Token Payments UK: How to Pay Less When You Can’t Afford Your Debts

If paying your debts in full would mean missing rent, council tax, food or energy, a token payment lets you pay a small, affordable amount instead. The FCA’s rules name it as something lenders and collectors should accept for a reasonable period, and when you keep to an agreed arrangement they must stop the balance rising.

This is general information about UK debts. It is not personal financial advice or regulated debt advice.

What token payments are for

Prefer to watch first? This video covers the FCA rules, how much to offer, and what to put in your letter.

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What a token payment is

A token payment is a small, affordable amount paid to a creditor when you cannot afford the normal payment. It is not what the creditor asks for. It is what your budget shows is genuinely left once your priority bills and essential living costs are paid.

It keeps you in touch with the creditor, shows you are not ignoring the debt, and avoids promising money you do not have.

What the FCA rules say

Lenders and debt collectors must treat customers in or approaching arrears with “forbearance and due consideration” (CONC 7.3.4R). The FCA lists examples, and token payments are one of them:

In plain English: if your budget shows that the normal payment would leave you short for rent, council tax, food or bills, the rules expect the firm to consider a token payment. “Demonstrates” means you show it, usually with your budget.

The FCA also says these are examples, not a complete list, so the rules do not force a firm to accept a particular figure (CONC 7.3.5AG).

Can a creditor refuse a token payment?

A creditor can ask questions, ask for your budget, or come back with a different figure. What it cannot do is refuse to engage:

The FCA also says a firm is likely to break the rules where it “does not allow for alternative, affordable payment amounts” when the customer “makes a reasonable proposal for repaying the debt” (CONC 7.3.8G).

In plain English: if your offer comes from an honest budget, the firm has to deal with it properly. If it refuses without looking at your figures, keep the letter: it may be the basis of a complaint.

Will interest and charges be frozen?

This is the rule most guides miss. Since 4 November 2024 it has been a rule, not a suggestion:

In plain English: once the firm has agreed an arrangement with you and you keep to it, your balance should not go up. If it does, ask the firm in writing why. Separately, the FCA lists stopping interest as an example of forbearance where someone “is only able to make token repayments” and the debt “would continue to rise” (CONC 7.3.5G(1)). So ask for interest and charges to be frozen in your first letter, and ask the firm to confirm it in writing.

Who really pays

While interest and charges are still being added, part or all of a small payment can go on them, and the balance may barely move. The FCA’s own wording describes this: the level of debt “would continue to rise if interest and charges continue to be applied”. That is why the rules tie token payments to freezing interest. Once interest is frozen, every pound you pay comes off what you owe.

How much should you offer?

There is no set figure. Your offer should come from your budget:

1. Add up your monthly income.
2. Take off priority bills and essential living costs: rent or mortgage, council tax, energy, water, food, travel, childcare and the insurance you need.
3. What is left is what you can share between your non-priority creditors. If you owe several, share it fairly in proportion to what each is owed.

Example: Claire’s loan payment is £155 a month. She loses her job. After rent, council tax, food, energy and travel she has £20 left for four unsecured creditors, so she offers each £5 a month. For some people the figure is £1; for some it is nothing at all.

The rules back this up. A firm must take all reasonable steps to make sure a repayment arrangement is sustainable (CONC 7.3.5BR), and “a repayment arrangement is unlikely to be sustainable if it has the result that the customer cannot meet their priority debts and essential living expenses” (CONC 7.3.5CG). If the firm assesses your income and expenditure, it must do so “in an objective manner” (CONC 7.3.5DR), and it may use the Standard Financial Statement spending guidelines (CONC 7.3.5EG).

Breathing room while you work out your plan

If you tell a creditor you are working out a repayment plan, it has to ease off for a while:

In plain English: the FCA says this should generally be 30 days, with a further 30 days if you can show progress (CONC 7.3.12G). It applies when you are doing the plan yourself, not only when someone does it for you. So if you need time to do your budget, write and say so.

The token payment method, step by step

1. Check where your income is paid. If your wages go into an account with a bank you also owe money to, read your account terms: banks can often take money from your current account to cover a debt you owe them. Consider having your income paid into an account with a bank you do not owe.
2. Pay your priority bills first. Rent or mortgage, council tax, energy, water and food come before any unsecured debt.
3. Do your budget. Use the free Budget Planner and save the summary as a PDF to send with your letter.
4. Write to each creditor. Use the letter below. Email gives you a dated record; if you post it, keep a copy and proof of postage. If a creditor asks you to call, you can still reply in writing.
5. Start paying what you offered, as long as you have the right payment details and the amount is affordable. Never miss a priority bill to make a token payment.
6. Send your Budget Planner summary, not the creditor’s form. If a creditor sends its own income and expenditure form, you do not usually have to use it. The FCA lets firms use “the Standard Financial Statement or an equivalent tool” (CONC 7.3.5EG): what matters is that your figures are accurate and complete. Your Budget Planner summary shows your income, priority bills, essential spending and what is left, and you can send the same one to every creditor. If the firm makes its own assessment, ask for a copy (CONC 7.3.7AG(4)).
7. Get the arrangement confirmed in writing: the amount, how often, when it will be reviewed, whether interest and charges are frozen, and how it will show on your credit file. The FCA says firms should give you clear information on how any support affects your balance and how it is reported to your credit file (CONC 7.3.13AG).
8. Deal with reviews calmly (see how long token payments can last).

Will token payments affect your credit file?

Yes, usually. A token payment is less than your agreement says you should pay, so the creditor can report it on your credit file as arrears, an arrangement to pay or a default. Token payments do not stop a default.

That does not make them the wrong choice. Falling behind on rent, council tax or energy has more serious consequences than a mark on your credit file. Ask the firm how the arrangement will be reported before you agree (CONC 7.3.13AG), and check your credit file a few weeks later.

Old debts: check the six years first

On a debt that is not yet statute-barred, any payment, including a token payment, restarts the time limit (Limitation Act 1980, section 29(5)). Once a debt is statute-barred, a later payment does not bring it back:

In plain English: if you have not paid or written to the creditor about a debt for nearly six years (five in Scotland), check the dates before you offer anything. Our guide to statute-barred debt explains how.

Pressure to pay more

If a creditor or collector pushes back, the rules set limits:

A firm also “must not threaten to commence court action” to pressurise you “to pay more than they can reasonably afford” (CONC 7.3.18R).

In plain English: write back calmly and explain that your offer is what is left after your priority bills and essential living costs. Keep copies of everything, including any letter that pressures you. If a firm ignores your budget or keeps pushing, that is grounds for a complaint.

What to keep copies of

• your budget;
• your letters and their replies;
• proof of postage;
• payment records;
• the confirmed arrangement;
• any review letters.

How long can token payments last?

There is no fixed limit. The FCA’s wording is “a reasonable period of time”, and it depends on your circumstances, not a calendar. A short gap between jobs might mean a few months. A long illness or a permanent drop in income might mean years, reviewed along the way.

The firm must take reasonable steps to make sure the forbearance stays appropriate (CONC 7.3.5IR). The FCA says this may include “reviews at appropriate intervals” (CONC 7.3.5JG). When a review comes:

• Nothing has changed: say so in writing, with an updated budget, and ask for the arrangement to continue.
• Things have improved: offer a higher figure from your new budget, not the firm’s requested figure.
• Things have got worse: explain in writing and offer what your budget now shows, even if that is £1 or nothing for now.

In plain English: a review is a check of the numbers, not the end of the arrangement.

When token payments are not enough

Token payments buy time. They do not clear the debt quickly, and with several creditors the letters, replies and reviews add up. If you owe several creditors, one of them refuses, or the balances are still rising, it helps to look at the whole picture rather than one debt at a time.

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