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New 12-month reduced payment plan for households temporarily affected by covid

Our Covid Payment Plan (CVPP) aims to fill the gap between existing long-term debt solutions and current circumstances

People who have accumulated debts as a result of coronavirus can now register with us to gain access to a brand-new, short-term payment plan.

The Covid Payment Plan (CVPP) is aimed at people who just need a bit more time and a bit more forbearance to get back to resuming full payments on debts built up during the pandemic. Plans will go live from mid-November.

The new plan is just one piece in the jigsaw of measures needed – specifically aimed at those expecting to face only short-term difficulty. Other debt solutions remain more appropriate for those in more severe difficulty that is unlikely to be resolved quickly, and public policy has an increasing role to play in targeting more support to those in greatest need.

We have developed the CVPP in consultation with HM Treasury and is supported by the Money and Pensions Service – which will be signposting potentially eligible consumers to it via its online Money Navigator assessment tool.

We have also consulted widely with the lending industry and other creditors while developing the new plan.

We estimate that among those who have seen their finances affected by coronavirus, nearly two million were not in financial difficulty before the pandemic but are now in a situation where they cannot meet their full contractual commitments (see notes to editors).

This is the group of people who may benefit from using the CVPP, which provides a year-long window within which they can make reduced payments, allowing them a gradual transition to resuming full payments or, if their circumstances change for the worse, allow them an easier transition into a longer-term debt solution.

Our CEO Phil Andrew commented:

“What’s driven our approach is the recognition that, within our own toolbox, 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.”

The Economic Secretary to the Treasury, John Glen MP, said:

“Reducing the long-term impact of coronavirus on people’s finances is crucial – that’s why we’ve delivered unprecedented support to protect jobs and livelihoods, most recently through our Winter Economy Plan.

"It’s important that people who are struggling with a temporary hit to their finances can access tailored support and so I welcome StepChange’s Covid Payment Plan, which will help people get back on to a stable financial footing in a shorter time frame.”

Craig Simmons, Head of Debt Policy and Strategy at the Money and Pensions Service (MaPS), said:

“It’s vital that people who are experiencing financial difficulty due to covid-19 get help right away so they can avoid money problems spiralling out of control later on, so we welcome new initiatives and services which will help people find a way forward.

"With some support measures coming to an end, people wanting to understand what this means for their finances can use the Money Navigator Tool on the Money Advice Service website. The tool highlights the areas to consider taking action most urgently and suggests where people can get tailored support, such as free and impartial debt advice and the new Covid Payment Plan being offered by StepChange.

“As we expect the need for debt advice to rise by 60% over the next 18 months in response to the pandemic, MaPS is continuing to provide funding in England and support for the debt advice sector to ensure people can access expert support.”

More about our CVPP

While it can’t solve all the financial problems left in the wake of the disruption created by the pandemic, the CVPP is specifically designed to help a particular group of affected households, and reduce the chain of transmission between short-term covid-related financial problems and the risk of spiralling into long-term problem debt.

The CVPP sits alongside existing long-term debt solution and is not intended to replace them. It fills a gap in provision that the charity has identified to enable an orderly transition for people with multiple debts due to short-term financial disruption created by the pandemic, but whose future financial prospects remain positive.

Like the virus itself, financial problems tend to multiply, especially among households whose financial situation makes them vulnerable. Small debts can become bigger ones, and household finances that have been tipped out of balance by things like shorter working hours or higher costs are likely to face increased pressure as the employment support measures and temporary payment deferrals begin to be withdrawn, starting this month.

In line with our developing strategic focus on increasing its early intervention activities, aimed at helping to nip more debt problems in the bud before they worsen, the new product aims to offer a timely, pragmatic way forward for households who are financially optimistic but uncertain.

Many will never previously have experienced debt problems before. These are households who might otherwise try to struggle on alone, or without a holistic approach to all their debts might agree to individual lender repayment plans that may prove to be cumulatively unaffordable in practice.

In summary, the new CVPP works by:

  • Introducing a new 12-month reduced payments plan, from which people can scale back up to full payments or alternatively transition into longer-term debt solutions if their circumstances worsen or do not work out as they expect
  • Reducing the stress and lengthy process of dealing with multiple creditors. We will take one single payment from clients and distribute it among the creditors named in their plan
  • Being available, based on an eligibility assessment, to people who expect their situation to improve, and who can afford over a 12-month period to clear their arrears on priority debts and maintain a reasonable proportion of their contractual commitments on all their payments
  • Adopting a primarily digital approach and a shorter customer journey, compared to the full debt advice process, recognising that eligible households expect their financial situation to improve reasonably quickly, without requiring a typical long-term (5 years or more) debt solution

"Before the coronavirus pandemic, I had recently started working in a senior role at a large international company. However, in February - when I was only halfway through my six-month probation period - I was laid off just as the severity of the pandemic was emerging.

My mental health crumbled, but I decided to contact my creditors to find out what my options were. Luckily, I was able to access payment holidays fairly easily, which meant I could focus on finding another job. I've applied for over 300 jobs throughout the duration of lockdown and have had one virtual interview.

"As it stands, I now have a provisional job offer and I'm waiting to hear if I pass the security checks required for the role, which are pretty vigorous and intimidating. I feel like I'm teetering on the edge because I don't know how I'm going to deal with my finances if I don't have a new source of income soon. My payment holidays are ending in early December, so if this job offer falls through, I'll suddenly need to resume making payments towards my debts without having the income the income to do so.

"Some days I feel like I'm unable to function. Without help, it could take years for me to recover mentally and financially from the impact of the pandemic. I would really like to draw a line under the additional debt I have accrued during the lockdown period and move on with my life as best I can." - Alex, London (this name has been changed for our client's privacy).

  1. We conducted national polling in September that found among people whose financial situation has been negatively affected by coronavirus, 1.85 million were able to meet their financial commitments before the pandemic but have since fallen behind on essential bills or credit repayments. Polling was conducted by YouGov plc. Total sample size was 3,297 adults. Fieldwork was undertaken between 7th - 9th September 2020
  2. More information about the Covid Payment Plan (CVPP) is available here
  3. Our CEO, Phil Andrew, has written a blog outlining how CVPP can help those in financial difficulty due to covid
  4. You can view an animated, shareable explainer about CVPP here
  5. The Money and Pensions Service’s Money Navigator Tool, which signposts eligible customers to the CVPP can be found here

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