Credit card debt can be tough to deal with, particularly if it seems like there's no end in sight. Up until now, credit card companies haven't been required to do that much to help, but happily, that looks set to change: the UK's financial regulator is proposing new rules to help those in persistent credit card debt, which could even include interest and charges being waived.
The Financial Conduct Authority (FCA) is today proposing new rules to help customers who are in persistent credit card debt, following its study of the UK credit card market which found "significant concerns about the scale, extent and nature of problem credit card debt".
But what constitutes persistent debt? The FCA has defined someone being in persistent debt if they've paid more in interest and charges than they've repaid of their borrowing over an 18-month period. Unfortunately, this makes them profitable for credit card firms, which is probably why they generally don't do anything to help – but this may not be the case for long.
The proposals require firms to take steps to help customers repay their balances more quickly and to offer further assistance to those who can't, the statement said. This support could take a variety of forms:
As well as helping customers become free of debt quicker, it's also predicted that the rules could help save them huge amounts of money in the process, thanks to lower interest payments and faster repayment overall. The FCA's Andrew Bailey said that persistent debt can cost customers an average of £2.50 for every £1 repaid, and it's predicted that, by 2030, the savings could reach a total of between £3bn and 13bn.
The changes are set to benefit the estimated 3.3m people who are in persistent debt, but it isn't only them who could end up better off, either. The FCA is also proposing earlier intervention by firms when they spot signs that customers are in financial difficulty, requiring them to take action accordingly. There are even plans to give customers greater control over increases to their credit limit, such as by being given the choice of how future increases will be offered, a more straightforward means of declining an increase, and better communication of the existing right to choose not to receive offers of credit limit increases.
"Credit cards can be a very effective product for consumers, but a significant minority of customers experience real difficulties," said Andrew Bailey. "We expect our proposals to reduce the number of customers in problem credit card debt, as well as putting customers in greater control of their borrowing … and [ideally] avoid persistent debt in the first place.
"The measures that we're proposing today, alongside those already announced, are part of a package of significant improvements for credit card customers."
However, while it sounds promising and the measures overall are welcome, critics argue that they don't go far enough. Mike O'Connor, chief executive of StepChange Debt Charity, said that, while the charity welcomes the announcement, "we are concerned that these proposals will not fix the central issue that credit cards, which are supposed to be a short-term form of borrowing, often become long-term and expensive debt.
"The proposals do not address the fundamental question of how credit cards trap people in persistent debt. These measures will still potentially leave people paying back substantial amounts over extended periods of time."
Credit cards can be beneficial to those who are financially savvy, particularly if you take advantage of the various 0% interest deals available to spread the cost of purchases, or opt for cashback deals, provided you can repay the balance in full each month. However, if you're struggling with debt, they quickly become less than helpful, which is why it's so important to take action.
Don't wait until the FCA's potential measures come into force – if you're finding it difficult to make repayments, contact your provider to see if an alternative payment plan can be arranged, or speak to a debt charity for additional support. You may want to look at 0% balance transfer cards if your credit rating is good enough, but just make sure you cut up your former card so you're not tempted to fall back into the spiral. Hopefully, if you take proactive measures, you can avoid becoming one of the millions in persistent debt.
Read our guide on how to get debt-free
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.