CREDIT CRUNCH New rules mean credit card customers stuck in a debt spiral could have charges wiped

HARD-UP Brits could have their credit card charges reduced or wiped completely under new plans from the city watchdog.

The Financial Conduct Authority (FCA) said struggling consumers in "persistent debt" could save up to £1.3BILLION if the plans come into force - potentially as early as next year.

More than three million Brits are in 'persistent debt' according to the FCA
More than three million people pay more in interest and charges than they repay on their balances over, which leaves them with little hope of ever clearing their debts, the FCA warned.

It wants to force card companies to do much more to help struggling consumers.

Under its plans, lenders must help customers repay their balances more quickly by arranging repayment plans.

In the most serious cases, hard-up borrowers could see the interest and charges on their balances reduced or wiped completely to help them clear their debts.

Andrew Bailey, FCA chief executive, said: "The proposals we are introducing will save consumers billions of pounds by reducing longer-term borrowing on credit cards, which can be very expensive and can hide real financial hardship.

"We remain committed to action to protect consumers in the credit card market as soon as possible."
How to cut the cost of your debt
Being in large amounts of debts can be really worrying. Here are some tips from Citizens Advice on how you can take action.Check your bank balance on a regular basis - knowing your spending patterns is the first step to managing your moneyWork out your budget - by writing down your income and taking away your essential bills such as food and transport.
If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costsPay off more than the minimum - If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quickerPay your most expensive credit card sooner - If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate)Prioritise your debts - If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them.Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don't pay.Get advice - If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further.Groups like Citizens Advice and Money Advice Trust can help you prioritise and negotiate with your creditors to offer you more affordable repayment plans
The FCA says customers in persistent debt are ones which have paid more in interest and charges than they have repaid off their debt over a period of 18 months.

On average, they'll pay around £2.50 in interest and charges for every £1 they repay.

Firms have little incentive to help these customers which make the minimum repayments on their debts as they're the most profitable.

For example, it would take you 27 YEARS to pay off a £3,000 balance by making the minimum monthly repayments starting at £74 - and pay a whopping £4,000 in interest.

But if you could pay £108 a month, you would only take three years to clear the entire balance and pay only £879 in interest.

The plans were first announced back in April with the FCA now launching a consultation about them with the industry, which will run until the end of January.

Last month Citizens Advice revealed six million customers have seen their credit limit rise in the last year - without asking for it.

The charity called for the practice to be banned to stop people falling further into a debt spiral but the FCA hasn't gone that far.

Instead it has agreed with card providers that Brits in persistent debt for a year or longer won't be offered the chance to increase their limit.