Dealing with loans, debts, and credit card arrears should be treated with extra caution. If anything goes out of the track, then there are negative consequences, and one of such circumstances is persistent debt. If debtors or credit card users have been making only minimum payments on credit cards for the last few months, then they might come across instances of persistent debt. If you are one of them and have heard from your credit card company about increasing the payment amount, you might be out of a clue.
Well, there are new FCA persistent debt rules that every customer needs to follow if they don’t want trouble. When you are making minimum payments to your credit card arrears, you are basically paying more towards charges and interest. And, you are neglecting the actual balance or credit card debt.
If you continue to pay a minimum amount for a stretch of 18 months then you have to suffer from the consequences of persistent debt. With Debt Advice find out more about persistent debt and how we can help you out.
What is Persistent Debt?
Well, persistent debt wasn’t there in the picture till 2018. The Financial Conduct Authority came up with persistent debt in 2018 to identify a definite situation. Debtors have been making minimum payments towards the credit card arrears. When they tend to pay minimum it contributes more to the interests and charges section of the credit card debt. And, it barely goes to the actual balance of the credit card.
However, persistent debt comes into play when any debtor has been behaving like that for 18 months in a row. Then, the debtor has to abide by the FCA persistent debt rules to eliminate risks from his or her financial way. An easy and non-controversial method is to pay more towards the credit card balance rather than charges and interests.
Are you in Persistent Debt?
Since you have found the answer to ‘What is persistent debt’, you might have been asking yourself whether you’re in persistent debt. If you have come across any letter about persistent debt from your credit card company, then you’re likely to deal with it. Well, there are different stages with persistent debt and its complications. Every credit card company has to follow the FCA persistent debt rules and send occasional letters to customers who are violating rules.
First Letter from the Credit Card Company
In case you’ve been making minimum payments towards your credit card’s existing debt for 18 months, then you’ll receive an informative letter. In this letter, the credit card company can’t use any abusive or threatening words to increase the amount of your monthly payments. They can only encourage you to increase the payment if you can afford it. No doubt, you will be on the safe side if you pay more than the minimum amount. Additionally, it will clear your credit card arrears quicker than ever.
After 9 Months
If you haven’t changed the amount of monthly payment then you are still paying towards your credit card charges and interests. You’re doing nothing to address the outstanding balance on your credit card even after receiving the first letter 9 months ago. The credit card company authorities will request you to increase the payment amount only if you can afford it.
After 18 Months
If it’s been 18 months since you were informed that you are under persistent debt and you haven’t decided to pay towards the actual credit card balance then you will get another letter from the credit card company. The credit card company will show you some options to avoid the credit card arrears. In addition to this, the credit card company would suspend and close the credit card. This will help you in managing your finances as you can’t use your credit card anymore.
Will your Credit Card be Suspended?
If you have been suffering from persistent debt for 36 months then your credit card is more likely to get suspended. However, this is the last option for your credit card service provider. If you keep ignoring the letters and urges to increase your payment from the service provider, then you can lose the ability to use the credit card.
In case you can’t afford to pay a huge amount than the minimum payment, then they would usually seize your credit card. And, this is to make sure that your credit card balance doesn’t extend.
How can You Step out of Persistent Debt?
You’ve already known what is persistent debt and how to detect that you are under one. However, the more important thing is to get rid of the persistent debt. The first thing that you can do is to follow the instructions of the credit card provider. You must be managing a monthly budget. Sneak into the budget to check if you can adjust money for something so that you can save more money. With that money, you can contribute more towards the actual credit card balance.
If this straightforward plan doesn’t work out, don’t worry; there are more ways to get out of FCA debt rules. You can always seek help from Step change debt advice. Here are some worthy options that you can think of:
Talk to your Credit Card Provider
When you can’t afford to pay towards the persistent debt, your creditor might consider freezing the interests and charges. Before you decide to move forward with another debt or loan from another bank or building society, inform your credit card provider. After you let them know about your circumstances, they might offer you a beneficial deal.
Try Using the Credit Card Seldom
There will be no change towards your credit card balance if you are on a spending spree on your credit card. No matter how much you’re paying towards your credit card arrears, it won’t eliminate the burden of debt. Make sure that you use your credit card seldom or the best, refrain from using the credit card. This will help you to eliminate the FCA persistent debt.
You can transfer your persistent debt to a reasonable credit card service. They might be offering you lower interests and charges. Review those services and compare among them to find out the best deal according to FCA debt rules. Debt Advices have experts who can assist you in getting more information.
Can Persistent Debt Affect the Credit Score?
There are complexities when you look at the FCA persistent debt rules. Your credit score won’t receive any impact when you are making minimum payments for 18 to 27 months. On the other hand, if you decide to increase the payment amount on or before 36 months, then there’s no chance of affecting your credit score. After that, your credit card service provider might take steps against you. And, they can include freezing interests, canceling your account, etc. – these incidents will be reported. As a consequence, they will negatively impact your credit score.
Why Should You Take Action in Case of a Persistent Debt?
You already know what persistent debt is and a few ways to handle it. Whenever you use a credit card, a high-interest rate applies to the credit card balance. For example, if you take credit of £5,000 you have to bear an interest rate of 19.9% APR. The rate of interest might vary from one provider to another.
If you keep paying more towards the interests, then the same interest rate will be imposed over the balance. And, it’s not helping as it will take years to pay off the credit card debt. So, you have to find a way to put an end to the suffering due to persistent debt. You have to pay off it according to the FCA debt rules, otherwise you will end up in a whirlpool of debt. UK Debt Advice is there to sort every issue you face regarding debt.
The Structure of Monthly Payments towards Credit Card Arrears
When you are paying off your credit card debts, the payments go in two ways. One portion of the payment goes to the charges and interests. The left-over portion contributes to the outstanding credit card balance. If you continue with minimum monthly payments, it goes to the section of charges and interests only. The section of the actual existing balance barely gets anything. And, the same interest rates apply to the existing balance.
If you start paying off the debt with more money, then the section of the credit balance will get a reasonable amount. So, you can make a real difference and owe less money to the credit card provider and seek Debt Advice UK to step out of the persistent debt.
How to Pay Off Your Persistent Debt?
You need to make small changes in your lifestyle if you want to get rid of persistent debt. Understand your monthly budget and discover where you’re standing right now. You might have to skip dine-out and get a OTT subscription.
On the other hand, pay the same amount every month and don’t change it. If you’re still managing with minimum payments, then add an extra amount. Stay informed about the FCA persistent debt rules and credit card terms and conditions to avoid breaching. Make one-off extra payments, if possible. If you’re really struggling with handling the persistent debt, get in touch with National debt advice for further assistance and service on debt and much more.