New regulations were brought in by the Financial Conduct Authority (FCA) in 2018 to provide more protection for credit card holders in persistent debt or at risk of financial difficulties.
The rules mean that your credit card issuer must get in touch with you if you’ve been in persistent debt for a while, or your card might even be suspended. If your card provider contacts you, this doesn’t mean you’ve done anything wrong, but your current repayments are costing you a lot in interest over a long period.
What is “persistent debt”?
Due to the way credit card interest charges and repayments work, it’s easy to let debt drag on and on. Although you can pay off as much as you like each month, you’re only obliged to make a small monthly repayment – typically 2-3% – while interest rates are commonly around 20% annually.
This means that if you borrowed £2,000 on a card charging a rate of 19.9% and only made the minimum repayment each month, it could take you a whopping 24 years to pay off the debt and cost you around £4,850. Because the minimum repayment is percentage-based, as your outstanding balance slowly gets smaller, so does your monthly repayment, and the debt drags on.
The term “persistent debt” refers to consistently paying more towards interest and fees than towards the original amount borrowed. According to the FCA, if this has been the case for at least 18 months, you’re in “persistent debt” and should be contacted by your credit card provider.
Once you’re considered in persistent debt, your credit card provider is legally required to contact you and explain the situation. They’re also required to do the following:
Ask you to increase the size of your repayments
Outline your other payment options
Warn you about the consequences of staying in persistent debt
Your credit card company might decide to increase the minimum monthly repayment, but it’s not necessarily under any obligation to increase your repayments or force you to get out of persistent debt, so it’s ultimately still your responsibility to fix it.
If you’re still in persistent debt 9 months later (or after 27 months of being in persistent debt), your credit card company will contact you a second time and encourage you to fix your debt situation.
After another 9 months (or after 36 months of being in persistent debt), your card provider will once again get in touch. At this point, it may offer you a repayment plan to pay off your debt within 3 to 4 years. That means you’ll effectively have a fixed-term personal loan from the card issuer. It should only suspend your card if it has a good reason for doing so.
However, if you can’t afford the new monthly repayments (which will likely be higher), your card provider might choose to reduce or write off the interest that’s been added to your balance. In this situation, your card will most likely be suspended, and you won’t be able to use it.
I’ve received a letter, but how can I get out of persistent debt?
Speak to your credit card provider. Your credit card company is legally obligated to let you know when you’re in persistent debt and also offer advice on how you can improve your situation. Depending on your provider, it may even agree to suspend any interest or fees on your card while you try to fix your debt or at least offer you an affordable repayment plan.
Increase the size of your repayments. If you can afford it, you should immediately increase the size of your monthly card repayments and aim to pay off as much of your balance as you can each month. Alternatively (or in addition), you could make extra one-off payments as and when you can – it all helps, and you don’t have to wait until the next payment is due.
Switch to fixed repayments. At the very least, you should repay a fixed sum rather than a percentage-based sum, because a percentage-based sum will reduce as your outstanding balance decreases, making your debt last longer.
Stop using the credit card. If you’re in persistent debt, you should stop using your card to make any other purchases going forward to avoid increasing the size of your debt.
Draw up a budget. If you’re struggling to increase the size of your repayments, it’s worth taking a look at your financial activity and expenses to see if there’s anywhere you can save money. Any spare cash you can save by changing your daily spending habits can then be put towards repaying your credit card debt.
What if I can’t afford to increase my repayments?
If you can’t afford to commit to a schedule of increased repayments, then aim to make one-off additional payments whenever you have spare cash.
If you can’t afford to make any larger repayments on your credit card, you should first talk to your credit card provider to discuss your options. You could also contact MoneyHelper for free and impartial financial advice.
You can also consider debt consolidation, which involves taking out a new loan or credit account to pay off your existing debt. If you find a loan with better rates and terms, debt consolidation can help make your existing debt more manageable and easier to pay off.
What happens if I do nothing about my debt?
While you aren’t legally required to fix your persistent debt, your credit card company will continue to contact you, and you’ll also be making your existing debt situation worse.
If your debt becomes too unmanageable, you may be forced to declare bankruptcy or take out an individual voluntary agreement (IVA) or debt relief order, all of which will significantly impact your credit score and future finances.
As a last resort, your credit card company may suspend or cancel your card to ensure your debt doesn’t get any larger.
Bottom line
If you have a credit card, it’s always best to pay off more than the minimum monthly repayment if you can. The more you can pay off each month, the quicker you’ll clear your balance and the less interest you’ll pay. If you’re struggling to pay off your credit card debt, speak to your provider as soon as possible. Your provider should be able to help you come up with a repayment plan to help you clear your debt faster.
Finder survey: How stressed do we feel about the thought of being in debt?
Response
Male
Female
Somewhat stressed
45.11%
40.06%
Very stressed
23.91%
38.7%
Not very stressed
17.93%
14.61%
Not stressed at all
13.04%
6.63%
Source: Finder survey by Censuswide of 1032 Brits, December 2023
Frequently asked questions
Your credit card provider will contact you if you’re considered in “persistent debt”, that is, you’ve paid more in interest and fees on your credit card repayments than your actual debt over the last 18 months. If you think you may already be in persistent debt or potentially on the way, you should contact your credit card company.
There is no minimum amount of debt you need to have to be considered in “persistent debt”. It simply means you have been paying more in interest and fees for 18 months than you have paying off your underlying credit balance.
Potentially, yes. Your credit card company may cancel or suspend your card if you fail to improve your persistent debt situation. This is generally a last resort to prevent your existing debt from getting bigger.
That depends. If you are still meeting your minimum monthly repayments and haven’t missed any, this won’t be reflected on your credit report. However, if you only make the minimum repayments over a long period, your debt will grow, and this can negatively impact your credit score. Missed repayments also hurt your credit score.
Yes, if you’ve got out of persistent debt, you should be able to borrow again. But lenders will still look at your credit report to assess how much debt you already have before they’ll consider giving you more.
Your credit card is more likely to be suspended if you don’t respond to any letters you receive from your card provider or if you tell your provider you won’t make increased payments. Your card could also be suspended if your provider is concerned about your ability to repay the amount owed or if interest has been waived.
FCA rules mean that if you have been in persistent debt for 18 months, your credit card provider must write to you to suggest that you increase your repayments. If you stay in persistent debt, you’ll receive another letter 9 months later to, again, encourage you to increase your repayments. After another 9 months, your lender must get in touch again to discuss your options, and it might consider suspending your account.
Sources
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Tom Stelzer is a writer for Finder specialising in personal finance, including loans and credit, as well as small business and business loans. He has previously worked as a freelance writer covering entertainment, culture and football for publications like FourFourTwo and Man of Many. He has a Master of Media Arts and Production and Bachelor of Communications in Journalism from the University of Technology Sydney.
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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time.
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