How To Get Out Of Persistent Debt?

Receiving a letter from your credit card company asking (or suggesting) that you increase your minimum payment each month may come as a shock. After all, you are paying what they ask, so what’s the problem? The official line of the Financial Conduct Authority (FCA) states that customers who have been paying more charges and interest than their balance should attempt to increase their monthly payments. Debt advice that initially only covered credit cards, but now also includes stores cards and accounts obtained through catalog services. While it may seem like they are pushing you to re-pay them quicker, they only acting under the law.   

Credit cards can be extremely useful, but falling into a prolonged period of persistent debt and only paying off your minimum payment every month is likely to lead to serious financial problems. 

What is persistent debt?

Piggy Bank

Persistent debt is the balance of your credit cards or similar lending services. Over an 18-month period, if you have spent more on interest and charges than on actually lowering your existing balance, this is considered as persistent debt. The minimum payment each month generally only covers costs, interest, and charges on an account and may only make a tiny impression on the actual balance. If you can pay more each month it will help to not only reduce the amount owed but is also more likely to move you out of the category of ‘persistent debt’ 

Under government regulations, card companies involved must make contact and encourage you to raise your monthly payments in an attempt to lower your balance.  They also need to make you aware that continuing with the same level of repayments could potentially mean your card could be suspended at a future date. Lastly, card companies need to offer some debt advice such as a repayment plan should you not be able to pay more each month.        

What happens if you can’t pay off your credit card debt?

Completely paying off a credit card is technically not a legal requirement.  Many credit card customers have a steady stream of debt. It may go down at some point but is also likely to go back up also. The average credit card debt in the UK currently stands at £2,688. In fact if everybody paid off their credit cards then the credit card companies would lose a significant amount of money. It is therefore in their own interest to have customers in some kind of debt.  

If your credit card company contacts you about increasing your repayments, but you cannot, or choose not to, you can initially continue paying the minimum each month. However, you are likely to continue receiving messages encouraging an increase in payment and this problem should be addressed or you should seek debt advice.   

What is the process card companies can take during persistent debt?

Make a change

Some providers have implemented an increase in minimum payment as a way of getting their customers out of persistent debt. If yours has done this then legally they have to contact you and inform you of the changes. 

After 18 months

The initial period of time that persistent debt is based upon is 18 months. At this point, if you fall into this category you will be contacted by your provider who will advise that within another 18 month period you should not have any persistent debt.

After 27 months

Your provider will contact you again if progress has not been made and once again encourage you to take serious action.

After 36 months

If you remain in the same position your provider should offer a way of clearing the debt within three of four years. Either with a dedicated repayment plan or even another credit service, such as a loan or even another credit card.

How likely is it that my credit card will be suspended?

Though a suspension is seen as a last resort, providers will suspend the card or account if they deem it a serious enough situation or you have ignored their request to lower your balance. 

What is the law on credit card debt?

Credit card debt should be viewed in the same as any other consumer debt. Monthly payments must be paid otherwise you can incur significant charges. Whatsmore, because of their usually high interest rates, credit cards can prove to be some of the more problematic areas to get out of debt.

Is it best to pay off a credit card every month?

In terms of not falling into persistent debt, it is certainly a good idea to pay off your credit card each month when possible. Monthly interest rates and charges can quickly build, with a purchase you made suddenly costing significantly more than it really should have.

How can I get out of persistent debt?

If you find yourself in persistent debt it can become a never-ending cycle.  Credit card customers who rely on their cards each month may struggle to pay what the bank is suggesting. When this is the case there are a number of ways to address this problem:

  • Firstly, and probably most obviously, stop spending on the credit cards and pay more off each month. If it’s possible to use a different financial source than your credit card, you should do so. 
  • Communicate with your provider as quickly as possible.  There is a chance that they will be able to lower, or even suspend interest and charges for a period of time. Make no mistake, this will not be permanent and is likely to come with strings attached to help lower your balance.
  • Juggling your debt and your budget can lead to it being paid quicker. Perhaps you can use a balance transfer to move the persistent debt to a cheaper credit card. This is, however, a short term fix and should be used in conjunction with other ways of lowering your general monthly output.

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