Persistent debt and the high APR method

SecretDuck

I'd appreciate any help on this matter.

I'm finally increasing my income, which leaves room for fully paying off the balances on all of my credit cards.

If it wasn't because of the persistent debt regulations, I'd aggressively tackle the highest APR cards first and pay them off while all other cards have minimum payments, rinse and repeat. But they have made it harder to do this method, as persistent debt is categorised per card and not overall.

Capital One has already asked a big payment of around £520 to be paid before next February, but they told me that afterwards, I can choose my own amounts at or above the minimum.

I'm thinking of checking the interest charged each month and making sure I just about pay more capital than interest per month on all of the other cards, while still mainly focusing on the high APR cards. Would that work to keep me off persistent debt, or am I missing something?

Any advice would be highly appreciated.

Willing2Learn

Can you afford to pay more than the minimum contractual payments or are you caught in a cycle of debt?

SecretDuck

Willing2Learn wrote: »

Can you afford to pay more than the minimum contractual payments or are you caught in a cycle of debt?

I can afford it, but only now and after being in a long cycle of persistent debt.

Ideally, I'd want as much of the increased income to go towards the high APR cards, but there's also the pressure of possibly permanently losing access to my other cards.

Willing2Learn

How much do you owe on each card?
And what is their respective credit limit?

Have you checked your eligibility for a 0% APR Balance Transfer card?

enthusiasticsaver

How many cards do you have and what interest rates are they charging? Have you only had a persistent letter from Capital One so far? You should pay more than minimums on all even if only slightly above especially if you are paying interest.

SecretDuck

I have 9 cards and have over £10k in debt. I don't think I'm eligible for a 0% balance transfer but that will surely speed up the process of repaying everything.

The more urgent letter has been from Capital One. Another one is from Barclaycard. The others have not reached out to me yet, especially not Marbles or Aqua, even though they're supposed to be my main priorities.

Willing2Learn

SecretDuck wrote: »

I have 9 cards and have over £10k in debt. I don't think I'm eligible for a 0% balance transfer but that will surely speed up the process of repaying everything.

The more urgent letter has been from Capital One. Another one is from Barclaycard. The others have not reached out to me yet, especially not Marbles or Aqua, even though they're supposed to be my main priorities.

I think you really need debt counselling advice. Ideally, you would have enough wiggle-room to snowball the accounts. But it sounds like that may not be an option.

I recommend you complete your Statement of Affairs (SOA) and then paste it up into a new thread on the main Debt-Free Wannabe (DFW) board for advice, guidance and support.

xebruary

Bear in mind that in general if you redirect your repayments from high-interest debt to lower-interest debt you will trigger the persistent debt definition with more of your lenders. By definition changing your repayments like this is reducing the proportion of your repayments that goes to capital and increasing the proportion that goes to interest and fees (because the snowball method is designed to do the opposite). I think what you are saying is that you plan to do this but clear some cards quickly enough that the persistent debt definitions do not come into play.

What you are also missing is that those lenders that have already classed you as in persistent debt are required to reassess this status (in another nine months I think) to determine if they expect you will remain there - if you increased your payments to the point where they equally repaid interest and capital I would expect you still to be classed in this group in nine months' time, either because the lenders add some conservatism to the estimation or use more than nine months of payment history.

The persistent debt regulations are supposed to help borrowers who are in persistent debt, by making sure they are caught within the lenders' strategies for vulnerable customers or forbearance treatment as the case may be, instead of perpetually stuck in debt. If they are likely to make you worse off (by increasing the total cost of your debt as you try to avoid meeting the definition), I would suggest you be up front with Capital One about your debt situation and come to an agreement which may involve reduced or frozen interest or being put on an arrangement plan. You should consider 'possibly permanently losing access to my other cards' a good thing which would be healthy for you.

I would agree with Willing2Learn and refer you to the DFW forum, posting the details of your finances and debts as (s)he suggests. Amongst other advice you will receive will be to start an emergency fund - you could do this, keep up the snowball method, and if you do get asked to make bumper repayments to remedy the persistent debt, you could take it out of the emergency fund.

Ergates

SecretDuck wrote: »

I'm thinking of checking the interest charged each month and making sure I just about pay more capital than interest per month on all of the other cards, while still mainly focusing on the high APR cards. Would that work to keep me off persistent debt, or am I missing something?

Yes, that would keep you out of persistent debt. As long as (averaged out over an 18 month period) you pay off more capital balance than interest you're not in PD.

In theory as long as you pay 1p more balance than interest you're OK, but it's probably safer to go over by a few quid to avoid a rounding error.

Ergates

xebruary wrote: »

What you are also missing is that those lenders that have already classed you as in persistent debt are required to reassess this status (in another nine months I think) to determine if they expect you will remain there - if you increased your payments to the point where they equally repaid interest and capital I would expect you still to be classed in this group in nine months' time, either because the lenders add some conservatism to the estimation or use more than nine months of payment history.

At the 27 month reassessment (that is, 9 months after the first letter), the bank will check your last 9 months payment history (i.e. since the 1st letter). If you've upped your repayments and are now paying off more balance than interest then whilst you won't get a second letter, you also won't have your PD status removed.

They then have to keep monitoring you for a further 9 months and at the 36 month mark they check your last 18 months history (again, from the date of the first letter). Assuming you've maintained the increased payments it's at this point your PD status would be removed. Alternatively, if your balance drops below £200 at any point, PD will be removed straight away (well, when they perform the next monthly check)

It's possible that at the 27 month mark you were looking OK, so didn't get a 2nd letter, but at the 36 month mark you're back in PD, in which case your card would be stopped.

SecretDuck

Thanks, guys.

I think I will pay off the high APR cards (Marbles and Aqua) first, while making sure my payments on my other cards at least pay more capital than interest each month. I will also pay the lump sum payment that Capital One has asked for.

Great idea on the emergency fund - I don't know yet whether the other credit card companies would ask me for a lump sum payment like Capital One.

Maybe losing a few cards permanently wouldn't be a bad thing, as decluttering would make things easier to manage in my wallet.