A token payment arrangement, or token payment plan, is a way to help someone who may be experiencing a major financial change, be in debt, and needs a space or time to sort the matter out.

It is similar to the “breathing space” scheme many creditors are offering.

How Does a Token Payment Plan Work?

A token payment plan is just what is states and sounds like, you make token payments to the creditors you owe for a limited period of time. The token payments can be a low as £1 a month. It will all depend on what you can afford.

Most creditors will ask you to go through an income and expense form with them. This will outline all your monthly expenses, rent, mortgage, utilities, insurances, council tax, etc. From there they can determine what you may be able to afford as a token payment each month.

Who Can Use a Token Payment Plan?

Anyone experiencing debt issues or facing insolvency, can enter into a token payment plan.

Last year when the first lock down was issued, many people lost their jobs, or were on furlough, and had reductions in their income. They were eligible for this form of debt management.

How Long Does a Token Payment Plan Last?

The idea behind this form of debt management is that it is a short-term plan. Some creditors will allow you to make the token payments for six (6) months, then review your finances. Some now will allow the plan for a full 12 months or a year.

It may be after the six months if your circumstances have not improved, you may need to look at longer term debt management plans or possibly Bankruptcy or a Debt Relief Order.

Does a Token Payment Plan Affect My Credit Score?

Yes, anything outside of the agreed contractual payments to an account can have an affect on your credit score.

Your credit history has to be an accurate picture of how you have paid your accounts, so any payments less than the monthly payment, or minimum monthly payment, will impact your credit score.

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