because of high interest rates.
Having your debt frozen while you pay off your actual debt is a great way to help yourself around this situation.
Therefore, I recommend that you use this approach to become debt-free. Feel free to reach out if you have any need for more debt advice. I’d love to help.