What you need to know about persistent debt and how you can reduce the cost of your credit.
What is persistent debt?
The Financial Conduct Authority (FCA) defines persistent debt as when you are paying more in interest, fees and charges than you are paying off your credit or store card balance, over a period of 18 months or longer.
Essentially this means, without increasing your payments, it could take several years and cost you more in interest and charges, before you’ll repay your balance.
Persistent debt mainly applies to credit or store cards because your payments can be relatively flexible.
How to reduce the cost of your credit card
Paying more will help
When you get your statement, you’ll see that you need to make a minimum payment by a set date. You should pay this on time to avoid fees or lose any promotional interest rates. It could also damage your credit score if you miss any payments.
It’s good to make any extra payments you can, but we understand you may not be able to pay more, so you don’t have to until you’re able to − just pay the minimum every month for now. But this is an expensive way to borrow, and you’ll be paying more in the long run.
If you continue to pay more in interest, fees and charges than off your balance for 36 months, we’ll get in touch and let you know how much to repay.
Why paying more will help
Here’s an example based on a balance of £3,000 with an effective interest rate of 24%.
This example assumes that you don’t use your credit card, no additional fees or charges are incurred, and the interest rate doesn’t change. The minimum payment is calculated at 1% of the outstanding balance, plus standard interest, fees and charges.
Ways to pay your credit card
There are lots of different ways to make the monthly payments to your credit card and stay in control.
Using a budget planner may help you work out how much you can afford to pay.
You need to pay at least the minimum payment shown on your statement every month.
If you are in persistent debt and are on a recommended payment plan, you can also set up this payment amount by Direct Debit, if this helps.
If you can't afford to repay more
Paying more than the minimum each month reduces the interest you'll pay. If you’re worried, you don’t need to wait for us to get in touch. We’re here to talk about any money worries you may have and to help you to find practical ways to deal with them. We usually find that the sooner you let us know there’s a problem, the easier it is to deal with it together.
Free independent help and advice
Get free advice and support with money worries:
Persistent debt - FAQs
We'll write to you:
- If you've paid more towards interest, fees and charges than on repaying your credit card balance, for a period of 18 months or more. This letter will include information and tips on repaying your balance sooner to cut your borrowing costs.
- 9 months after that, we’ll let you know if you’re on track and are paying more off your balance than in interest, fees and charges. If not, we’ll explain what to do and what happens next.
- If you're still paying more in interest, fees and charges than off your balance at 36 months, we'll let you know how much to repay each month.
We may send reminders and suggestions in between, if we think it might help you.
Any action we take is aimed at helping you to cut your borrowing costs and repay your balance more quickly.
If your account has been in persistent debt for three years, a recommended payment amount will start to feature on your monthly statements.
By paying this amount each month, it will help you to repay your balance more quickly.
The recommended payment amount will include your minimum payment, any overdue payments, and will take into account if your card is still being used. Therefore, the amount may vary each month, so make sure you keep an eye on your statements.
If your account has been in persistent debt for three or more years, and you are not paying the recommended monthly payment, you may lose the ability to make further transactions with your credit card. This is to help you make progress with repaying your balance.
If you need your credit card for essential living expenses, get in touch so we can find a way to help.
Having an account in persistent debt doesn’t directly affect your credit score, but missing payments or making late payments could.
If you’re worried about your money or repaying your balance, please get in touch. We’ll explain all your options and help you find a way forward.