HOUSEHOLDS in debt have been warned their credit cards could be closed if they don’t take action.
The rules affect those in persistent debt, which is when you pay more in charges and interest than your actual repayments.
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This makes it difficult to pay off what you owe.
All banks have to comply with the rules following their 2018 introduction, but it’s still catching some customers off guard.
One customer recently told expert advisor Sara Williams of Debt Camel that they’d been asked to pay more by Halifax, which had just cut credit card interest rates from 32% to 15% in November.
The bank asked them to pay £102 a month to their card – roughly £20 more than the minimum fee.
This would clear the credit card balance in four years’ time.
If the customer didn’t pay it, Halifax would cancel their credit card, even though they’d been paying the minimum fee for three years.
The rules are designed to help people get out of the red, saving them cash otherwise spent on interest and charges.
However, it’s important to speak to your lender if you’re struggling or you may lose access to the credit card.
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We’ve rounded up all you need to know below.
What does persistent debt mean?
To be in persistent debt means you’ve paid more in interest and other charges than you’ve actually borrowed and paid back during the last 18 months.
So if you pay £100 to a card but £60 of that went to pay interest and only £40 reduced your debt, your lender would count that as “persistent debt”.
This happens more often if you only pay the minimum amount, because it takes longer to repay a card balance that way.
How it works is your lender will send a letter after 18 months of persistent debt to suggest paying more, then again at 27 months.
The letter will often phrase it as Recommended Payments.
After 36 months of persistent debt, if the customer continues not to respond or raise their payments, the credit card can be cancelled, according to the FCA.
Which banks have these rules?
Persistent debt is something every bank has to consider and will provide the correct steps and advice to customers in that position.
Ms Williams said: “Halifax’s website has [a] page on persistent debt.
“The two other banks in the same group, Lloyds and Bank of Scotland, also use the same wording on their websites.
“Halifax and all other banks have to offer a customer in persistent debt options at this point.
“They couldn’t choose to ignore it.”
By paying the recommended amount, in most cases, it will only take four years to clear your balance rather than over 15.
What if I can’t afford to pay more?
If you use your credit card to pay for food, energy, petrol or other essentials and feel like you’re stuck, you should call your bank.
They will give you the best advice for your situation.
But remember you shouldn’t be relying on a credit card for financial support.
Ms Williams said: “It’s okay to use a card to pay for essentials occasionally.
“But using credit every month for essentials can’t carry on every month as your debts just increase.”
Other ways to get help
If you are struggling with debt, the best thing to do is seek help – there are organisations there to help you.
For example, StepChange is a free advice service offering support and guidance to help you take control of your money.
You can do it online or over the phone, and it’s completely confidential.
You’ll need to provide details of your debts, income and household spending to get a clear picture of where your money goes.
National Debtline is another charity run offering free and confidential advice to people in England, Wales and Scotland.
You can contact it online or over the phone on 0808 808 4000, between 9am and 8pm Monday to Friday, and 9.30am to 1pm on Saturdays.
It also recommends contacting organisations such as Mind, Samaritans and Anxiety UK if debt worries are affecting your mental health.
It’s also worth checking if there is financial support that could help you too.
Ms Williams said: “If your credit card and catalogue debts never seem to drop, or if they are going up most months, then you get the interest frozen on these debts could be a big help.
“You can talk to the creditor yourself about a payment arrangement or talk to StepChange about a debt management plan to cover all your debts.
“This hurts your credit score but can be the most practical way of getting out of too much debt if you can’t pay a lot more than the minimums.”
A benefits calculator can help you work if you might be entitled to extra cash.
Also, the government’s Household Support Fund sees cash dished out to local authorities to help people in their area.
Contact your local council to find out what support is available where you live and if you qualify.
