Barclaycard emailed customers in November 2020 about changes to their credit cards. With the title “Dear [customer name], we’re updating your T&Cs “, you may have ignored it.
But many people will find their minimum payments are going to be increasing from 26 January 2021. And some of the increases will be very large.
This affects Barclaycard holders with Cashback, Freedom, Forward, Platinum, Hilton Honors or Barclaycard Reward cards.
People with Premier, Barclays Infinite and Woolwich cards aren’t affected.
January! That’s always the worst month for many people’s finances, with Christmas spending coming through on the credit cards. Often wages are paid early in December as well, so January is always a long, tough month. And this year some families will be worse off because of the pandemic.
Some minimums going up between 22% and 67%
At the moment the higher your interest rate, the larger your minimum payment.
But from late January Barclaycard is applying an extra multiplier to this. They call this “personalisation” and it will increase some people’s minimums by a lot more than others
You will have to pay the higher of three numbers as your minimum:
- between 2 and 5% of your balance;
- between 1 and 3% of your balance, plus any interest, default fees or account maintenance;
- £5, or the total outstanding balance of an account if it is less than £5. (This £5 element hasn’t changed, it’s there to make sure people with very small balances clear them quickly.)
Your email gives the exact percentages Barclaycard has decided to use for your account. Here is what one customer in the middle of the range of increases was told:
Those numbers may all sound small, but they have a large effect on your monthly payments.
The email then uses a balance of £2,500 to demonstrate what the effect on your minimum payments is likely to be.
This shows what someone with the same interest rate as you pays at the moment on a balance of £2,500. And what this will go up to in January, using your new percentages.
Here are some examples, including the lowest and the highest that I have seen:
|min now||min Jan||increase|
So with the same balance, at the moment the minimums range from £57 to £82 – the largest charge is about 50% more than the lowest charge. This will be changing to that the range is £69 to £132 – some people will be paying 90% more than others.
And it is the people with the highest interest rates that are being asked to pay these very large increases. People paying a low rate of interest will only see a small increase in the minimum.
“I don’t have that email any more!”
If you have deleted the email not thinking it was important, or it went automatically into your junk folder, you need to find out whether you will be affected and by how much.
Barclaycard give the full changes for all the affected cards here. But to find the exact rates that will be applied to you, you need to log into your account, as that page explains.
Why Barclaycard is doing this
They aren’t doing it to make more money from you – although that is what it may feel like!
Your interest rate is staying the same, they are just making you pay back your balance quicker… this will get you out of debt sooner and means you will overtime pay less interest.
That is good for people who can afford it.
Barclaycard hasn’t said why it is doing this, but it seems likely they are trying to reduce the risk in their credit card lending. Since the pandemic started, they have also been reducing many people’s credit limits.
Increasing the minimum payments will also stop people getting trapped in persistent credit card debt.
Three problems with these Barclycard minimum increases
Increasing minimum payments is a good idea in general.
Minimums used to be much higher than they are now, see Credit card minimum payments – developments from 2000 to 2019 for details. By cutting the minimums, lenders have made it harder for many people to clear their credit card debt resulting in them paying more interest. So higher minimums are broadly a good thing.
But I see three big problems with what Barclaycard is doing:
- Sudden large increases don’t give time to plan and adjust. It would have been much better to set out a program of increasing minimums gradually over a period of one to two years so borrowers weren’t hit by very large jumps at very short notice.
- By increasing the minimums most for the people who are most likely to have financial problems, Barclaycard is turning debt that was manageable if expensive into problem debt for a lot of customers.
- Hiding the announcement in an email about “T&Cs”. This just isn’t responsible. When you are making a big change that can affect many customers you need to be very open about it.
What to do if you can afford the higher payments
If you can manage to pay the higher amounts, then paying the larger amounts is going to get you out of debt sooner:
- people paying interest will save money over the years;
- if you have a 0% deal, your balance will be lower at the end of the deal, which is good as it is proving harder to refinance 0% deals that are ending.
But this may not be what you wanted to spend extra money on in January…
You have the option to reject the new minimums and stop using the account. In this case, you can’t use the card any more but you can carry on paying it off at the old minimum rates.
With an excellent credit record you could look at getting a 0% deal with a different lender, although other lenders may later decide to increase their minimums too. With a not great credit record, this isn’t an option for you.
What if you can’t pay the higher minimum?
When the new minimums are too high to be affordable, what you should do depends on how bad your financial situation is. I’ve made up some cases here, so see if one of them sounds like your situation.
Reject the change and close the account
A simple option is to reject the changes. The email from Barclaycard says:
If you feel that some of the changes we’re making aren’t right for you, you can choose to close your account. Please do this before 11 January 2021.
I don’t think that date of 11 January will be enforced. If you phone them up when you get your bill at the end of the January and say you didn’t know the minimums were going to increase, I think Barclaycard will probably allow you to close the account and stay at the old level. If they refuse, then complain to the Financial Ombudsman!
If you close the account, you can’t use your card any more but you don’t have to repay the whole balance immediately. You can carry on paying the old lower minimum payments.
This does mean that you are going to be paying a lot of interest for a long while, so although this is an easy choice to make now, it could be expensive in the long run. So it’s worth seeing if you have better options.
“I was fine before – my only problem is this Barclaycard change!”
You could try phoning up Barclaycard and objecting. I don’t know how likely this is to work. Barclaycard told MSE that the increase won’t be applied if there would be “significantly large increase”… but there is no explanation of how big an increase would count as “significantly large”.
“I’ve got a lot of debt problems but they are temporary because of Covid-19”
Barclaycard told MSE that people won’t have these higher charges if they have had to take a Cornovirus payment holiday. If you can explain that you haven’t had to ask for a payment break so far but your finances have been affected by Covid-19, then Barclaycard may agree to not increase your payments.
Another option is to actually ask for a Cornonavirus payment break now if you haven’t had 6 months breaks on the Barclaycard already. Then you could pay a lower amount, or nothing, for a period. Interest still accrues, so your balance will be going up but this break may get you through a few bad months.
“My Barclaycard debt is much too high”
Sometimes it takes a change like this new announcement to make you sit back and realise that your Barclaycard debt is just huge in relation to your income. It has grown over the years as your credit limit has been increased and now you wonder how that much was ever considered to be affordable.
I suggest you read Can you get refunds from catalogues, credit cards & overdrafts? which looks at how to make an affordability complaint that your credit limit was increased too high. If you win that, you may have some interest refunded which will reduce your balance.
But these complaints can take many months as the lenders often say No so they have to go to the Finacial Ombudsman. Easy to do but not speedy…
So making an affordability complaint won’t solve your immediate problem in January. In addition to the affordability complaint, you probably have to choose between closing the account and asking Barclaycard for a payment arrangement. A payment arrangement will get interest frozen on the debt. It will harm your credit record but it may still be much your best option.
“I’ve got a lot of debt problems, Barclaycard is just one of them”
In this case the Barclaycard higher minimums may just be the last straw. Here it’s best to get help sooner rather than later.
If you try to struggle through, paying the higher minimums by borrowing more money, your problem gets even bigger next month, especially if you borrow at high interest rates.
Instead talk to a debt adviser. Phone National Debtline on 0808 808 4000 – they can help you look at all your options.