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Continue to 100% pay off debts?
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Don’t just go for a 0% deal in the weekly email - use an eligibility calculator like the one to be found in the MSE Credit Club to ascertain where you are best to apply first - otherwise you could end up being refused and reducing your chance of being accepted by a better option where you would otherwise have been accepted straight off.🎉 MORTGAGE FREE (First time!) 30/09/2016 🎉 And now we go again…New mortgage taken 01/09/23 🏡
Balance as at 01/09/23 = £115,000.00 Balance as at 31/12/23 = £112,000.00
Balance as at 31/08/24 = £105,400.00 Balance as at 31/12/24 = £102,500.00
£100k barrier broken 1/4/25SOA CALCULATOR (for DFW newbies): SOA Calculatorshe/her1 -
Superhoopza said:Martico said:Also, only paying minimums on cards (that are not in a period of a promotional rate like a balance transfer) is more likely to get you a flag for being in persistent debt than if you continually pay over the minimum
Nobody should be fooled into thinking that the debt companies are doing this because they have the financial welfare of their customers in mind, it is because the persistent debt warnings were brought in by FCA regulations
https://www.ukfinance.org.uk/our-expertise/cards/financial-conduct-authority-fca-rules-persistent-credit-card-debt-36-months-actions-frequently
The criteria is "the amount you have paid in interest, fees and charges is bigger than the amount of borrowed money that you have paid back."
That is not hard to achieve if there are a lot of charges, but on interest alone a £1500 balance that paid minimum payment of 3.5% would hit that criteria at 30 months and the minimum payment percentage can be lower. This is something I simply do not understand, it seems to me that the minimum payment should always exceed the interest. If somebody got a credit card and went on a spending spree and maxed out the £1500, then a 3% minimum payment would be over £3 less than the interest payment for the month.
With a minimum payment of the greater of 3% of balance or £5 a £1,500 debt will take 82 years and 4 months and cost £15,619 in interest.
Even making the minimum payment of the greater of 3% of balance or £50 a £1,500 debt will take 5 years and 9 months and cost £1,905 in interest.
If you did pay a minimum of £50 on that £1500 debt you would still hit the Persistent Debt Criteria of the amount you have paid in interest, fees and charges exceeding the amount of borrowed money that you have paid back.
Or are they saying the net payment of what you paid back exceeding what you borrowed, because if you make that £50 payment you only reduce the debt by under £5 a month for around the first 35 months and you would owe still owe around £1,405.
Maybe credit cards are just toxic debt, we know that everyone has ups and downs, so these 0% cards seem to be just to encourage you into over extending, then when you hit the level where you can service the debt but not clear it, no more 0%.
Is the answer to have a minimum payback rate a third of the interest rate charged, it would still take 41 months to pay off but the payments would be higher (£200 in the first month for the £1500/39.9% example but the consumer would pay around £400 in interest instead of over £15k
If someone could not afford the repayments of one third of the interest rate charged (39.9% / 3 = 13.3% minimum payment) then they surely can't afford to service the debt. Higher repayments make people take debt seriously when deciding whether they can afford it.
A £1500 debt used to cost the lender £75 in reserve fee, but on March 26th 2020 the Federal Reserve reduced the reserve requirement to 0%, yes you read that right, they can create free money for 0%, it is literally a licence to print money at no cost.
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
This is said to be part of the price paid for quantitative easing during pandemic which may explain why the banks had to force interest rates to consumers up to what they call more "normal" levels of 5% (to improve their liquidity) and perhaps led to questions regarding the liquidity of banks, leading to runs on certain banks.
There are safeguard funds to protect "the system" and banks are generally very profitable, which is not surprising when a £1500 debt at 39.9% with minimum payment at 3.5% earns them over £15,000 with no reserve cost and takes 52 years. The average number of credit cards and/or amount borrowed will be higher and those who are well off will get on top of it, but for the irresponsible lending described above it is over 1000% cumulative interest paid.
I guess the persistent debt threshold is a kind of brake, but would it not be better to prevent rather than cure with a minimum payment of 1/3rd of the interest rate charged or 5% of the debt if zero percent interest charged.0 -
BadDebtor said:Superhoopza said:Martico said:Also, only paying minimums on cards (that are not in a period of a promotional rate like a balance transfer) is more likely to get you a flag for being in persistent debt than if you continually pay over the minimum
Nobody should be fooled into thinking that the debt companies are doing this because they have the financial welfare of their customers in mind, it is because the persistent debt warnings were brought in by FCA regulations
https://www.ukfinance.org.uk/our-expertise/cards/financial-conduct-authority-fca-rules-persistent-credit-card-debt-36-months-actions-frequently
The criteria is "the amount you have paid in interest, fees and charges is bigger than the amount of borrowed money that you have paid back."
That is not hard to achieve if there are a lot of charges, but on interest alone a £1500 balance that paid minimum payment of 3.5% would hit that criteria at 30 months and the minimum payment percentage can be lower. This is something I simply do not understand, it seems to me that the minimum payment should always exceed the interest. If somebody got a credit card and went on a spending spree and maxed out the £1500, then a 3% minimum payment would be over £3 less than the interest payment for the month.
With a minimum payment of the greater of 3% of balance or £5 a £1,500 debt will take 82 years and 4 months and cost £15,619 in interest.
Even making the minimum payment of the greater of 3% of balance or £50 a £1,500 debt will take 5 years and 9 months and cost £1,905 in interest.
If you did pay a minimum of £50 on that £1500 debt you would still hit the Persistent Debt Criteria of the amount you have paid in interest, fees and charges exceeding the amount of borrowed money that you have paid back.
Or are they saying the net payment of what you paid back exceeding what you borrowed, because if you make that £50 payment you only reduce the debt by under £5 a month for around the first 35 months and you would owe still owe around £1,405.
Maybe credit cards are just toxic debt, we know that everyone has ups and downs, so these 0% cards seem to be just to encourage you into over extending, then when you hit the level where you can service the debt but not clear it, no more 0%.
Is the answer to have a minimum payback rate a third of the interest rate charged, it would still take 41 months to pay off but the payments would be higher (£200 in the first month for the £1500/39.9% example but the consumer would pay around £400 in interest instead of over £15k
If someone could not afford the repayments of one third of the interest rate charged (39.9% / 3 = 13.3% minimum payment) then they surely can't afford to service the debt. Higher repayments make people take debt seriously when deciding whether they can afford it.
A £1500 debt used to cost the lender £75 in reserve fee, but on March 26th 2020 the Federal Reserve reduced the reserve requirement to 0%, yes you read that right, they can create free money for 0%, it is literally a licence to print money at no cost.
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
This is said to be part of the price paid for quantitative easing during pandemic which may explain why the banks had to force interest rates to consumers up to what they call more "normal" levels of 5% (to improve their liquidity) and perhaps led to questions regarding the liquidity of banks, leading to runs on certain banks.
There are safeguard funds to protect "the system" and banks are generally very profitable, which is not surprising when a £1500 debt at 39.9% with minimum payment at 3.5% earns them over £15,000 with no reserve cost and takes 52 years. The average number of credit cards and/or amount borrowed will be higher and those who are well off will get on top of it, but for the irresponsible lending described above it is over 1000% cumulative interest paid.
I guess the persistent debt threshold is a kind of brake, but would it not be better to prevent rather than cure with a minimum payment of 1/3rd of the interest rate charged or 5% of the debt if zero percent interest charged.
I'm not aware (certainly none of my credit providers) have a minimum payment below the interest amount. They are all interest payments + a percentage. As long as your minimum payment is double or more than your monthly interest rate, you will clear more of the balance per month than you pay in interest.0
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