Persistent debt question

Willing2Learn

Hi Dandytf,

This what the FCA rules say about potentially problem credit card debt

We have used four indicators, each based on 12 months of data to December 2014. The indicators are defined as follows:

Severe arrears: consumers that have been charged-off or have been at least six months in arrears.
Serious arrears: consumers who having missed three or more repayments, and are either in or have been in arrears.
Persistent debt: consumers that have an average credit limit utilisation of 90% or more while also incurring interest charges.
Systematic minimum repayments: consumers that have made nine or more minimum repayments, while also incurring interest charges.

Source: https://www.fca.org.uk/credit-card-market-study-interim-report/problem-credit-card-debt

Click on the link for the full detail

Dandytf

Excellent @Willing2Le.

That's very different from my understanding, though possibly I have exceeded 90% use in past, not recently.
Thought I appreciated these FCS rules are from 2014.
My understanding is that if Interest occurred exceeds re payments then that is Persistent Debt.
On that basis I was wondering if I should calculate 12 months interest v 12 months re payments.
Thanks

Dandytf

Accurate description.

Optimism bias (where consumers may be overconfident when assessing the likelihood of future events). Consumers with more moderate levels of optimism have been shown to be more likely to pay off their credit card balances while extreme optimists have been shown to have preferences for credit card features that are inconsistent with their subsequent borrowing behaviour.

Thanks mser's

Ergates

Dandytf wrote: »

My understanding is that if Interest occurred exceeds re payments then that is Persistent Debt.

No. Persistent debt is if, over an 18 month period, you have *payed off* more in interest and charges than in balance. This normally occurs when people are only paying off the minimum, however "paying off the minimum" doesn't form part of the definition.

If interest is exceeding payments, then the amount owed will be going up - which is very bad. It doesn't have to be that bad to be persistent debt.

Dandytf

Thanks mser's

It's going to be my original plan to use h2save from March 2020- leave 50-100 pounds to save another 2 years.
Use next years remaining pre April savings+extra from H2s reducing aqua to hopefully avoid any action.

Terry_Towelling

Dandytf wrote: »

Thanks mser's

It's going to be my original plan to use h2save from March 2020- leave 50-100 pounds to save another 2 years.
Use next years remaining pre April savings+extra from H2s reducing aqua to hopefully avoid any action.

Hi, Dandytf.

I think you may need to check the H2S rules for years 3 and 4. I think the year 4 bonus payment is based on the maximum balance achieved in years 3 and 4, minus the maximum balance achieved in years 1 and 2.

So, if you saved £1200 in years 1 and 2, you get £600 bonus. If you then withdraw all but £50 and then save another £1200 in years 3 and 4, your maximum balance in years 3 and 4 will be £1250. Your bonus will then be 50% of £1250 minus £1200 - or £25.

That would be the equivalent of doing a 2 year regular saver with a rate of about 2%. Now that sort of rate sounds quite good if you are on a limited budget and can only save £50 per month, but you have to remember that you would need to commit to the full 2 year period to get it. If you missed just 1 payment, or had to withdraw more than £50 for an emergency expense, you'd get no year 4 bonus whatsoever.

Please correct me (anyone) if I've got any of this wrong.

Dandytf

Hi Terry T.

I'll use some time today to review H2s years 3+4.
From memory I thought it was a simple save for 2 more years -without leaving nil balance from Account opening.
This would achieve 50% bonus from Highest balance saved from years 3+4 though this maybe me using years 1+2 formula.
I know there is a warning on selecting withdrawal option -which I did do for kitchen floor during year 2.
That warning doesn't. Go into detail of impact to bonus so I'm hoping your original full bonus is correct q1 2020 from years1+2.

I noticed in your calculation you've included 50 from years1+2 in addition to years 3+4 savings
I thought 50% would be from highest balance from years 3+4 savings -i.e. not anything from year 2.

The minus the balance achieved from1+2 I hadn't seen, I'll review and update.

Thanks

Dandytf

Currently years1+2 bonus is 425 -this won/t go any higher as I made my Kitchen floor wthdrawal.
Yes I did consider waiting until next April to claim full 600 bonus though my floor seriously needed replaced.

From H2s

Years 3+4 Bonus is taken from the difference in Highest balances save from Years 1/2 + 3/4
50% bonus payable from that difference.
I got yr1 highest balance 850 (i took kitchen floor)
Yr2 could be 24*50 if no withdrawals 1200

1200-850 difference is 350
50% yr 4 bonus could be 175

Hope that's correct -how does h2save state that The most you can earn from your savings in 4 years is £1,200 in bonus money.

I hope not to make any wihdrawals during 3+4 unless there is an urgent need.

Dandytf

OP

Hope you avoid any further persistent debts action.
Sounds as though your doing well increasing payments.

Terry_Towelling

Dandytf wrote: »

I noticed in your calculation you've included 50 from years1+2 in addition to years 3+4 savings
I thought 50% would be from highest balance from years 3+4 savings -i.e. not anything from year 2.

The minus the balance achieved from1+2 I hadn't seen, I'll review and update.

Thanks

You are correct, nothing from years 1 & 2 counts towards your year 3 & 4 highest balance - I included that incorrectly.

Your latest calculations are correct, in that you could get a £175 bonus at the end of year 4 if you manage to save another £1200. Basically, you need to ensure you save more in years 3 & 4 than you did in years 1 & 2 to get any bonus.

Personally, I'd be paying down my debts because that level of bonus is likely to be less than the amount of credit card interest you will be charged over the two year period. Remember, every £50 that you do not pay off your card debts will incur interest at 20% - 35% APR (card dependent) for the entire years 3 & 4 saving period.