Frozen interest on a DMP

Michelin

Can someone clarify exactly what this means please? Does it mean the interest rate is frozen while you pay off the debt or is the interest written off so you are only paying back the capital? Or is it that, say the debt with capital and interest stands at £2k for example, the amount stays at £2k and you pay this off rather than more interest being added?

Many thanks in advance.

Nihil

Michelin wrote: »

Can someone clarify exactly what this means please? Does it mean the interest rate is frozen while you pay off the debt or is the interest written off so you are only paying back the capital? Or is it that, say the debt with capital and interest stands at £2k for example, the amount stays at £2k and you pay this off rather than more interest being added?

Many thanks in advance.

It means no further interest is applied, no company will allow you to repay only capital unless they seriously screwed up. (e.g. rolled a loan without permission, or deposited a loan when they shouldn't have)

Some debt management companies may also insinuate that your interest will be frozen, when it won't be. I've seen quite a few cases where a company claims "we'll offer them £1 a month, and they'll have to accept it!".

The sad truth being, a 30/60 day hold will be placed on the account. Then the DMC will offer £1, which will be rejected as insufficient to freeze the balance and the DMC will pay it any way without informing the client.

Unless you're with step change or one of the free DMCs, double check everything they say.

Michelin

Ok so it's as I thought. If the interest is frozen when you start the DMP, the debt will not increase while the interest is frozen and all your payments decrease the total balance.

eyeopener2

One point though.

If you have a loan, all the outstanding interest and capital (ie the whole amount you were contracted to pay) will be the balance due.

Credit cards, the amount due will be frozen at that point, so no further interest will be applied.

However, this can change at any point so, if you up your payments or the bank just wants to be awkward the interest can be started again. Happens all the time.

Michelin

Thanks both for your responses. All my debt is with credit cards not loans or anything else so if the creditors do freeze the interest (and I know this is not always the case), that would enable me to actually make inroads into my debt.

eyeopener2

Do you have a Barclaycard? if so, if you pay them over 1% of the balance then you will get interest reinstated.

Michelin

eyeopener2 wrote: »

Do you have a Barclaycard? if so, if you pay them over 1% of the balance then you will get interest reinstated.

Yes I do - thanks for that eyeopener. I will remember that when working out payments.

Time_to_face_the_music

Unfortunately some creditors also like to reintroduce interest when you reach minimum payment levels. Or if they consider you are no longer in financial difficulty

Deep_In_Debt

Michelin wrote: »

Yes I do - thanks for that eyeopener. I will remember that when working out payments.

Yes, B/C have been adding interest to my account for a while. The interest rate is not massive and luckily I'm paying a fair bit to them so I am making headway but not as quickly as expected.

Good luck.