How StepChange’s Covid Payment Plan could help you

If you’re having difficulty dealing with debts built up due to the Coronavirus pandemic you may be able to benefit from a flexible payment plan designed by leading debt charity StepChange.

From November, eligible households dealing with short-term financial difficulties will be able to arrange a reduced payment plan for up to 12 months, to give them time and space to cover any bills they are having difficulty paying right now. 

Using the charity’s Covid Payment Plan (CVPP) scheme, you could be offered a simple way to pay back the money you owe towards commitments like energy bills, credit cards and mortgages, based on what you can afford.

StepChange has put together the CVPP scheme in consultation with HM Treasury and the government’s Money and Pensions Service. It will launch the scheme in November.

Explaining the idea behind the CVPP, StepChange Chief Executive Phil Andrew said:   

“Most of the existing solutions that we could provide are long-term strategies to enable people to tackle entrenched problem debt.  

“They were not designed to cope with the short, sharp, temporary debt shock that so many people have uniquely experienced due to the pandemic. 

“As firms now begin to draw back from the blanket emergency support that got us through the past few months, new strategies are needed. We hope that the CVPP will make a valuable contribution to the transition to recovery, both for households and for the wider economy.”

StepChange estimates that among those who have seen their finances hit by the pandemic, almost 2 million were not in financial difficulty before the outbreak. Those people are now sadly in a situation where they cannot pay their bills in full. 

How does the Covid Payment Plan work?

If you’re eligible, you’ll be able to make reduced payments towards your monthly bills, like credit cards or loans. The reduced payments will last for as long as you’re having to manage on a reduced income - up to a maximum of 12 months.

To start a plan you’ll need to tell StepChange, which organisations you owe money to, as well as your income and outgoings. This helps the charity to understand how much you can reasonably afford to repay on your CVPP.  

Types of payments that can form part of a plan include:

• Catalogue accounts

• Council tax

• Credit cards

• Electricity supply

• Gas supply

• Payday loans

• Personal loans

• Store cards

• Water bills

Full details on the kinds of debts that can be included in a CVPP.

Once your plan begins you’ll make one monthly payment directly to StepChange. The charity will then distribute that money to your creditors.

If you take part in a CVPP, StepChange will ask your creditors to freeze all interest and charges on your debts for up to 12 months. While creditors do not have to agree to do this, the charity says that most organisations they deal with are happy to work with them to do this.

This should help you give you more breathing space to deal with your debts.

The plan also provides the added flexibility that should your income go up while your CVPP is in place, you can choose to increase your monthly payments. You can also  settle your bills in full and close your CVPP early if you are able to do that. 

It’s important that you do not increase your borrowing while you’re on a CVPP to maximise the plan’s effectiveness in helping you to clear your debts.

Who can start a Covid Payment Plan?

To be eligible for the CVPP you need to meet all of the following conditions: 

• You live in the UK

• Your household income has been reduced as a result of Coronavirus

• You think there is a reasonable chance that your income will recover within the next 12 months

• You think that you’ll be able to repay all missed priority payments within 12 months or have already made arrangements to do so

• You think you’ll be able to repay a reasonable amount of what would be your normal monthly payments to your unsecured creditors every month throughout the duration of the plan

• You have not missed payments as part of a separate debt management plan in the last 12 months

Is a Covid Payment Plan right for you?

Before applying for a CVPP there are few things you’ll need to consider, as getting on to a debt repayment plan like this will have some consequences.

First off, you’ll need to be confident that you’ll be able to make the monthly payment agreed at the start of your plan. This is because you will not be able to miss or reduce your monthly payment.

If your financial situation deteriorates further and you’re unable to make a payment towards your plan, you’ll need to get in touch with StepChange as soon as possible. If this happens, your plan will need to close.

StepChange has said that it will review your situation with you and aim to find a different way to help you reduce your debts. 

The charity has also said that a CVPP is not a suitable solution for you if you have a County Court Judgement (CCJ) filed against you. If you’re in this situation, StepChange recommends that you get in touch for debt advice instead. 

Debts that cannot be covered by a CVPP

It’s also key to understand that there are certain types of debts which cannot be included as part of a CVPP.

These include: 

• Mortgage payments and mortgage arrears

• Rent and rent arrears

• Secured loans

• Overdrafts

• Hire purchases and hire purchase arrears

• Benefit overpayment repayments

• Fines

• Taxes

• County Court Judgements

• Child maintenance arrears

• Insurance arrears

• TV licence arrears

Impact on your credit rating

Your credit file is a report card that shows potential lenders your financial history. Banks, credit card companies and mortgage lenders use it to determine how likely you are to repay any debts.

While you’re on a CVPP your credit file will change to take this into account. In the short-term your credit rating is likely to get worse.

However, your record should show that you’re making reduced payments as part of a payment plan, rather than simply failing to make payments. 

The quicker you’re able to clear your debt, the easier it will be to rebuild your credit rating. StepChange will give you tips on how to improve your credit rating, as you come to the end of your CVPP.

How to apply for a Covid Payment Plan

To check whether a CVPP is right for you, StepChange has created a free online eligibility tool. 

Fill in your details, and if you’re eligible, StepChange will contact you via email in early November when applications open.

 The charity will then ask you for details about your financial situation. If you’re suitable, then you’ll be able to sign up for the CVPP straight away.

If you’re dealing with Covid-related financial problems, the Money Advice Service offers a Money Navigator Tool which helps you identify the areas where you may want to take action most urgently.

The tool also points users towards organisations that can offer tailored support, including impartial debt advice alongside StepChange’s CVPP scheme.

What help is available if you’re dealing with long-term debt problems?

Remember, a CVPP is only really suitable for those who will be able to pay what StepChange describes as a “reasonable” amount of their regular monthly payments.

 If you’re not eligible to take part in a StepChange Covid Payment Plan, there are other avenues you may want to explore for help and support.

StepChange advises those with long-term debts or other money worries to contact their creditors as soon as possible. The charity says that you should keep your creditors up to date with any changes to your household’s circumstances so they can help you and discuss the options they can offer.

As an experienced debt charity, StepChange offers advice on a range of options for dealing with financial difficulty. You can find out what other options may be available to you by completing the charity’s online questionnaire.