As you may know, a few years ago we paid off £15,000 worth of credit card debt, and one of the driving factors was knowing how many years it would take to clear the debt whilst just paying off the minimum repayments. The Financial Conduct Authority has stated that all credit card, store card and catalogue customers who have been paying more in interest and charges than their balance for 18 months or more are in persistent debt and they should try to increase their payments.
What is persistent debt?
Persisent debt is when you pay more in interest and charges on your credit card(s), store card(s) and catalogue(s) than you have repaid towards the amount you have borrow. This is caculated over the last 18 months.
Persistent debt is seen as bad because it is likely that you will get into difficulty with your debt in the future.
The problem with minimum repayments is that they only cover the interest and charges on debt, sometimes with a very small amount of the balance being paid.
Your credit provider will write to you to tell you if you have persistent debt. They will have to ask if you can afford to repay more, make you aware of other repayment options and warn you about what could happen if you continue to make low repayment.
Don't worry – this isn't a demand for you to pay back more than you can afford to, but instead they are following the FCA's rules to help to protect you from a potential debt problem in the future.
Why you shouldn't just pay the minimum repayment
The minimum repayments for credit cards, store cards and catalogues is set quite low, meaning that your payments usually don't tackle the balance of your credit, but rather go towards the interest and fees.
Let's take a credit card balance of £1,000, which could easily be a holiday or emergency car repairs. At an APR of 17.9% (which is one of the lowest I have seen for a credit card) and a minimum repayment of 2% per month, or £25 a month will still take almost 5 years to pay off.
When you are making just the minimum payment every month you might think that you are keeping on top of your credit repayments, and whilst you aren't missing payments you are adding a lot of interest to your credit and taking longer to pay it off.
How to work out if you are in persistent debt
As well as receiving a letter from your credit provider, you can also use StepChange's 60 second repayment calculator to see if you are in persistent debt.
Simply answer a few questions about your debts and repayments to see if you could potentially face debt problems.
If you are at risk then StepChange will also direct you to some advice at the end of the quiz, or you can get in touch with them for free for more advice.
How to increase your repayments when you have no money spare
Of course it might not be as simple as just making extra repayments, especially if your budget doesn't allow. I know – I have been there! I was earning barely above minimum wage and my husband was unemployed for awhile whilst we were paying off our £15,000 worth of credit card debt.
Switch to a 0% credit card
If possible, try putting some of your credit card debt onto a 0% credit card with a balance transfer. This means that after paying the transfer fee, your repayments will 100% go towards paying off the balance and not the interest. The 0% introductory offer won't last forever, so use this time to repay whatever you can towards your debt.
Even if you cannot transfer all of your balance it might still be worth doing.
Redo your budget
You might not have any money left over right now, but taking some time to analyse your budget can really help.
Bring in extra income
I love a side hustle, and side hustling was so important to us when we were paying off our debts.
Our income didn't allow us to make over payments, but side hustling did.
A few things you could do straight away include having a declutter and selling your unwanted items on eBay, Facebook or at a car boot sale. You could ask people for money they owe you, and then look for a side hustle that works for you with 100 legitimate ways to make extra money.
Looking for more debt help?
If you are looking for more help with your debt then you can contact StepChange through a variety of methods.
Disclaimer: I received an email about persistent debt from StepChange and thought it would be great to write about. This isn't a sponsored post.