New rules mean credit cards may be suspended if customers only make minimum repayments
The financial watchdog has announced new rules to help millions of customers struggling to repay credit card debt
HARD-UP Brits are to be given extra help if they are struggling with credit card debt, under new rules announced today by the financial watchdog.
As part of the new measures customers who pay the minimum repayment on debts for over three year may have their card suspended.
Over 4million Brits make minimum repayments on credit cards, which can lead to a lifetime of debt.
Figures show that customers in persistent debt pay on average around £2.50 in interest and charges for every £1 that they repay of their borrowing.
For example, it would take you 27 YEARS to pay off a £3,000 balance by making the minimum monthly repayments starting at £74 - and pay a whopping £4,000 in interest.
Under the new rules - which will begin on September 1 2018 - firms must notify customers who are only making minimum repayments after 18 months, prompting them to up their repayments.
Summary of the changes to credit cards
FROM September 1 credit card firms must do more to help customers struggling with debts.
- After 18 months if a customer is just making minimum repayments then the card firm must prompt them to make a change to their repayments and inform them that their card may be suspended if they don't.
- After 36 months the provider must offer a way for the customer to repay the debt.
- This could include waiving charges or cancelling interest.
- Credit card firms will also allow customers to opt out of automatic increases to their credit limits.
After 36 months the card firm must offer them a way to repay their balance over a reasonable period.
If the customer is unable to repay then they must help them. This could include reducing, waiving or cancelling any interest, fees or charges.
If a customer doesn't work with their credit card firm to repay their debts then they will have their account suspended.
Credit card firms have always suspended accounts if customers fail to pay bills but this is an extra step to help engage millions of people who are stuck in debt, offering them a way to get out.
In the most serious cases, hard-up borrowers could see their debts wiped completely. Although, this will be decided on a case-by-case basis.
Credit card firms have also voluntarily agreed to give customers more control over increases in their credit limit.
How to cut the cost of your debt
Being in large amounts of debts can be really worrying. Here are some tips from Citizens Advice on how you can take action.
Check your bank balance on a regular basis - knowing your spending patterns is the first step to managing your money
Work out your budget - by writing down your income and taking away your essential bills such as food and transport.
If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs
Pay off more than the minimum - If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker
Pay your most expensive credit card sooner - If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)
Prioritise your debts - If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them.
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don't pay.
Get advice - If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further.
Groups like Citizens Advice and Money Advice Trust can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans
It means that customers can now opt-out of receiving automatic increases in their credit limits.
Today's announcement follows an investigation by the Financial Conduct Authority into the credit card market.
The new rules were first announced last year but the FCA has now worked with firms to agree them.
It says that firms have few incentives to help customers because they are profitable.
MOST READ IN MONEY
Christopher Woolard, from the FCA, said: "These new rules will significantly reduce the numbers of customers with problem credit card debt.
"Credit cards offer customers flexibility to manage their finances and repayments, but with this there is a risk customers can build up and hold debt over a long period of time - without making much headway on the outstanding balance.
"Under these new rules firms will have to help customers to break the cycle of persistent debt and ensure customers who cannot afford to repay more quickly, are given help."
Yesterday, we reported on how a balance transfer credit card could help you save THOUSANDS when paying off your debts.
Last year, Citizens Advice revealed six million customers have seen their credit limit rise in the last year - without asking for it.
We pay for your stories! Do you have a story for The Sun Online Money team? Email us at [email protected] or call 0207 78 24516. Don't forget to join the for the latest bargains and money-saving advice.