Persistent debt help

What to do if you've received a letter asking you to pay more

Hundreds of thousands of credit card borrowers are getting letters and emails – known as persistent debt notices – asking them to pay more on their credit card or face losing it. But is it right for you to pay more? This guide takes you through what you should do if you've got one of these letters, and also where to turn if you just can't pay any more.

This is the first incarnation of this guide. Please let us know your experiences with persistent debt, and whether any of the help in this guide has worked for you.

What counts as 'persistent debt'?

Persistent debt – in the context of this guide – is defined by regulator the Financial Conduct Authority (FCA), not by us or you.

Whether you agree with its definition or not, it's relevant, as being in it may mean you need to change how you manage your debts.

Persistent debt is defined as "when you pay more in interest and charges on your credit or store card over 18 months than you pay towards reducing the capital (the amount borrowed)."

In practice, for the huge majority of people getting these notices, that just means "you're ONLY paying the minimum repayments". We could explain this further and go in to examples about when you would and wouldn't be in persistent debt, but it's complex and it's not relevant – you've either had the notice or you've not.

These notices are being sent out because rules brought in by the FCA in 2018 require credit and store card providers to take steps to encourage customers to pay their debt more quickly, cutting the amount of interest they pay. The notifications you get come in three stages:

  • First contact – comes after 18 months. Lenders need to write to customers to try to encourage them to pay more and let them know what happens if nothing changes. Lenders should encourage you to pay more, or to talk to them about your situation.

  • A reminder – comes after 27 months. Lenders need to send a follow-up reminder, again encouraging you to take action to tackle your card debt.

  • ACTION POINT – comes after 36 months. If you're still in 'persistent debt' after three years, the credit card provider needs to write to you again. This time, though, the lender needs to get you to take action, whether that's to agree to a repayment plan to pay off your card debt within 'a reasonable period' (usually three to four years) or to get you to contact it to explain that you can't pay more. It's at this point it'll let you know if and when it could suspend your card if you still don't take action.

Suspending your card is a last resort that lenders can take if you don't increase payments and don't get in touch with it to say that you can't (or won't) increase payments. The idea is that even if you're not paying more, at least you won't be able to get further into debt.

But don't worry. Even if you're at the 36-month action point, no debt problem is unsolvable. But there are several different approaches to sorting it that may work for you, and it may be that paying more on your card is completely the wrong approach for your situation. Here's Martin's view on persistent debt letters, then the guide runs you through the options to sort your debt...

Martin Lewis

Martin: 'Persistent debt letters are a blunt tool... do what's right for you and don't let it stress you'

"These letters are being sent to people on minimum repayments to try to urge them to pay more off.

"And indeed for those with ONLY one credit card and no other debts that is exactly the right thing to do. Throw every spare penny at clearing the card – you'll be debt-free quicker and pay far less interest.

"However, my problem comes for anyone with more than one debt – even if the other debt's an overdraft. In that case, the correct and most effective thing to do is to only pay the minimum repayments on all the debts except the one with the highest interest rate, and then use all your spare cash to clear it, as it's the most expensive.

"Then once that debt is cleared, focus all your spare cash on the second most expensive debt, and so on.

"Of course many, and possibly most, people who are in persistent and problem debt do have more than one debt product. That's why I have an issue with this push to automatically pay more than the minimum. If you were to do that on all your debts, it would have a perverse impact: focusing your cash towards all your debts, not the most expensive, dangerous one.

"Worse still, this April a change by the regulator means we will see hideous 40% interest become the new standard overdraft rate. That's double a high street credit card. This means they may be writing to you pushing you to pay more off a 19% credit card, using money from your overdraft which costs more than double that. In fact, you'd be better paying the minimums on your card and trying to reduce your overdraft. The regulator really should've considered the interaction of two of its policies better.

"That's why I think these letters are a blunt tool. I support the awareness raising of the dangers of being stuck in long-term debt – but the action plan presented can be very wrong.

"And if it is wrong for you, don't be scared to call up your bank and say you want to prioritise your other debts and keep your minimum repayments with it.

"Overall, do what's right for you, and don't let these letters stress you too much. If your debt's a big problem and you're endlessly worrying, or can't sleep at night, talk to a non-profit debt counselling agency."

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I just got an 'action letter', what do I need to do now?

The 'action letter' is the one that comes after you've been in 'persistent debt' for 36 months from the likes of Barclaycard, MBNA, Capital One and others. It'll ask you to increase your payments, and possibly let you know your card could be suspended if you don't.

It's worth noting here that you don't need to do anything different. The lender may be suggesting you pay more, but if you're meeting minimum repayments, you're sticking to the terms of your contract, so it can't make you pay more.

But doing nothing isn't the most sensible thing here. Talking to your lender is – even if that's to tell it you won't be increasing your payment to it as you have other, more expensive debts that you're trying to clear first.

Explain your situation to your lender, whatever it is, and see if you can come to an understanding. If you choose not to pay more and not to talk to your lender, it's likely it will stop you using your card.

If getting this letter is the push you needed to sort out your debt(s) once and for all, there are several things you can do. Not all of these solutions will be right for everyone, so you need to pick the one(s) that are going to work for you... use the anchors to go straight to a solution, or scroll down to take them one by one.

What's the best way to get out of persistent debt?

These are a few different methods that could work. Scan down the list to see which might work for you. 

Can you transfer your card debt(s) to a 0% balance transfer card?

Doing a balance transfer means you get a new card to pay off debt on old credit and store cards. You then owe the new card instead, usually at 0% interest, though you may need to pay a small fee to do the transfer.

Doing this means you're debt-free quicker as more of your repayments reduce the debt, rather than pay interest.

Yet when you apply for a credit card, that application is recorded on your credit report. While a single one is not a big problem, especially if you've a good credit score, lots in a short time are problematic.

So use our Balance Transfer Eligibility Calculator first to show cards you're most likely to get, so you don't waste an application. And it's NOT recorded as an application search on your credit report, it's recorded as a 'soft search' so it doesn't affect your credit score or your chances of getting credit (though you'll be able to see the search on your report if you check it).

You may think you're not eligible, especially if you've had past credit problems. But it's always worth a go, as we've seen people get a balance transfer card when only one card gave them any chance at all, and that was a low-ish 20% chance. That MoneySaver got the card and was able to transfer her debt to 0%, to give her time to pay it down without paying interest. Can you afford NOT to at least check if you can get a 0% card?

If you can get a card, try to keep payments higher than the minimum the lender asks for. Perhaps set the repayment at the amount you were paying on your old card if that was a payment level you were comfortable at (just make sure it's at least meeting the new card's minimum payment).

Now you're not paying interest, this should see you chip away at the debt. It worked for Forumite bobstheboy:

I have changed my cards from paying interest every month to 0% for 28 months. I am paying about 10% over the minimum payment each month and although it is early days, it is great seeing every pound repaying debt. I didn't think I would be able to do it, through this site I will save thousands in interest.

See our Balance Transfer guide for a list of the top 0% cards.

Talk to your lender to see if and how it can help you

If you can't transfer any or all of your card debt(s) to a 0% card, this is your best next step. Do it whether you've got one debt or more than one, but if you've multiple debt, do this as part of the 'avalanche method' of paying off your debts.

When you talk to your lender(s), explain that you're calling about the persistent debt letter that they've sent. If it has suggested a payment plan that's unaffordable, you have the right to challenge it – the regulator has written to lenders to remind them that payment plans need to be "reasonable and sustainable".

If you can't afford to pay more to a lender (or you don't plan to as you're paying other, more expensive debts first), it's worth asking the lender if it can cut or freeze the interest it's charging. The regulator has also said it expects lenders to consider doing this in cases where the debt is otherwise unaffordable. Do note, though, that if the lender offers this, it's likely it will also stop you using your card to avoid you getting further in to debt.

If it won't cut interest, ask it to help you in another way that leads to you being able to pay off your debt in a manageable way. Your lender – despite appearances – does have a duty to treat you fairly as a customer.

One lady who replied to Martin's Facebook post about persistent debt notices had spoken to her lender. She reported she'd had interest reduced from around 20% to 0.04% and now has an affordable schedule to pay the card off. And Jane also had her worries soothed – proof that speaking to your lender can work!

Use the 'avalanche method' to pay off your most expensive debt first

Avalanches aren't usually good, but here we're talking about clearing away the snow of your debts, so in this case, they're nothing to be afraid of. The avalanche method is one of the most effective ways of dealing with multiple debts without getting new credit. This is the technique Martin talks about in his quote above.

Essentially, with the avalanche method, you focus all spare cash on the debt with the highest interest rate, and just pay the minimums on others. Once that's paid off, the spare cash pours down onto the next highest-interest debt, and the next, and the next, until you've an unstoppable "avalanche" of money falling on to the cheapest debt.

This is a technique for the disciplined, but it means you're going against what the lenders are asking you to do. Explain what you're doing to the lenders where you'll continue to pay the minimum. If they realise you're in a situation with multiple debts, they may cut or waive interest for a while (though if they do this, it's likely they will stop you using your card in the meantime to prevent you building up further debt).

Whatever they say, don't be pushed into trying to pay more to all of them.

Here's how to start your avalanche:

  1. List all your debts. Take stock of your current situation and note down all your existing debts, including an overdraft if you have one (rates on these are often around 40%).
  2. Ask your provider(s) to cut the rate. Sometimes simply calling and asking your card provider for an interest-rate reduction can work. If it doesn't work, you're no worse off. If you get a rate cut, adjust your list.
  3. Repay the most expensive debts first. Now your list is in order, this is the most crucial part...

Start repaying, focusing as much cash as possible on the most expensive debt first (bearing in mind this may be your overdraft).

This means you should just pay the minimum on all other less expensive debts, and pay off the most expensive with any spare cash. If you've had multiple persistent debt letters, this may mean some of your cards are suspended as you're not paying the extra they've asked for (though hopefully lenders will want to work with you), but this method does mean you're taking positive steps to pay off your debt.

Once the most expensive debt is fully repaid, shift focus to the next highest rate and continue this until you're debt-free.

Should you consolidate your debts into a personal loan?

If you've several debts and you're being asked to make increased payments on all of them, it could be worth looking to see if you can get a personal loan to pay them all off, meaning you make one, hopefully lower, payment rather than several payments to different cards. It's worth looking at consolidating your overdraft if it's large and expensive.

This can work, though you need to know what you're doing. If you don't, taking credit to pay off credit can backfire badly, leaving you in a worse position than you were before.

However, if you get it, this can be a legitimate way to cut the cost of your debt. But don't just apply: before you do anything, use our Loans Eligibility Calculator to see if you have a chance of getting the amount you need to pay off your existing debts.

The calculator will ask you a few questions about you and your finances, then will pair the info with a soft search of your credit report. We'll then be able to tell you your chances of getting a loan with a broad range of high street and online lenders.

If the calculator shows that you've high chances of getting the amount you want, be aware that most of the interest rates you see are "representative APRs". This means that only 51% of people accepted for that loan need to get the headline rate, the rest can be accepted for the loan but offered a higher interest rate.

Always check the interest rate you've been given and the monthly payments. This should be a lot more manageable than paying more on several cards and/or overdrafts, but check.

Once the loan cash arrives in your account, immediately use it to pay off your debts. Then, and this is the important bit...

Call your lenders and CLOSE your card accounts (or drop your overdraft limit to zero), so you're not tempted to run your debts back up

One note of caution: closing long-held, well-managed credit cards and overdrafts could have a negative effect on your credit score. If you're disciplined and know you won't run the debts back up, it's likely better to keep one or two accounts open, at least until you've established a good history of repayment on your loan (read more on how closing old accounts affects your credit history).

But if having a credit card with a zero balance is going to be too tempting for you, DON'T DO IT. Just close the accounts.

For more information on best-buy loans and what to watch out for, read our full Cheap Personal Loans guide.

Have multiple debts and struggling? Get free debt counselling help

If the steps above don't work, or you're consistently struggling to meet repayments, it may be better to get help rather than manage things on your own. For a full rundown of steps you can take to help sort your debts, our Debt problems guide is invaluable.

If you are looking for help, the aim is to find non-profit debt counselling advice. In other words, a one-to-one session with someone paid to help you, not to make money out of you. These companies are there to help, not judge.

The most common thing we hear after is: "I finally got a good night's sleep."

These are the three big charities we'd suggest contacting:

Citizens Advice (or Citizens Advice Northern Ireland)
Offers a full debt and consumer advice service. Many bureaux have specialist caseworkers to deal with any type of debt, including repossessions and negotiation with creditors. You can chat to an adviser online (usually available Monday to Friday, 8am to 7pm), find your nearest Citizens Advice centre or call on 03444 111 444.

StepChange Debt Charity 
A full debt help service is available across the UK. If you get support through StepChange for your persistent debt, you'll have access to its new Money Coaching tool, where you can analyse your real-time spending, get a full picture of your outgoings and set long-term savings goals. Online support is also available via its debt advice tool, where you can create a budget and get a personal action plan with practical next steps. Or, you can call on 0800 054 6734 (Monday to Friday, 8am to 6pm).

National Debtline
National Debtline provides free advice and resources to help people deal with their debts. Advice is available over the phone, online and via webchat. Call 0808 808 4000 (Monday to Friday, 9am to 8pm and Saturday 9.30am to 1pm).

If the three above don't suit, you can also try the following advisory agencies...
  • Christians Against Poverty: Also specialises in helping those who are struggling emotionally. The religious focus is why they do it, not how they do it.
  • Civil Legal AdviceLegal advice on a small range of issues, including debt where your home is at risk.
  • Debt Advice FoundationA debt advice and education charity offering one-to-one advice.
  • Debt Support TrustA not-for-profit UK debt advice charity. Includes online debt analyser tool.
  • Business DebtlineProvides free advice and resources for both business and personal debts. 
  • PayPlanFree debt advice and solutions. It's a private company, but the advice is free.

As we say above, most people sleep easier at night once they've taken this first step to sorting out their debt problems. If you're looking for inspiration, read our Debt-Free Wannabe forum, where people who have (or had) problem debts explain how they're paying it off, and help and support each other.

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