Barclaycard is making major changes to its terms and conditions which could affect how much credit card customers pay each month, from 26 January 2021 – meaning by the time you’re reading this, the changes will have come into effect, and if you’re a Barclaycard customer, you should have already been notified. 

The changes have been made in response to new rules set by the Financial Conduct Authority (FCA) aimed at helping borrowers in ‘persistent debt’, and a reminder from the FCA that paying off only your minimum contractual payment each month, at least on a long-term basis, is rarely a good idea and has been causing long-standing detriment to consumers. Other credit card companies are subject to the same rules and will be obliged to identify and help customers who persistently only make minimum payments. If this applies to you then you might want to start considering your options now, so you can remain in the driving seat and fully understand the choices you have.

Persistent Debt

A borrower is considered to be in “persistent debt” if they are paying more in interest, fees and charges than the amount they are paying off their balances according to the FCA rules. The rules oblige banks to send letters to customers who have been in persistent debt for 18 months, warning them about the cycle they’re in. Then 18 months later – so after three years in total providers must offer customers a method of repaying their balance over a reasonable period. And this is what lies at the heart of Barclaycard’s rule change – an attempt to “encourage” customers to pay their debts down more quickly. 

Barclaycard hasn’t specified how many customers could see their payments increase, or by how much but says increases and options will be personalised. If you’re a Barclaycard customer, you should have been contacted by now with details of the increase that applies to you. 

The Minimum Payment “Trap”

Some people have described minimum payments on credit cards as a “trap”. That’s alarming language. The key here is if your finances are set up where you are persistently making only minimum repayments, with no plan, or ability, to increase them, then you’ll be making repayments for decades. In that sense, you have either fallen into this “trap” or it’s because your financial situation has deteriorated to a position where you might feel there is no way out.  

Of course, this isn’t an inherent feature of minimum repayments. On one level, they can be used over a limited period, to provide consumers with budget flexibility. If an emergency expense comes up (like your car or house needs sudden repairs), you can postpone paying off your credit card balance for a month or two to free up funds that can cover the more pressing need.

The problem begins when the minimum payment is treated as a monthly fee. It’s tempting to pay the smaller amount of your bill; your credit card company will be satisfied with the payment, and you might feel as if your purchases were for free. But they weren’t. Eventually, you will have to pay off all that debt and the interest accumulated over a longer period will be far greater. It could also take decades for you to be debt-free. That’s because minimum repayments only cover interest and only a really small amount goes towards clearing your debt.

That, in a nutshell, is what the new rules from the FCA are designed to address.

The ideal situation is that unless you’re facing unusual circumstances, you should aim to pay most if not all of your outstanding credit card balance each month unless the original purchase was planned with the use of a credit card in mind, and that was the best way to finance it. In those cases, you should pay the debt off over the period you had initially compared other credit options with – such as 12 or 18 months. This may have been to take advantage of an initial, introductory zero percentage interest offer on a card taken out for that purchase.

In either case, these are the best ways to ensure that you won’t fall into the minimum payment trap.

What if I can’t afford to increase the repayments? 

 If you’re affected by the changes Barclaycard have made, or any other card provider for that matter, and can’t afford to pay, you may be able to get some help from them. Banks have been offering support to customers during the coronavirus crisis. The FCA has also set out proposals to extend payment holidays on credit products for up to six months for example. 

However, there are more fundamental things you might need to look at to address your financial position. It’s possible that your finances need re-planning to find the extra your credit card company or bank is asking for. There are a range of budget planners you can use to help you start this.

Help from Commsave

If you’re not actually reducing your debt or you are going to struggle to make the increased payments, one option could be to consolidate your credit card debt with a personal loan – giving you a structured payment plan with an actual end date. However, as responsible lenders, we’ll only offer that option if it’s going to be affordable for you.

Other help

If your credit card bill isn’t the only thing you’re struggling to pay you might need to look at getting some free debt advice.

You can contact an adviser in a way that’s best for you – online, over the phone or face-to-face.

Use the Money Advice Service Debt Advice Locator tool to get free debt advice