What to do if you’ve received a “persistent debt” letter or your card has been suspended

Credit cards are changing, with card issuers now required to discourage cardholders from making only minimum repayments over long periods.

If your credit card issuer has written you a letter (or sent you an email) regarding persistent debt on your credit card, or if your credit card has been suspended due to persistent debt, it’s probably because of new regulations brought in by the Financial Conduct Authority (FCA). This doesn’t mean you’ve done anything wrong, just that your current repayments are costing you a lot in interest, over a long period of time.

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.

Persistent debt is often caused by customers only making the minimum monthly payment on their credit card over a long period of time.

What happens when you enter into persistent debt?

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 may opt to increase the minimum monthly repayment, but it is 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, your credit card company will contact you a second time and encourage you to fix your debt situation.

After another 9 months (18 months from the first contact), it’ll once again get in touch and will likely suspend the card. At this point it may offer you a repayment plan to pay off your debt within 3 to 4 years. That means you’ll basically have a fixed-term personal loan from the card issuer. Your monthly repayments may increase and you won’t be able to use the card.

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 it. Depending on your provider, they 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 so that you don’t increase the size of your debt.
  • Develop 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 the Money Advice Service 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 have significant impacts on your credit score and future finances.

As a last resort, your credit card company may suspend or cancel your card to ensure that your debt doesn’t get any larger.

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