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Persistent debt: What does it mean for my credit card?

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 look to increase their payments. 

What’s ‘persistent debt’?

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.

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 dramatically reduce your balance and save yourself a lot of money and time.

If you’d like to talk to an advisor in our dedicated persistent debt team, please call us on 0300 303 2517. We’re available Monday to Friday 9am to 5pm.  




 

How much does the call cost?

How much of my minimum monthly payment covers my balance?

Your minimum monthly credit card payment includes:


  • An amount for interest and charges
  • An amount to reduce what you owe


A persistent credit card debt takes a long time to reduce because your monthly payment goes mainly towards your interest. Only a small portion of the payment goes towards the balance.

Increasing your monthly payment means you’ll pay more off what you owe, so you’ll clear the balance quicker.

How long will it take to pay off my credit card debt?

The UK Finance minimum payment calculator can tell you how long it would take you to pay off your debt balance by only paying the minimum amount (note:calculator is not optimised for mobile phones). 

It can also tell you how quickly you could pay the debt off by increasing your monthly payment.

For example, let's say you owe £2796 on a credit card that you no longer use. Depending on how much you can pay on top of the monthly minimum payment, there'll be a drastic reduction in what you pay in total over time. 

persistent-debt-graphic-mobile-final(Note: these figures are based on estimates and will vary depending on your interest rate.)

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 you should bear in mind that:


  • It’ll take much longer to clear your debt
  • The overall cost of your debt will be much higher

If you continue making nine more monthly minimum payments after receiving your persistent debt letter, you’ll get another reminder to pay more to your credit card balance.

If you make another nine monthly minimum payments after receiving your letter, then your card provider could:


  • Put you on an ‘increased payment plan’ to clear your card
  • Consider other forms of credit which could help you pay the debt off
  • Reduce your interest rate and suspend your card

Some credit card companies are changing their terms and conditions in order to put increased payments in place. If this happens to you, please be aware that if you don’t pay the increased amount on your card each month you could get extra charges or missed payments logged on your credit file. They may even suspend your card.

How can I get out of persistent debt?

By understanding your budget, you’ll know where you can cut back on spending. You can also start thinking about how much of the money you’ve saved can go towards getting you out of debt.

Please visit the budgeting section of our website. There you'll find a downloadable budgeting form that you can print and use to put your own budget together. 

Once you understand your budget, you could then consider one of the following options to get you out of persistent debt:


  • Pay the same amount each month - Choose an affordable amount above your minimum payment and stick with it
  • Pay your minimum payment, plus a fixed amount each month - Paying a few extra pounds every month can make a huge difference. The UK finance calculator can help you work out a fixed monthly payment amount
  • Make one-off additional payments when you can afford them - You’ll still need to ensure you pay at least the minimum payment every month to avoid breaching the terms and conditions of your card

We also have a helpful factsheet (PDF) with more ideas on how to save money and boost your income.

Budgeting tips from MoneyAware

By saving money and increasing your income, you’ll find it easier to pay more than the minimum amount on your credit card debt each month. Our blog, MoneyAware, is full of tips and information to help you boost your income and make savings on your household bills and living expenses.

Can you help me with my debts and budget?

Only being able to repay the minimum can be a sign that you’re struggling financially, and may benefit from free and confidential advice on your budget and debts.

We provide advice and solutions to thousands of people who are struggling to pay their debts. We can look at your whole situation and give you information on how best to deal with your debts.

If your credit cards payments are making it a struggle to pay household bills and living costs, we can help. Please call our dedicated team of advisors on 0300 303 2517. Our opening hours are Monday – Friday 9am - 5pm.

Looking for more budgeting and money-saving ideas?

Subscribe to our monthly email newsletter and you’ll get our best budget and money tips straight into your inbox.

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They were a pillar of support to me.” (Leslie, Essex)

Foundation for Credit Counselling Wade House, Merrion Centre, Leeds, LS2 8NG trading as StepChange Debt Charity and StepChange Debt Charity Scotland. A registered charity no.1016630 and SC046263. It is a limited company registered in England and Wales (company no:2757055). Authorised and regulated by the Financial Conduct Authority.

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