Credit Card Debtors Thrown a Lifeline

People in ‘Persistent Credit Card Debt’ to be helped by new regime

The level of consumer debt is high and rising, with unsecured debt being higher now than it was before the credit crunch. Recent figures showed that nearly 90% of card debt was held by consumers who were also in debt two years ago, so it’s clear that debt is being maintained and/or moved around rather than being repaid. This does not dealing with debt but really just pushes it one side.

Credit card debt is a particularly expensive way to borrow. While a useful tool in the short term, the interest rates typically charged on credit cards make them very expensive to use for long term borrowing, with consumers finding that they’re making monthly payments merely to repay the interest rather than repaying the amount actually borrowed. Debt is regarded as ‘Persistent Debt’ when the consumer has paid more in interest fees and charges over an 18 month period than they have repaid off their initial loan.

Lenders can profit handsomely from consumer debt and so did not always have much incentive to be part of the solution. The FCA’s new rules, however, compel them to take an active role in reducing persistent debt, with regulatory action being the penalty for failing to comply.

What will change?

The new rules from the Financial Conduct Authority (FCA) compel credit card companies to contact customers after 18 months of persistent debt and suggest that they make an effort to speed up repayments where they’ve been paying only the minimum amount. If no increase in repayments is made, the companies will stop additional spending by suspending use of the card. At around the two year mark, a further reminder should be sent if the debt appears likely to persist.

Once three years have elapsed, and if the debt is still regarded as persistent, the credit card company will be obliged to offer an alternative repayment plan as a means to repay the debt within a reasonable time period.

This may involve cutting or writing off interest, waiving charges and fees if these have become a barrier to repayment, or having credit card debt switched over to cheaper forms of borrowing such as personal loans, which typically have much lower interest charges.

The first stages of the new regulations came into force on the first of March, 2018, with credit card firms being given 6 months (until 1st September, 2018) to be fully compliant.

Will this help me?

While these new rules address the issue of using standard credit cards for long term borrowing, this is only one form of problem debt and if your personal debt doesn’t fall within this definition then the new regulations won’t assist.

Personal insolvency can take many forms and it’s easy to creep into, especially in an unstable financial climate. When finances are tight, the difference between managing your debt effectively and becoming personally insolvent can be a fine line which even a small change in circumstances can nudge you across.

As with all financial issues, the sooner you seek help, the better the outcome will be. If you’re worried about crossing the line from manageable debt to problem debt, or have already crossed that line and want to get back on the right side of it, get in touch with us for a free consultation and take that first step back towards solvency.

Speak to us, we can help.