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Are you in ‘persistent’ debt with your credit cards?


Hundreds of credit cardholders across the UK may have received a letter from their credit card company, informing them that they are in “persistent debt” with their credit card.

Persistent debt is defined as having a balance owed to your credit card, where for 18 months you have paid more in interest and fees than you have to reduce the balance owed.

How do you get into persistent debt?

The easiest way to find yourself in persistent debt is if you are only making the minimum payments to your credit card each month.

Minimum payments are usually one of three options that your credit card provider will provide you with when you choose how you want to repay it each month.

The other two options are to either clear the balance owed each month or to make a fixed sum payment.

Why are minimum payments not a good way to pay your credit card?

Making the minimum payment on your credit card isn’t a good way to repay your credit card, quite simply, because you’re paying the least you can each month.

This, in reality, means you are just paying the interest owed on your balance, with only a small amount going towards reducing the balance you owe.

Although, making a minimum payment is okay periodically, just making minimum payments each month sends a message to your lenders that you may be struggling to repay your debt, even if you are not.

After a while, because of new guidance that has been issued to credit card companies by the Financial Conduct Authority (FCA), this may have consequences and see your credit rating being damaged.

The FCA, the UK’s Financial Regulator, has told credit card companies that after 18 months of someone being in persistent debt, they must write to that customer and encourage them to increase the amount they are paying.

They then need to write to them again after 27 months, if they are still in persistent debt and remind them that they should take steps to get out of “persistent debt”, by increasing the payments they are making each month.

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What happens after 36 months?

If after 36 months they are still only making minimum payments, or not paying enough so they are paying more towards reducing their debts than they are in interest and fees, the credit card company may take steps to help them.

This includes:

  • Reducing the interest they are paying;
  • Reducing their credit limit;
  • Increasing the minimum payments they must pay each month; or
  • Offering them another form of borrowing that is more suitable for them, such as a personal loan.

How long does it take to repay a credit card?

The problem with credit cards is although they are a useful form of credit, especially for paying deposits and making online purchases, or to have in emergencies, over the long term they are also an expensive form of credit.

This is true even where a credit card has low-interest rates, as the option of making only minimum payments means repaying the balance can take years, as the majority of the payment will go towards paying interest and fees, meaning the debt will not be reducing.

To see how long repaying a credit card will take, if only the minimum payments are made each month,  you can use a credit card repayment calculator,  such as the one provided by Which (access here).

So for example, where a credit card has a balance of £2,000 and an APR of 9.99%, if minimum payment of £20 per month is made (1% of the balance) it will take 16 years and 9 months to repay the debt. The cost of the credit will also be £2,014.72 in interest.

If the payment is increased by just £20 each month, then the full debt will be repaid in five years and four months, almost 10 years earlier and the cost of credit will be £561.02 in interest.

How to get out of persistent debt

The easiest way to get out of persistent debt is, therefore, just to increase the monthly payments each month.  You can do this by contacting your lender or, if you have online banking, by going online and choosing to make a fixed sum payment each month, rather than the minimum payment.

However, if you are not able to do this, it may be that your persistent debt is actually a problem debt.

That is one that you are struggling to repay.

If this is the case, the first thing you should do it complete an income and expenditure (see our Budget  Calculator) to see whether you can afford to increase your monthly payments, and also use a Credit Card Repayment calculator to see how long it will take you to repay your debt.

If you are not able to repay your debt within a reasonable period of time and cannot increase your payments you should seek money advice and explore all options open to you.

If you are in persistent debt with your credit card and want free, confidential money advice, contact a Creditfix Money Advisor today by calling 0808 2234 102

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