In the complex world of personal finance, persistent debt can be a silent menace, quietly accumulating and hindering financial progress. Defined by the Financial Conduct Authority (FCA) as a situation where interest, fees, and charges exceed the amount paid off over 18 months or more, persistent debt is a challenge faced by many credit and store card holders. In this blog post, we'll explore what persistent debt entails, why it matters, and practical strategies to escape its grip.

Understanding Persistent Debt

Persistent debt occurs when the cumulative interest, fees, and charges surpass the payments made towards the principal amount borrowed. This typically happens when individuals make only the minimum payment or slightly more, leading to a prolonged repayment period. Lenders often notify borrowers about their persistent debt status through letters, urging them to take action to avoid long-term financial consequences.

The Cost of Minimum Payments

Making only the minimum payment may seem like a convenient option, but it comes with a high financial cost. Let's consider an example based on a £3,000 credit card balance with an effective interest rate of 24%. Paying the minimum amount would take a staggering 28 years and 3 months to repay, resulting in £5,214 in interest and a total payment of £8,214. This emphasises the importance of seeking alternatives to break free from persistent debt.

Strategies to Reduce Debt

• Pay More Than the Minimum:
• Aim to pay more than the minimum amount stipulated on your credit card statement.
• Even modest additional payments can significantly reduce the overall balance and interest paid over time.
• Understand the Impact of Fixed Payments:
• Making fixed payments, such as £84 each month, can speed up the repayment process.
• In the example provided, paying a fixed amount reduces the repayment time to 4 years and 10 months, with £1,866 in interest and a total payment of £4,866.
• Optimise Payments to Minimise Costs:
• Paying a little more, such as £124 each month, further accelerates the debt clearance.
• This approach results in repaying the balance in 2 years and 9 months, with only £981 in interest and a total payment of £3,981.
• Consider Debt Consolidation
• Explore options like debt consolidation to streamline payments and potentially secure a lower interest rate.
• Budgeting and Financial Planning
• Develop a realistic budget to allocate funds for debt repayment and avoid accumulating additional charges.

By understanding the implications of persistent debt and adopting strategies like paying more than the minimum, fixing payments, and optimising repayments, you can work to regain control of your credit card finances. Most importantly, if your credit card provider contacts you about persistent debt, reach out to them and discuss how they can help you.

If you have a Harlowsave loan and you want to discuss your options, you can contact our team on 0208 607 5020.