What is persistent debt and how do you get out of it?

What is persistent debt?

The term persistent debt is used to explain the situation where you’re paying more money in fees, charges and interest than you’re paying off your actual debt. This can lead to an increase in the time for the debt to be repaid, resulting in further interest. Persistent debt applies to credit card, store card and catalogue account borrowing of more than £200.

The Financial Conduct Authority (FCA) created rules about persistent debt to protect people in the UK. These rules help the lender spot when you're stuck in a debt cycle that isn't working for you.

How is persistent debt worked out?

Persistent debt is measured over a period of 18 months. If during this time, you’ve paid more in fees, charges and interest than you have towards the amount you’ve borrowed, it would be considered persistent debt.

Here's an example of how it’s assessed:

• You owe £1,000 on your credit card
• Over 18 months, you pay £300 towards your debt
• But you also pay £400 in interest, fees and charges
• You now have persistent debt because you paid more in interest, fees and  charges (£400) than actual debt (£300)

Why does persistent debt happen?

Persistent debt usually starts when you only make minimum payments towards your cards or accounts. When you pay the minimum amount, most of your money goes to paying off interest instead of paying off what you borrowed.

This means:

• Your debt stays high for longer
• You pay much more money over time
• It can take years to clear your balance.
  
  

What is persistent debt on a credit card?

Credit card persistent debt is the most common type you'll encounter. Your credit card company must contact you if you fall into this pattern.

You're in credit card persistent debt if all the following apply:

• You make only minimum payments for 18 months in a row
• Your interest and fee payments are higher than the amount you pay off your balance
• Your debt level stays the same or grows despite making payments

Your credit card provider will send you letters explaining your situation. They must offer you help and suggest ways to pay off your debt faster.

Many people don't realise they're in persistent debt until they get these letters. The companies track this automatically using your payment history.

What happens when you have persistent debt?

Your lender will send you letters about your persistent debt. They must write to you after:

• 18 months,
• 27 months, and
• 36 months.

In these letters, your provider will:

• Show you how paying more money will clear your debt faster
• Explain how much you could save on interest
• Ask you to contact them if you can't afford higher payments
• Provide details for free debt help services
• Warn you what happens if your persistent debt continues, e.g. your account being put on a payment plan, or changes to your interest rate.
• Possibly put your account on pause, which can negatively impact your credit report.

How long does persistent debt last?

Persistent debt will last a different amount of time dependant on your circumstances. If you stay in persistent debt for 36 months (3 years), the Financial Conduct Authority (FCA) have made it mandatory that your provider must take action. They might:

• Freeze the interest on your account
• Lower your interest rate
• Set up a payment plan with you
• Stop your card/account from working (as a last resort)

You'll get lots of warning before they stop your card/account. Tell your provider if this would cause you problems, like if you use your card to pay important bills.

Does persistent debt affect your credit score?

Providing you're still making your minimum payments on time, persistent debt won't hurt your credit score right away.

If you start paying more to clear your debt, your credit score might even get better.

But if your provider has to step in after 36 months, they may tell credit reference agencies about the changes to your account which could negatively affect your credit score. Other lenders may be reluctant to offer you credit if they think you’d struggle to repay it.

How long does persistent debt affect your credit score?

Since persistent debt itself doesn't appear on your credit report, there's no set time that it affects your score for.

What matters more is how you handle the situation:

• If you increase payments and clear the debt - Your credit score will likely improve as your credit utilisation drops.
• If you miss payments - Payment history stays on your credit report for 6 years.

The sooner you take action to address persistent debt, the less likely it is to cause credit score problems.

How to get out of persistent debt

You can beat debt in several ways:

1. Pay more each month

The best way to escape persistent debt is to pay more than the minimum amount. You can:

• Set up a fixed payment instead of just paying the minimum
• Add extra money to your regular payment
• Use the examples in your persistent debt letter to pick an amount

2. Get a balance transfer card

If you’re eligible, a balance transfer card can help you tackle this debt. These cards often give you 0% interest for several months. You can:

• Move your persistent debt to the new card
• Pay off as much as possible while there's no interest
• Save money on interest charges

Remember: You might pay a fee to transfer your balance. You usually need a good credit score to qualify, and you'll pay interest on any amount left after the 0% period ends.

3. Combine your debts

If you have persistent debt on several cards or accounts, you might want to combine them. A debt consolidation loan lets you:

• Borrow one lump sum to pay off all your debts
• Make just one payment each month
• Possibly pay less interest

You could use secured loans (using your home as security) or unsecured loans. Remember, extending the length of your borrowing can mean paying more interest overall. Think carefully about which option works best for you.

4. Talk to your provider

Can't afford the payments your provider suggests? Call them and explain your situation. They might:

• Agree to smaller payment increases
• Set up a payment plan you can afford
• Find other ways to help you escape persistent debt

Don't ignore your debt letters as this will likely lead to further problems. Lenders frequently come across these situations, so they know how to deal with them, and there’s no shame in reaching out for help.

5. Get free debt help

If you're struggling with persistent debt and other money problems, free help is available. These organisations can give you expert advice:

• Citizens Advice - Free advice in your local area
• StepChange - Free debt advice charity
• Money Wellness - Free financial guidance
• MoneyHelper - Government-backed money advice
• National Debtline - Free and confidential debt advice

Taking action on persistent debt

Persistent debt might seem overwhelming, but you can beat it. The sooner you take action, the faster you'll get back on track.

Remember:

• Persistent debt happens to many people - you're not alone
• Your card company can provide assistance
• Free advice is always available
• Small changes can make a big difference

Start by looking at your persistent debt letter and picking one action to try. Whether you decide to pay more each month, get a balance transfer card, or call for advice, taking that first step will help you move forward.