You can ask your credit card provider to freeze the interest you are being charged to help you clear your debt more quickly. Freezing interest on your credit card can also help you reassess your finances and give you time to build a plan to pay it back. There is a government programme in place – the Debt Respite Scheme – to help people in problem debt freeze interest, but it is also something you can propose to your creditors on your own. In this article we explain who can freeze the interest on their credit card, how it is done and what effect it can have on your debt and future borrowing.
What does it mean to freeze interest on a credit card?
Freezing interest on your credit card means your outstanding balance will no longer grow, unless you continue to make purchases. Usually, interest is applied to your credit card balance every 56 days, or longer if you have a limited-time interest-free period. You can avoid this by clearing the balance in full every month. If you do not, you will need to pay interest.
You will still need to make at least the minimum payment each month, even if the interest on your balance is frozen. However, the amount you pay will go solely towards paying off your debt, rather than towards any interest charges. This means that you will pay your debt off more quickly.
If you are unable to make the minimum payment on your credit card – whether your interest has been frozen or not – the provider will usually take action. This could mean:
- charging a late fee
- ending a promotional offer early
- reporting the late payment to credit reference agencies
- charging a higher APR on that amount
- closing your account
- employing a debt collection agency
- taking you to court
We explain more in our article ‘What happens if I don’t pay off my credit card?’.
Can you freeze interest on a credit card?
Anyone can ask to freeze the interest on their credit card, the challenge is getting your provider to agree. The Debt Respite Scheme ensures people in certain situations can freeze their interest for a limited time, but you may also be able to do so outside of the programme. The FCA (Financial Conduct Authority), which regulates credit card providers, requires that customers are treated fairly and that struggling borrowers are engaged with. While they are not required to forgive debt or forgo charges, it is in their interest to ensure you pay back your debt without missing payments or defaulting.
Many credit card providers sign up for voluntary agreements designed to limit the chance of borrowers falling into problem debt that they cannot escape from. These basic standards of lending can protect you if you are struggling to repay your debt and many credit card companies will have a policy in place to assist customers in need. Part of this may be freezing the interest on your credit card for a limited period of time without you needing to pay back that interest in the future.
How to freeze interest on a credit card
If you are struggling with debt, the first step to freezing the interest on your credit card is engaging with your credit card provider. The earlier you can do this, the smaller the problem that needs to be solved. There are very few disadvantages to freezing the interest on your debt, so it is better to reach out sooner rather than later. The easiest way to do this is to call the number on the back of your card, though most providers also have online chat facilities. Alternatively, you could reach out for free, independent debt advice. Some of the organisations listed in our ‘Where to get free debt advice’ article can even negotiate with creditors on your behalf and enrol you in the government's Debt Respite Scheme.
The credit card provider will likely need to know as many details about your financial situation as possible. You may need to back up this information with documentation, such as bank statements, bills, payslips or letters from other lenders. A well-constructed budget can also be a good way of explaining your financial troubles to the credit card company.
If the provider is persuaded that your financial situation puts you at risk of defaulting on your debt, it may agree to freeze the interest on your credit card, but there are no guarantees. There are a range of different options that it may suggest instead, such as a payment holiday or a reduced minimum payment. If it does go down the route of freezing the interest on your credit card, your balance will stop growing, but you will still need to make the minimum payment each month. What you pay will wholly go towards clearing the balance, whereas previously a percentage of your payment would have been paid towards the growing interest on your debt.
Will a lender agree to freeze interest on a credit card?
This ultimately depends on the company, what policies it has in place for managing customers’ financial difficulties and what industry codes of practice it has signed up to. Most UK lenders are signed up to either the Lending Standards Board Lending Code or the Credit Services Association Code of Practice, both of which commit a credit card provider to ensure they offer appropriate action to help a customer in financial distress. If you are in financial difficulty and your credit card provider is signed up to either code, it will likely stop adding interest to your balance, so long as you can prove you are in sufficient financial distress. However, it is not guaranteed and, if the lender does agree, it will only be for a limited time.
'Fair' interest and charges
One important rule that all FCA-regulated lenders are bound by is that a lender can only apply interest and charges that are 'fair'. Usually this means fees that are part of the credit agreement you accepted when you took out the card.
An unfair charge could be:
- Paying a higher rate on your balance because you missed a payment
- Continuing to charge you interest when you are in financial difficulty without taking alternative steps to help
- Passing on the cost of services that have not been used or that are unreasonable, such as fees for a solicitor who was not used or overcharging for sending a letter
Will your credit score go down if you freeze interest on a credit card?
Your credit score will likely suffer if you miss a payment on your credit card, but not if your interest is frozen. Your credit score is a rating that shows you how likely you are to be accepted for certain credit cards, mortgages and loans and is based on the information in your credit file. Making one payment a day or so late is not always reported to credit agencies, but regular payments that are a month behind or not paid at all will be reported to the main credit bureaus. This means a note will be made on your credit file that will last for seven years. This will reduce your credit score, though the effect will lessen as time goes on.
By agreeing to freeze the interest on your credit card you can focus on making at least the minimum payment and getting out of debt. This should help grow your credit score and improve your future borrowing options.
If you want to learn more about growing your credit score, read our article 'How to improve your credit score quickly'.
How to freeze interest on a credit card through the Debt Respite Scheme
Also known as Breathing Space, this is a government scheme designed to help people who live in England or Wales manage problem debt. There is a similar scheme in Scotland called the Statutory Moratorium. It allows borrowers to freeze interest and charges on qualifying debts for up to 60 days. It also pauses any debt collection or enforcement action from creditors.
The Debt Respite Scheme covers personal loans, credit cards and other forms of borrowing, but can only be used once every 12 months. Applications must be made through a debt advisor who will check in on your progress at around the halfway point. We explain how to get in touch with debt experts in our article 'Where to get free debt advice'.
You can read more about the Debt Respite Scheme in our article 'What you need to know about the Breathing Space debt respite scheme'.
