If you’ve been contacted by your bank or credit card company to say you’re in ‘persistent debt’, you might be a little confused. You might not feel like you’re “in debt” at all. Or you may be unsure about what to do next after you get a persistent debt letter.
But if the repayments you’re making on your credit card bill have been going more towards interest, fees and charges than towards the amount you actually owe for 18 months or more, it could mean you’re running into debt problems.
New rules mean credit card companies have to tell you when your credit card is costing you too much, even if you don’t realise it yourself, and let you know that cheaper options are open to you.
They also have to offer you help, and that’s why they’ve been in touch with you.
Here’s all you need to know about what to do next.
What is persistent debt?
Persistent debt applies to your credit card balance. If you’ve paid more in interest, charges and fees than you have repaid on your credit card balance over an 18-month period, you’ll be classified as being in persistent debt. Then your credit card provider has to get in touch with you to let you know and offer you help.
They also have to:
- ask you to consider whether you can afford to repay more quickly
- make you aware of the potential implications of continuing with low repayments which can include the possibility that your card could be suspended, and possible impacts on your credit file
- let you know that if you cannot afford to repay more quickly, you can get in touch with them to discuss your circumstances so that they can help or, if necessary, you can get free debt advice.
If you’re worried about your persistent credit card debt, StepChange can help. StepChange offer a free and impartial budgeting service, to help you understand your financial situation.
I’m making minimum repayments, isn’t that enough?
Minimum repayments are set by credit card companies subject to minimum legal requirements. It’s the smallest amount the credit card company is happy to let you pay back per month. Paying only the minimum repayment over the short term can help you spread the cost of more expensive items. But minimum repayments long term become an expensive way to repay your debt.
A minimum repayment example:
If you had £5,000 outstanding on a credit card, with an interest rate of 19.9% a minimum repayment for month one of £132.92, you would be repaying £50 off the loan, and £82.92 in interest.
The minimum repayment then reduces every month if you don’t spend any more on the card. That’s one reason making minimum payments over a long period is a bad idea.
After three years the balance would still be £1,895.51, and you would have paid £1,936.66 in interest!
By only making the minimum repayment each month it’ll take you 18 years and 10 months in total to pay off the credit card – and you’ll have paid back £12,277.84 in total.
If instead you increased your repayment to £200 every month, your £5,000 credit card balance would be paid off in just 2 years and 9 months. You’d pay back £6,511.27 in total, saving you £5,766.57 in interest.
Here’s the example in a table compared to paying back £150, £175 and £200 every month. These are worked out assuming you don’t spend any more using the credit card.
||Interest paid in total
||Total paid back
||How long it takes to repay the £5,000 loan
|Minimum payment - First month £132.92, reducing every month after
||18 years 10 months
|£150 every month, fixed
||4 years 1 month
|£175 every month, fixed
||3 years 4 months
|£200 every month, fixed
||2 years 9 months
The easiest way to deal with being contacted by your bank or credit card company is to increase your repayment to a level that’s still affordable for you. Making small changes can save you hundreds or thousands of pounds.
Don’t think of it as a demand for money.
New rules mean credit card companies have to let you know when you could save money by changing how you’re paying back your credit card bill. It’s also a chance to look at your credit card balance and see if it’s costing you more than you want.
However, if you don’t do anything or haven’t sufficiently increased your repayments on your credit card after a further 18-month period, your credit card provider has to help you by offering ways of repaying more quickly, such as proposing a repayment plan.
If you don’t get in touch with them, can’t afford to repay your credit card debt faster or decline a repayment plan, you could have your credit card suspended.
My credit card company has told me they’re increasing my repayments
The new rules don’t mean credit card companies have to force you to repay more by automatically increasing your monthly credit card repayment.
The minimum repayment on a credit card has to be set at an amount which at least repays the interest, fees and charges that have been applied to your account plus 1% of the outstanding balance.
Your bank or credit card company can, however, decide to set the minimum repayment at a higher level.
If you can’t afford the increased repayment, contact your bank or credit company If you’re not ready to get in touch with your bank or credit company, you can also get in touch with StepChange.
StepChange offer a free and impartial budgeting service, to help you understand your financial situation.
If you were contacted about being in persistent debt, your current repayment plan means you’re paying more in fees, charges and interest than you are paying off your outstanding debt. You’ll need to raise the amount you’re paying off, so the balance starts to go down faster.
If you don’t want to be contacted any more, the easiest thing to do is to increase the monthly amount you’re paying off on your credit card bill, as long as you can afford it.
Your credit card company should help you with this, to make sure your monthly repayment is high enough to pay off your outstanding credit card balance in a reasonable amount of time.
Plus, if you repay more now, you’ll be paying back your credit card balance sooner, so you’ll be free of it faster, paying less in interest as your outstanding credit card balance gets smaller.
Here are some places to go if you need to find some ideas about how to raise extra money to pay more towards your credit card bill:
You may also be able to transfer your credit card balance to a card that charges a lower rate of interest or one that offers an introductory 0% interest rate if you’re eligible. This could mean you’ll pay less interest on your existing debt.
Most credit card providers will usually charge a fee for balance transfers so it’s important to bear this in mind, as well as the length of any introductory period.
I can’t afford to pay more towards my credit card
If you’re not comfortable that you have enough money to increase your repayments, you should speak to someone about your money situation. Talking early will stop things getting worse. You can call your bank or credit card company to talk about what help. If you don’t feel comfortable doing this, you can get in touch with StepChange. They offer a free and impartial budgeting service, to help you understand your financial situation.
It’s also possible that your finances need some serious re-planning to find the extra your credit card company or bank is asking for. Take a look at your budget using our Budget planner. If you have a little more going out than coming in, you may be able to rework how your money is being spent.
Here are some places to go if you need to find some extra money to pay more towards your credit card bill:
I have other payments I need to make
If your credit card bill isn’t the only thing you’re struggling to pay, or debts are affecting your sleep or relationship, you need to look at getting some free debt advice.
If you’re having major money worries, the last thing you might want to do is talk to a complete stranger about them.
But it can be the best thing you can do.
All advice is confidential, and nobody will judge your situation. They just want to help you find the best solution for your situation.
You can contact an adviser in a way that’s best for you – online, over the phone or face-to-face.
Your credit card company will get in touch with you again around nine months’ time after they first contacted you if you are still in persistent debt, Again, they’ll recommend you increase your repayments if you can afford to do so.
Then, if you’re still in the same situation nine months after that, your credit card company will have to do one of two things:
1. Offer you ways of repaying more quickly over a reasonable period, usually between three and four years. For example, repayment plans such as transferring the balance on the credit card to a lower-interest personal loan.
2. If you can’t repay more quickly, they must offer further ways to help you, for example, by reducing, waiving or cancelling any interest or charges. If they do this, they could also suspend your credit card unless doing so would have a significant adverse effect on your financial situation - for example, because you depend on your credit card for to pay for essential living expenses like your mortgage, rent, Council Tax or food.
Will my credit card be suspended?
Suspending your credit card because of persistent debt is a last resort. It could happen if you keep ignoring your bank or credit card company and don’t make changes to how you repay your credit card bill.
So, if you get to the stage where you’re being offered repayment options, they might stop your card if none of these options are suitable. This is so that the existing balance can’t get any bigger. They could also stop your card if they end up reducing, waiving or cancelling any interest or charges so that you can afford to repay more quickly.