Why make token £1 payments?

[Deleted User]

What is the advantage of making token £1 payments towards your debts versus making no payments? Do the lenders deal with you differently if you make token payments? I've read through all the National Debtline guidance but it doesn't say why one might choose to do this. :huh:

glentoran99

shows willingness to deal with your debts and not just ignore them, If you ignore them they might proceed through the stages to get a CCJ

Jacko_amz

Has above and also it gives you a chance to get your finances in order so then you can increase it when able to

xHannahx

It shows intent and that your ignoring them. The collection companies are more likely to leave you alone for longer if they are receiving a token payment than nothing at all.

MakeAChange_2

it will put further action on hold, just think if you did the £1 payments for a while and then you suddenly had a larger income you could deal with debts and get rid of them, rather than ignoring them, and getting CCJ'S (as i did).

sourcrates

[Deleted User] wrote:

What is the advantage of making token £1 payments towards your debts versus making no payments? Do the lenders deal with you differently if you make token payments? I've read through all the National Debtline guidance but it doesn't say why one might choose to do this. :huh:

Hi,


It really depends how many debts you have, to whom, and for how much.
For instance, original creditors rarely take legal action on consumer debts, only exceptions are if its a high value debt.

They are normally either assigned to a DCA for collection, or sold to a specialist debt collector, so it doesn't matter much if you pay the OC a pound, or nothing.

Collection agencies are another matter, they assume all rights and privileges from the OC on the sale of an account, so, depending on how much you owe, they can, and do, take action through the courts.

If your financial situation is so dire that you cant afford to pay anything, then so be it, even if a creditor takes you to court, the court would not make you pay more than you can afford, but paying, for example, £1 a month, beforehand may dissuade a creditor from taking legal action in the first place, so could save you a lot of unnecessary aggravation.

fatbelly

It's a good question. I'm very negative about token payments (with some rare exceptions). Obviously creditors like them and creditor-friendly organisations like them too.

Whether a creditor decides to take court action does not appear to be a logical thought process. Sometimes small debts see court action even though the debtor may have no way of having it enforced (no assets, no earnings, no savings, no property). Often large debts see NO court action even though the debtor may HAVE assets, earnings, savings, and property. I don't know of any evidence that token offers inhibit court action.

The fact is that most debts never see court action and, if left alone, go statute barred after 6 years (5 in Scotland). Token payments stop this process without paying off the debt in a reasonable timescale.

If you can't afford to pay your debts then it may be a better strategy to consider insolvency, or at least to have that as a fall-back position

Some further thoughts, and I'm really thinking about consumer credit debts here: a token payment strategy might even increase your chances of facing court action. If a creditor or a debt buyer is going to decide to take action on a selection of its debts it surely should take a commercial decision on whether it is going to get a return on its spending. The more it knows about whether it can enforce a court judgement the more likely that is. Now in order to get a token payment agreement you are going to have to send (probably every 6 months) a financial statement. This should show if you are employed (attachment to earnings), are paying a mortgage on a property (charging order) or have a car (bailiffs).

I recognise that my views are not shared across the debt advice community - in the past I have been encouraged to make token offers for my clients because that strategy ticks boxes for the contract holders who pay me. I now try to judge what is in the best interest of the client and steer them in that direction, though ultimately it's their decision.

[Deleted User]

That's interesting, so a legitimate strategy to deal with your debts is to just ignore them. I think this may be a good option for me as I have no income and do have assets to lose by going insolvent. I've also accepted the fact that my credit file is going to be beyond repair for at least 6 years due to defaults.

I had been thinking that £1 payments followed by full & final settlements might be the best approach but now I'm not so sure.

I do want to avoid court action and CCJs though like the other posters have mentioned.