New Financial Conduct Authority (FCA) rules could mean that over three million credit card holders struggling to pay off what they owe could have their debts moved to personal loans or have interest and various other fees written off entirely.
This could save Britons indebted to credit card companies over 1.3 billion pounds. Introduced yesterday, on the 1st of March, could cut the number of people in the UK who cannot pay off their credit card debt significantly. Credit card firms make significant profits off of these customers, who pay an average of £2.50 in interest and fees on every £1 of debt they actually repay.
This welcome change to credit card legislation will pressure firms to help out customers who consistently pay their minimum repayments while making very little, if any, progress of getting rid of the actual debt.
Christopher Woolard of the FCA stated that: “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.”
The FCA has given a good example of how credit card debt can become a persistent and overwhelming financial problem by showing “the real costs of making minimum repayments.” If a customer borrows £3,000 on a credit card with an annual percentage rate (APR) of 19%, it would take just under 28 years to pay off by meeting the minimum repayments at £74. This calculation assumes that there will be no further spending on the card. Paying the debt in this way would rack up £4,192 in interest, leading the final charge to well over double what was originally borrowed.
However, if the borrower had increased their repayments by only £34, to £108 per month, the debt would be gone in only three years, racking up £879 in interest.
The FCA’s intention is to force credit card companies to encourage their customers to pay more than the minimum repayments, so they aren’t enslaved to them for a seemingly indefinite amount of time.
However, it is worth noting that this does not help new borrowers, only those with existing debt. This means you should take great care when applying for a new credit card, especially if you are not in a comfortable financial situation.
If you are struggling with credit card debt and it seems like whatever you pay you cannot seem to make an impact on it, or if you find yourself using your credit card to pay off other debts, then give one of our team of advisers a call now on 0800 808 5124. They’re experts on this stuff, and are more than willing to help you negotiate your way out of credit card debt hell.