Persistent debt help

What is 'persistent debt'?

‘Persistent debt’ is defined by the Financial Conduct Authority (FCA) as when, over an 18-month period, you pay more in interest, fees and charges on your credit or store card than you do towards reducing the amount you borrowed.

For most people who get a persistent debt notice, this means they’ve mainly been making minimum repayments. While that keeps you within your credit agreement, it can mean your balance falls very slowly, as much of what you pay goes towards interest rather than clearing the debt.

Is persistent debt the same as being in arrears?

No. Persistent debt usually means you’re making payments, but they’re mainly covering interest, fees and charges rather than reducing what you borrowed. So the debt is not coming down meaningfully.

Being in arrears means you’ve missed one or more required payments, or paid less than you were supposed to. So, you can be in persistent debt without being in arrears. But if you start missing payments, you may also fall into arrears.

What is a persistent debt letter and when might you receive one?

Since 2018, the FCA has required credit and store card providers to take steps to encourage customers to pay their debt more quickly and reduce the amount of interest they pay.

These notices come in three stages, usually sent after 18 months, 27 months and 36 months of persistent debt:

Martin's view on persistent debt letters – 'do what's right for you'

While Martin agrees with lenders making customers aware of the dangers of being in long-term debt, he urges people to focus on paying off their highest-interest debts first, which are often not credit card debts.

Here's what he has to say in full:

I’ve had a persistent debt letter - what should I do?

Transfer your card debt to a 0% balance transfer card

Ask your credit card company to reduce or freeze interest

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

The 'avalanche method' is one of the most effective ways to tackle multiple debts:

1. List all your debts from highest to lowest interest rate. Don't forget to include any overdrafts - rates on these are often up to 40% EAR (Effective Annual Rate). Put as much spare cash as possible towards the most expensive debt while making the minimum repayments on the rest.

2. Ask your provider(s) to reduce the interest rate. If it won't, you're no worse off. If you get a rate cut, adjust your list.

3. Repay the most expensive debts first. Focus as much cash as possible on your most expensive debt first (remember, this may be your overdraft).

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

We've more details on How to pay off credit card debt more quickly in our dedicated guide.

Consider consolidating your debts into a personal loan

If you have several debts, a personal loan could let you combine them into one monthly repayment. This usually only makes sense if it:

• gives you a lower interest rate than the debts you’re clearing

• gives you monthly repayments you can afford

• reduces the total cost of the debt, rather than just spreading it over a longer period

Before applying, use our Loans eligibility calculator to check your chances of being accepted. It uses a soft search, so it won’t affect your credit score.

If you’re offered a loan, check the actual interest rate, monthly repayment and total amount repayable before going ahead. The rate you get may be higher than the advertised representative APR (which only has to be offered to 51% of customers).

Taking out new credit to repay old credit can backfire if you continue spending on the cards. Closing cleared accounts can reduce the temptation to spend again, though it may affect your credit score.

For more information, read our full Cheap personal loans guide.

Does persistent debt affect your credit score?

Receiving a persistent debt letter does not directly affect your credit score, as the letter itself is not reported to credit reference agencies. But underlying issues – such as late payments, reduced payments or high credit utilisation – can have an impact.

Can a repayment plan affect your credit file?

A repayment plan can affect your credit file, but it depends on the type of plan. If you're still making at least the minimum repayments on time, paying more to clear the debt faster shouldn't usually be reported as a problem.

But if the lender agrees to a debt management plan, reduced payments, or an arrangement to pay, this may be recorded on your credit file and could make it harder to get credit for a while.

Can card suspension or a reduced credit limit affect your credit score?

Card suspension or a lower credit limit can affect your credit position, though the impact depends on the circumstances.

If your card is suspended but you continue making the agreed repayments, that's different from missing payments or defaulting on debt.

A lower credit limit may also push up your credit utilisation, meaning you're using a higher share of your available credit, which can be viewed negatively by lenders and may affect your ability to get credit in future.

What happens if your credit card is suspended?

If you've been in persistent debt for 36 months or more, your credit card could be suspended to avoid you getting into further debt. This means you can no longer spend on the card but you do still need to repay what you owe.

This usually happens as a last resort and is more likely if you ignore them or don't attempt to explain why you're not increasing payments to reduce your debt. This is another reason why contacting your lender as soon as possible is always your best option.

What to do if your card is suspended

If your card has been suspended, contact your lender as soon as you can. You should ask:

• Why it has suspended your card

• What it wants you to do next

• Whether you can agree an affordable repayment plan

• Whether you can reduce or freeze interest

• Whether the card could be reinstated later

Remember, though, don't agree to repayment plans you can't afford just to get the card back. If card suspension leaves you struggling to cover essentials, it may be time to seek free debt help.

Can a suspended credit card be reinstated?

Yes, it's possible to have your credit card reinstated but this only usually happens after you've contacted the lender and agreed a way forward.

Even if you do get the card reinstated, think carefully about using it again. More spending means more debt.

Struggling with repayments? Get free debt 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.

Look for non-profit debt counselling organisations that offer one-to-one sessions 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."

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.