Persistent Debt - FCA new rules - could they really help?

[coralush]

I needed to build my credit rating and was offered a credit card about 3 years ago, albeit v.high interest. I snapped it up, was then offered a few more - took them up too, all high interest. Irresponsible yes, but they weren't for huge amounts.

As predicted (i'm sure by the lenders) I started relying on them when I was a bit skint (usually before payday) buying food shops, new pair of shoes for DC, ex and I split, need it more, etc etc.. no wild spending - but enough to almost max them out over a few years. More so because the interest was so high and I was only making minimum payments. The balance just never seemed to be going down.

Anyway a few months ago I thought enough is enough! Sick of the my wages going on credit cards! I haven't used them for about 3 months (unless desperate - but this has been to the tune off £125 for an unexpected bill). I've had quite a few large automatic increases but haven't been tempted one bit). I've implemented the snowballing system (look it up if you've never heard of it) and it seems to be working well. I predict I will be debt free by June 2020. Literally every penny I have goes to pay of my debt. I've not bought new clothes for months, watch what I spend in the supermarket etc etc. Really really trying. At the grand old age of 30 something I really woken up to bad debt. My credit score is stable and has improved somewhat - I've not missed any payments.

Anyway - reason for my post. I received an email from one of my credit card people last night with information on changes that have been implemented by the FCA - which could really benefit those that have been paying min/low payments for more than 18 months and have paid more in interest than off the debt. 🤚🏼. They said they will be writing to propose an offer than would help pay off debt within 18 months - does anyone have any idea what this might look like? freezing interest etc? Or has anyone received the same thing?

Thanks in advance.

I think this is probably a fixed payment but it would mean you wouldnt be able to get any more credit cards until its paid off, and maybe for a period after. I havent looked into the details but Id imagine its similar to an IVA.

However, I appreciate youre doing the snowballing system. I hope youve transferred your credit card debt to 0% cards and then cut them up. That way you can stop accruing interest and set a sum aside each month to pay it off.

Thanks Key.

I'll wait and see what the proposed plan the CC company send through is like. If it's something that will have a negative impact on my credit report, I'd rather carry on as I am. If that's an option of course.

No. I have got a good enough score to be accepted for a 0% credit card, so I'm just plodding on with the high interest trying to clear what I can. Trouble is some of the cc companies keep putting the interest up, so sometimes it feels like I'm fighting a losing battle. That's why I was interested to hear about these new regulations. If they freeze the interest without a negative impact then I'll be able to pay them off quicker.

All my own fault I suppose, I'll get there. And yes, I've cut them all up, apart from one. Just for extreme emergencies only.

Watching with interest!

coral you have done brilliantly - congratulations!
I will have to look up snowballing!

This is very ad hoc and by no means a policy, but I worked for a large bank and on several occasions I've taken a look at a customer's borrowing when they're struggling to pay back, assessed that they've paid back more than they've actually borrowed and the remaining balance is essentially interest, and decided to write it off as a gesture of goodwill. Easier to do with a loan than a credit card.

In a fairly senior position in complaints to make that decision but i guess what I'm saying that regardless of what FCA says it's worth asking the question. Also worth me pointing out it's a large bank more interested in helping their customers than some of the credit card companies offering high rates for those with poor credit.

Hi Piefaced.

On the face of it it looks really promising. CC companies have until the 1 September to make the changes. I first read about it in February.

I have attached the email I received from Barclaycard yesterday. I think I would qualify.

I used to work for a credit card company, and the persistent debt element by the FCA is more about not offering unsolicited credit limit increases, offering boosted payments to clear the balance quicker.
For example,
If you pay an extra X amount, you save X in interest per year and clear your balance in X amount.

Unforunately, not freezing the interest or payment arrangements guys :(

That email from Barclaycard just looks like they're going to tell you what you need to pay off to be paying more capital than interest rather than cutting the amount if interest

^ that is exactly what it is.

Thank you Luna! Honestly, that's so nice to hear.

It's not been easy, I think the next 12 months will be the hardest. I really am penny pinching, walking everywhere, not buying my beloved cappuccinos, taking lunches to work, no new clothes, obviously my DD never goes without. I have made massive cutbacks where I can.

It's been a huge life lesson, and one I'll be teaching my DD. I'm even managing to squirrel away £20 a month in a junior ISA for her. I really don't want her to ever be in this situation.

There's loads of information on snowballing - I used this - mobile.whatsthecost.com/snowball.aspx

Ah thanks Alan and Linda.

Never mind. Guess if it sounds too good to be true...

I'll just carry on as I was.

Can you approach your own bank for a consolidation loan? Try and save you some interest. You'll often have more luck with your own bank if you run your accounts well.

Hi Alan,

I don't think I'd be accepted for any loan.

Im currently paying down my utilities debit and will be switching provider in September - hopefully save me another £70 a month.

Thank you for your suggestion.

Ah that's gutting! I had the same email and was looking forward to a bit of help!

I'm working on the large overdraft first as I find it hard to know where I stand when I'm always seeing a minus figure.

I'm then going to either tackle the card with the highest rate or start with the smaller debt. I know it's financially better to pay off the higher rate first but mentally, it's a sense of satisfaction to get rid of a whole card.

Read this too

www.moneysavingexpert.com/credit-cards/bad-credit-credit-cards/

www.fca.org.uk/news/press-releases/new-credit-card-rules-introduced-fca

I've just read this, and it more about proposing a new payment plan? Eek! That might throw my 'snowballing' (excuse the pun!) system out of the window. To be honest it just feels like more pressure. If I can only afford to pay the min payments now, how will I afford 'boosted payments?'.
Obviously if I paid more. I'd pay it off quicker and with less interest. It's hardly groundbreaking news.

In terms of credit limit increases, for this particular card I've had 2 small increases in 3 years, that that won't have a real impact on me.

Thanks Key. I'll take a look.

Thanks for all your advice. It's honestly so good to have somewhere just to chat about it and get sound advice from those that work in the financial industry.

I guess some people don't cotton on how much they're spending on interest by just paying the minimum and could afford a bit extra. It's more looking at those people and ensuring they're aware of the reality of it rather than just leaving them to their own devices, you're clearly clued up though.

Would be worth having a meeting at your bank for a financial review to see if there's any way they think they can help, you might be surprised. You don't have to do it alone.

And Life. Yes that sounds like a really good idea. A lot of the snowballing sites suggest paying the smaller debt of first for the 'mental boost'.

I decided to start with the higher interest one, as the amount of interest I was paying a month is ridiculous. I worked about if I paid an extra £60 a month toward it and kept my others as minimum payments I would pay it off by Dec 2019 saving over £5k (!) in interest as opposed to paying the minimum payment which would take until 2024.

Thanks Alan. I might just do that you know. I've got nothing to lose. I've not been late or missed a payment in a good while. (Apart from a late one last January, which I am so gutted about it was merely an oversight, thought Direct Debit was active). But other than that, I've been on the ball.

Yes I agree it's about making people aware, and it will really benefit some people. At the end of the day, it's not up to the credit card companies to manage our debt, I knew what I was signing up for. They're there to make money. Once these debts are gone, I'll never ever let myself get in this situation again. It does have an impact on life. Especially when I see my friends doing nice things and buying houses etc.. but hopefully one day that will be me...

I've cut my budget right back. It's amazing what you can achieve when you try. So, I watch Netflix and not Sky. Do your shopping on the lower rows in supermarkets, where they put the cheap stuff. Go into a supermarket with a target spend. Get your energy on a fixed tariff. Get your car insurance renewed 3 weeks before due date. Be ruthless with things you buy. Spend every day with a target in your head. Change all your direct debits so they come out earlier in the money, just after you get paid. That last one helped me the most.

*earlier in the month

The FCA has merely cottoned on about what I've been saying for years and years and years about the Standing Order trick
it works
its simple
it involves no new borrowing
and reduces payment times on credit card debt from around 20 years to two years

That's the think Peace, on not part of my payment section on any of my credit cards does it offer the option to set up a standing order - now I know why!