If you’ve been making minimum payments on your credit card for a while, you may have recently received a letter from your credit card company asking you to increase your monthly payment, or suggesting you do so.
The Financial Conduct Authority (FCA) has stated that all customers who’ve been paying more in interest and charges than their balance for 18 months or more should try to increase their payments.
These guidelines originally only applied to credit cards, but has now been extended to include store cards and catalogue accounts.
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What's 'persistent debt'?
If you’ve received a letter telling you that have a ‘persistent debt’, you may feel a bit confused, especially if you don’t think you’re 'in debt' at the moment.
It’s considered 'persistent debt' when you pay more in interest and charges on your credit card than you’ve repaid of the amount borrowed. This is calculated based on your activity for the last 18 months. Having a 'persistent debt' could make it more likely that you get into difficulty with debt in the future.
Minimum payments tend to only cover the interest and charges on the debt, or at most a very small amount of the balance.
By paying more each month, you could reduce your credit card balance quicker and move your account out of persistent debt. You could also save yourself money because you'll pay less in interest.
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Why is my card provider writing to me about persistent debt?
The FCA has stated that your provider must tell you if your credit card falls under the definition of 'persistent debt'. They also have to:
- Ask you if you can repay more of your debt each month
- Make you aware of other repayment options
- Warn you what could happen if you continue making low repayments
Your creditor isn't trying to force you to pay money you can't afford. Instead, they're acting on rules set out to protect you from a potential debt problem in the future.
You can also find in-depth information on how to deal with a persistent debt in our factsheet (PDF).
What if I don't increase my payments?
You can carry on making the minimum payments towards your credit card. This won’t cause your account to default, but credit card lenders are now obliged by the Financial Conduct Authority (FCA) to contact you regularly and suggest actions to take to increase payments.
If you're unable to do this, they’ll consider other options, such as reducing your card's interest rate, or even suspending your account, which could impact your credit file.
In order to get customers out of persistent debt, some providers have chosen to increase the contractual minimum payment themselves. They do this by updating their terms and conditions on minimum payments. If your provider decides to do this, they should write to you to let you know.
After 18 months
You've repaid more in interest and charges than you have towards your balance over the past 18 months. At this point, your provider will contact you. They'll encourage you to take action so that by month 36 (i.e. 18 months' time), you no longer have the persistent debt.
After 27 months
You'll be contacted again by your provider if your account remains in persistent debt (in other words you have only made minimum payments). Once again they'll encourage you to take action.
After 36 months
If you still have a persistent debt on your account, your provider should offer you a way to pay this off within three to four years. They may suggest:
- An affordable payment plan so you can clear the debt quicker or
- Clearing the debt altogether by using another credit product, such as a loan or credit card