By clicking a retailer link you consent to third-party cookies that track your onward journey. This enables W? to receive an affiliate commission if you make a purchase, which supports our mission to be the UK's consumer champion.
Three ways credit card companies must help you deal with debt
More than three million people in the UK struggle with persistent credit card debt - but new rules from the FCA may offer help for those making long-term repayments.
From 1 September, credit card companies will be obliged to offer assistance if cardholders have not begun making sufficient repayments on their balance after 18 months.
Which? explains how the new rules work and how managing your repayments can help you tackle debt.
What are the FCA's new credit card company rules?
The FCA estimates that around three million people, with more than 4m credit card accounts, have persistent debt - meaning that in the past 18 months, they've spent more on interest and fees than they have repaid on the outstanding debt.
To tackle this problem, the FCA has introduced new rules requiring credit card companies to identify people in this situation, and offer help.
From 1 September, companies are required to:
1. At 18 months: explain benefits of higher repayments
Under the new rules, credit card companies will need to identify customers who have fallen into persistent debt over the last 18 months, and contact them to explain why they should consider increasing their repayments.
Companies will need to explain the benefits of higher monthly payments, and point customers in the direction of debt help and advice.
2. At 27 months: remind customers to consider repaying faster
If, at 27 months, it seems likely the customer will still be in persistent debt at 36 months, the company must contact them with a reminder of the benefits.
3. At 36 months: offer reduced interest or fees
When a customer has been in persistent debt for 36 months, the credit card company must offer them options to repay their balance more quickly. Credit card companies must treat these customers with 'forbearance' - which may include reducing interest, fees or charges to make repayment possible.
- Find out more: credit card interest explained
Why should you avoid the minimum payment?
If you make the minimum repayment on your credit card,it could take you years - if not decades - to repay your debts. What's more, FCA research found that for every £1 repaid, these customers pay around £2.50 in interest.
The minimum payment will generally cover any interest or fees accrued over the past month, but will only make a small contribution towards repaying your debt. As your debt gradually whittles away, your minimum payment will shrink - meaning you'll repay even more slowly.
Increasing your monthly payments, even slightly, can help you speed up the repayment process and decrease the amount you spend on interest.
In the example below, fixing your payments at £74 a month - rather than just paying the required minimum - can decrease your repayment time from 27 years to just five years.
How long does it took to repay credit card debt?
Say you owe £3,000 on a credit card with an APR of 19%...
| If you make the minimum repayments | If you fix your minimum payment | If you set a higher fixed payment | |
|---|---|---|---|
| Monthly payment | Starts at £74, reduces over time | Fixed at £74 per month | Fixed at £108 per month |
| Time to repay | 27 years and 7 months | 5 years and 2 months | 3 years |
| Interest paid | £4,192 | £1,576 | £879 |
Source: FCA, correct as of 27 February
Credit card repayment calculator
If you're not sure when your debt will be repaid, you can use our credit card repayment calculator to make an estimate.
Why are the new FCA's rules being introduced?
Under the new rules, the FCA estimated that two million customers will move to faster repayments before they hit 36 months and around 1.4 million will do so at 36 months.
Overall, the FCA estimated that customers could save between £310m and £1.3bn per year in reduced interest charges.
The rules come into effect on 1 March, but companies have until 1 September to fully comply.
Credit card companies have also agreed to a number of voluntary measures: customers in persistent debt for more than 12 months will not be offered credit limit increases, and all customers will have the option to opt out of automatic rises.
How to find the best credit card provider
Choosing a credit card will often come down to the best rates available and incentives like cashback or 0% interest.
But it's worth weighing up what each provider offers and how well they rate on customer service.
You can find out more with our reviews of the best and worst credit card providers.
