Barclaycard to impose higher minimum charges on credit cards to clear persistent debt

Barclaycard has announced major changes in its terms and conditions which could impact how much credit card customers must pay each month, from 26 January 2021.

The changes include how the bank calculates minimum payments - the minimum you have to repay on your card each month, changes to the interest charged on cash transactions and a ban on card use for gambling.

Barclaycard hasn't specified how many customers could see their payments increase, or by how much. But it says it will use the highest of three calculations to work out repayments, which will be individual to the customer.

Here, Which? looks at the changes in more detail and explains what your rights are if you can't afford to pay.

Why are the changes being made?

The changes to Barclaycard's terms and conditions come in response to rules set by the Financial Conduct Authority (FCA) in 2018 aimed at helping borrowers in 'persistent debt'.

A borrower is classed as being in persistent debt if they are paying more in interest, fees and charges than the amount they are paying off their balances.

Under the rules set by the FCA, banks are obliged to send letters to customers who have been in persistent debt for 18 months, warning them about the cycle they're in. Then 18 months later - so after three years in total - credit card providers must offer customers a method of repaying their balance over a reasonable period.

Since February 2020, lenders have been able to freeze credit cards and set up repayment plans for indebted borrowers who don't pay back more than the monthly minimum, although the FCA wrote to banks urging them to consider other measures to help customers clear their debt.

Barclaycard says it wants to ensure customers pay down their balances quicker and avoid persistent debt and that the changes shouldn't affect your interest in any other way than over time you'd be paying less.

• Find out more: credit card interest explained

How could monthly minimum charges increase?

From 26 January, the minimum amount you pay will be personalised to you.

If you're a Barclaycard customer the bank should have contacted you by now to tell you what you should pay from next year.

The precise payments depend on the individual customer but will be the highest of the following three calculations:

• 2-5% of the main balance (plus any instalment plan payments) - this is individual to each customer;
• 1-3% of the main balance plus any interest, default fees or account maintenance (plus any instalment plan payments) - this is individual to each customer;
• £5, or the total outstanding balance of an account if it is less than £5.

Barclaycard has contacted customers and used an example of a balance of £2,500, with monthly repayments rising from £60.42 to £79.17 - an increase of 31%.

However, Barclays says that most customers already pay more than the minimum amount so they won't see any change.

It also says it will exclude those who, based on their current balance, would face a significantly large hike on their minimum repayments. Meanwhile, those who are financially vulnerable such as those who may have taken a payment holiday, will be exempt.

This includes customers where a payment holiday has ended and they have started repaying again.

The changes apply to Forward, Platinum, Cashback, Freedom, Hilton Honors and Rewards credit cards. They don't apply to the Premier, Barclays Infinite and Woolwich cards.

• Find out more:Barclaycard credit card review

What other changes are being introduced?

Barclaycard customers should be aware of other changes which will also be coming into effect from 26 January 2021.

Interest on cash transactions

As it stands, you should be paying interest on sterling cash transactions. From January if you pay your main balance in full - plus any instalment plan payments due that month - you'll no longer pay interest on sterling cash transactions (for example, when you take cash out with your card in the UK).

Otherwise, interest will continue to be charged from when the transaction is added to your account and will appear on your next statement.

Credit limit fees

Barclaycard will no longer charge a £12 over credit limit fee.

You'll also no longer lose any promotional rates if you go over your credit limit or miss a minimum payment.

However, if you do go over your credit limit or miss a minimum payment, your credit records may be affected, meaning it may be harder or more expensive for you to borrow in the future.

Late payment fees

From January you'll only be charged late payment fees a maximum of four times a year.

Late payment fees are currently £12 every time you miss a payment. This means the maximum you could pay a year in late payment fees won't exceed £48 under the new rules.

Gambling transactions

From 26 January 2021, Barclaycard will be blocking any transactions made at a gambling establishment or on a gambling website, so if you try to use your card, it won't go through.

What if I can't afford the repayments?

If you're affected by the changes and can't afford to pay, you may be able to get some help.

Banks have been offering support to customers during the coronavirus crisis.

The FCA has set out proposals to extend payment holidays on credit products for up to six months. You can contact Barclaycard to see if you can get any help via online banking, the app or by calling 0800 151 0900.

• Find out more:coronavirus payment holidays on credit cards and loans

How to clear your credit card debt

If you are in persistent debt, or if you want to pay off any kind of longstanding credit card debt, it's best to pay off more than the minimum amount each month.

That's because it's much more expensive in the long run if you only make the minimum repaymentsas they usually only cover interest and fees. Only a really small amount actually goes towards clearing your debt. Furthermore, since minimum payments are charged as a percentage, they'll shrink when your debt shrinks, meaning it will take you even longer to pay it off.

You can use our credit card repayment calculator to see what difference a fixed payment could make to your credit card balance.

You could also apply for an interest-free balance transfer credit card. If accepted, you'd pay no interest on your balance for a set period so more of your payments go towards clearing your balance, although minimum payments are still required.

If you're unable to meet minimum repayments, consider seeking help. Debt charity StepChange offers free help and advice to those struggling with their finances.

• Find out more: 44 tips on paying off your debts