Step 4 Dealing with your non-priority debts


Debts have two parts – the money borrowed and the interest. Interest is part of the charge for lending you the money. Debts have interest added in different ways.

  • Fixed-term loans. Interest is worked out at the beginning of your loan and included in your monthly payments. Sometimes, if you miss a payment, extra interest called ‘default interest’ is charged. Ask the creditor to freeze any default interest they are adding.
  • Revolving credit agreements. These cover credit cards, bank overdrafts and some loan agreements. Interest is added to your account daily or monthly. This means your debt grows unless the payments you make are higher than the interest being added. The company may also change the interest rates and add extra charges. Ask the creditor to freeze all the interest and charges.
  • Important:

    still paying interest?

    Your debt will continue to grow if your new monthly offer of payment to the creditor is less than the interest being added. Ask the creditor to stop charging interest. Ask for regular statements and check them. When a creditor accepts your offer, if they do not say they have frozen the interest, you should check this with them again. The creditor may also try to add administration and late-payment charges. Ask them not to charge these (‘waive’ them).

  • Late-payment interest. In the case of business-to-business transactions (involving sole traders, partnerships or limited companies), the creditor can claim late-payment interest under the Late Payment of Commercial Debts (Interest) Act 1998. Contact us for advice.

To find out if interest is still being added to any of your debts, check your agreement.

What if a creditor refuses to freeze the interest?

Write to them again. If any of your other creditors have agreed to freeze the interest, point this out.

What if a creditor refuses my offer?