Payday loan debt: why your household bills could suffer

UPDATE: 1 July 2014 – new rules from the Financial Conduct Authority (FCA) means that payday loan companies:

  • cannot rollover an outstanding payday loan balance more than twice
  • must send the debtor an information sheet with contact details for various debt advice organisations. A copy of this information sheet can be seen here
  • cannot make more than two attempts to deduct money from a debtor’s bank account by means of Continuous Payment Authority (CPA) unless a rollover has been agreed (will link to MA blogpost ‘how to cancel a CPA)
  • Must now include a prominent risk warning on all financial promotions.
It's hard to juggle high cost credit and household bills

It’s hard to juggle high cost credit and household bills

Many people up and down the country are falling behind on their most important household bills. And it looks like many people may be turning to high cost credit just to cover those essential living costs. 

This can only spell trouble in the long run, especially if recent figures are anything to go by.

If you’re struggling with both priority arrears and high cost credit debt, then we’ve got some very important advice for you…

The worrying numbers

Below are the figures we recently put together in September 2013, when investigating how many of our clients deal with both priority arrears and high cost credit debt.

We’ve often spoken of payday loans and how your finances can quickly plummet downhill if you rely on them too much. 13% of our clients are in council tax arrears, but 21.8% of our clients with at least one payday loan have council tax arrears. 8.6% of all our clients have rent arrears, but 13.8% of clients with at least one payday loan have council tax arrears.

We see the same increase in arrears for electricity and gas, and across those with any kind of high-cost debt or home credit.

Arrears

All clients

1 high-cost debt

Home credit

Payday loans

Council tax

13%

17.1%

25.4%

21.8%

Rent

8.6%

11.2%

21.1%

13.8%

Electricity

8.9%

10.4%

13.6%

10.9%

Gas

6.3%

7.6%

11.2%

8.2%

Why is this happening?

People resort to taking out high cost credit for lots of reasons but it’s our belief that the rise in living costs is a big factor.

From food shopping to school uniforms, everything seems to be going up on price. Add this to the fact that the banks simply aren’t lending like they used to and suddenly you can find yourself between a rock and a hard place if you need some money. There are also factors such as unemployment and low income to consider.

This can mean that high cost credit is often the only borrowing option available.

What can I do about my high cost credit debt?

If you’ve got a payday loan problem or home credit debt there are steps you can take to get it under control:

Payday loans: If you’re finding that you’re struggling to get a payday loan paid off, our handy pages on payday loan debt will help. We’ll talk you through how to cancel a continuous payment authority and how to offer more realistic payments so you can bring your priorities (or arrears) back into line.

Catalogues/doorstep lenders/store cards: We can help you put together a budget to demonstrate to these lenders what you can truly afford to offer them at the moment. They should be a lot more understanding of your situation once they know you’re seeking free debt advice.

Use our online advice service Debt Remedy to get an individually tailored debt solution in 20 minutes.

Posted by in Budgeting

18 Sep 2013
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