MILLIONS of credit card borrowers who are persistently in debt could soon see their accounts suspended or be enrolled into repayment plans.
This has been the case since March 1 2018 when new rules from the city watchdog took force, although firms didn’t have to comply until September 1 2018.
1 People in credit card debt for more than three years could soon have their cards cancelledCredit: Getty – Contributor
But StepChange Debt Charity warns that lenders aren’t doing enough to tell people about the rules, which could mean their card is taken from them when they need it most.
Borrowers get a first reminder that they’re in persistent after 18 months with a second one at 27 months – and for many this is second reminder is due by June 1 2019.
After 36 months, their card could be frozen and card providers will also have to offer borrowers a way to repay their balance in a reasonable period.
If they can’t, the lender could reduce, waive or cancel any interest, fees or charges.
How to cut the cost of your debtBeing in large amounts of debts can be really worrying. Here are some tips from Citizens Advice on how you can take action.
Check your bank balance on a regular basis – knowing your spending patterns is the first step to managing your money
Work out your budget – by writing down your income and taking away your essential bills such as food and transport.If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs
Pay off more than the minimum – If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker
Pay your most expensive credit card sooner – If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)
Prioritise your debts – If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them.
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay.
Get advice – If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further.
Groups like Citizens Advice and Money Advice Trust can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans
Persistent debt is classed as someone who pays more in interest and charges than they have paid off from their balance.
The Financial Conduct Authority (FCA) warned in February 2018 that this applies to more than 4million credit card accounts.
It said these people pay on average around £2.50 in interest and charges for every £1 that they repay of their borrowing.
But StepChange is concerned that the new reminders and credit card providers’ calls may not yet be having much effect.
It says communication from card providers varies significantly, and the call to action is not always clear.
Phil Andrew, StepChange Debt Charity chief executive, said: “Our own persistent debt pilot service hasn’t dealt with enough people to give a reliable understanding of the landscape.
“But it has certainly given us worrying cause for concern about the risk of people hitting the buffers hard at 36 months, when actions become compulsory.
“At this point there may be significant numbers of people with “hidden” problem debt who are coping on a minimum payment basis but could tip over into difficulty once higher payments are required, and may need help and forbearance at that point.”
An FCA Spokesperson added: “We welcome StepChange’s interest in these important reforms, which we expect will save consumers between £310million and £1.3billion a year in lower interest charges.
“We are monitoring how these remedies are being rolled out and will review the effectiveness of these remedies.”
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