nigel woollsey

Nigel Woollsey

Online Writer
Published: 04/11/2019

A recent survey conducted by YouGov on behalf of Pepper Money has revealed that nearly four in 10 (39%) British adults admit to having missed more than one credit payment against a debt, with this reducing to three in 10 (31%) of those aged over 55.

The research also showed that younger borrowers between 35 and 44 years old are more likely to have missed several payments on a credit card or loan.

With personal debt levels in the UK already growing, a worrying one in three (29%) of British consumers are expecting their finances to get worse in 2020.

The YouGov poll, which was carried out on behalf of StepChange Debt Charity, also revealed that just 14% of consumers believed that their financial situation would improve next year.

Last month, StepChange Debt Charity released data that showed that a record number of 331,337 people had contacted the charity in the previous six months seeking help for their debt and, of these, 190,484 were new clients who received full debt advice. This data also showed that the average level of unsecured personal debt increased by 2% to £13,799 in the period April - September 2019.

Credit card borrowers considered to be in persistent debt are currently receiving letters to take action to repay their debt or they could be required to enter into repayment plans and may have their cards suspended.

People who are considered to be in persistent debt are those who have reached 27 months of paying more in interest and charges than they have paid off from their balance. Consumers who receive a letter to take action are being urged to act now as, if they continue to be in persistent debt after 36 months, from March 2020 they will be required to enter into a repayment plan with their card provider and may have their card suspended. The repayment plan could mean borrowers are forced to make higher payments each month, which debt charity StepChange warns could result in people reaching a cliff edge moment when they struggle to make repayments.

This move towards enforcing credit card repayments comes as part of new credit card rules introduced by the Financial Conduct Authority (FCA) in February last year. At the time of the rules being introduced, the FCA estimated that four million accounts are in persistent debt and providers have few incentives to help these customers because they are profitable. The regulator introduced the new rules to try and combat the amount of persistent debt in the UK, however StepChange believes not many in persistent debt have taken action to reduce the amount they owe.  

Phil Andrew, StepChange Debt Charity CEO, said:

“The regulator’s approach to how credit card providers should address longstanding credit card debt initially relies on getting them to encourage people to increase their payments voluntarily. We don’t know how many people have increased their credit card payments as a result of the communications they’ve received, but our sense is that not many have. This begs the question about whether that’s because they haven’t realised the importance of doing so, haven’t noticed their firm’s communications, or simply can’t afford to pay more. We think the regulator should try to find out.

“Our own persistent debt pilot service hasn’t dealt with enough people to give a reliable understanding of the landscape, but has certainly given us worrying cause for concern about the risk of people hitting the buffers hard at 36 months, when actions become compulsory. At this point, there may be significant numbers of people with ‘hidden’ problem debt who are coping on a minimum payment basis but could tip over into difficulty once higher payments are required, and may need help and forbearance at that point.”

Credit cards and overdrafts can be incredibly useful forms of borrowing if used wisely, but if not, they can quickly become lead weights – and many borrowers unwittingly get themselves into unmanageable debt as a result.

Borrowers have been urged to keep an eye on the date their debt repayments are due, after it was revealed missed payments typically rise by 9% in January.

According to ClearScore, defaults increase by 5% in the first month of the year as well, as the festive spending spree takes its toll.

The warning comes after new analysis showed debt levels in the UK are higher than before the financial crash.

The TUC has warned that families are being pushed ever further into the red after household debt rose sharply over 2018.

Indeed, unsecured debt – which includes credit card borrowing and loans – rose to £15,385 per household in the third quarter of 2018, up £886 on a year earlier. In total, the debt mountain increased to a record high of £428bn in the quarter, well above the £286bn peak seen in 2008 ahead of the financial crisis.

A payment missed on a debt will be marked on a borrower's credit report, likely having a negative impact on their credit score. Even worse, missing multiple payments could be declared as a 'default', which will stay on a credit report for six years, even once the debt is paid off.

With lenders viewing such borrowers as a greater risk, they may then struggle to get accepted when applying for credit cards, mortgages and loans.

"Any of us may miss payments from time to time, but this can have a huge impact on your credit score," said Justin Basini, CEO and co-founder of ClearScore. "Think about setting up direct debits so that you can always automatically pay on time, and don't incur late payment fees. If you miss several payments and have defaulted, you should avoid borrowing further until your debt is more manageable.

"If you find yourself unable to afford payments, you can get free advice from charities like StepChange, Debt Advice Foundation or National Debtline, who can put together a personalised repayment plan for you."

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