What's persistent debt?
Persistent debt is when a person has paid more in interest, fees and charges, than they have towards paying off their credit card, store card, or catalogue account for more than 18 months.
Do I have a persistent debt?
Yes, if you’ve only been making small payments towards your accounts for 18 months or more. If you've paid more towards interest, fees and charges than you have towards the amount you’ve borrowed, you may have received a letter about persistent debt from your creditor.
Although minimum payments are agreed with your creditor, they usually only cover the interest and charges on the account, or a very small amount of the balance.
You may need to increase your repayments if the following sounds familiar...
"I make minimum payments each month"
"I’ve received a letter from my lender about increasing my monthly payments"
What happens if I pay more than the minimum payment?
Your monthly credit card, store card or catalogue payment covers two things:
- An amount to reduce the balance
- An amount for interest and charges
When you only make minimum payments, you'll stay in persistent debt because a lot of your payment is going towards the interest and charges. If you pay more than the minimum payment, you'll reduce your balance quicker because more of your repayment goes towards the balance.
By paying a little more than the minimum payments each month you'll reduce interest payments, and pay off your balance more quickly, saving money in the long run. However, you must consider all your accounts when you work out what's affordable. It's important that you don't set up lots of different payment arrangements you can't really afford.
If you're wondering how much difference increasing your repayments could make, use our budgeting form to work out how much you could save by paying off your credit card, store card, or catalogue balance sooner.
What happens if I pay more?