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You might’ve heard the phrase ‘persistent debt’ in the news recently, and with good reason.
In a move designed to help borrowers avoid paying large amounts of money in interest and charges, the Financial Conduct Authority (FCA) has recently warned lenders against the blanket suspension of credit cards for people who fall into the category of persistent debt.
Jonathan Davidson, the executive director of supervision for retail and authorisations at the FCA, said: “Under our rules, firms must help customers to reduce the level of debt they have on their credit card more quickly.
“If a customer cannot afford the firm’s proposals for how to do this, the firm must offer forbearance, potentially including reducing, waiving or cancelling any interest, fees or charges.”
Essentially, this means that if you fall into the category of persistent debt (in the sense that you’ve paid more in interest and charges than you’ve paid off your credit card’s actual balance over the last 18 months) your credit card provider must exhaust every other possible avenue before cancelling your credit card.
Whilst this means it’s less likely you’re going to have your card cancelled, it’s still a possibility. With this in mind, here’s the five most useful things you can start doing today if you’ve fallen into persistent debt.
Work out where your money’s going each month
Before you do anything else, it’s essential to work out exactly where you’re spending your money each month. This will allow you to identify where you can make savings, and you might be surprised where you can save a few pounds – our budget planner can help you work out how much you’re spending on what each month (and will only take 10 minutes to complete too).
Try to be as accurate as possible; we’ve all been guilty of checking our bank accounts and not knowing where our money’s gone, so if you’re ever out shopping and stop to buy a drink or a snack, for example, make a note of it on your phone and remember to factor it in. If you’d like some more ideas for on how to save, check out our budgeting guide and top tips on how to reduce your spending.
Transfer to a 0% balance transfer card
Next, you’ll want to reduce the amount you’re paying in interest and charges.
A fast way to do this is through a balance transfer. This essentially allows you to transfer your debt to a new card, and if you transfer your debt to a card that has 0% interest you’ll be able to get debt-free quicker, as you’ll immediately begin paying less in interest and charges and more on your card’s actual balance.
Be careful when considering this, however. There’s often a small charge incurred when you transfer your balance, and applying for a new card will show up on your credit file, so be prepared these things to happen before you apply. Not everyone will be eligible for the best credit card deals as these are generally based on how good your credit score is. The better your credit score, the better the deals you’ll be offered.
Pay more than the minimum persistent debt payment
If you can afford to, paying above the minimum payment on your credit card, even if it’s only a small amount more, will begin to pay down the balance quicker and end up saving you a lot of money in the long run. Our budget planner can help you identify areas where you can save a few pounds a week to go towards paying off your balance.
Make one-off payments here and there
Some months you might have a bit more money than others due to spending less, or working some overtime. Using any extra cash you’ve got leftover at the end of the month is a great way to get your balance down quicker, especially if you can’t commit to increasing your regular minimum payments.
Seek professional advice
If you’re in persistent debt on multiple credit cards, receiving letters from each provider asking you to increase your minimum payments can be overwhelming. It might be the case that you’re eligible for a debt solution such as a free Debt Management Plan (DMP) that allows you to make reduced payments on all of your debts via one single, monthly payment that’s then split between your respective creditors.
You can find out if you’re eligible for one of our free Debt Management Plans by completing our simple online debt solution tool, PlanFinder. If you’d prefer to get debt help over the phone, you can speak to one of our friendly, understanding debt advisers by calling 0800 280 2816. Our opening hours are 8am to 8pm, Monday to Friday, and 9am to 3pm on Saturdays.