There have been a lot of stories appearing in the news recently about personal debt levels and the habits of borrowers. We too have noticed a trend appearing among the people that we help and advise.
More and more often we are talking to people that have used credit and borrowing just to get from payday to payday. Their bills have increased but their pay hasn’t and as a result they have spiralled into debt that they are unable to escape.
It seems that the cost of living is still very much on the rise and the economic recovery has yet to filter its way down to people through pay increases and price cuts on essential goods.
According to a recent survey by R3, the insolvency trade body, and ComRes; payday loans are twice as popular as a source of borrowing than credit unions.
The study which questioned over 2,000 British adults showed that 4% – equivalent to 1.9m British adults – have taken out a payday loan in the last six months compare to just 2% – equivalent to 754,000 British adults – that have used a credit union to borrow money.
Philip Sykes, deputy vice-president of R3 commented that credit unions have a lot of catching up to do when it comes to competing with payday loan companies. He commented that payday loans have become a default for those looking to tide themselves over and although short-term high-cost loans may be useful in some circumstances more often than not they only succeed in helping those that are already struggling with debt into a deeper hole.
The survey also found a slight rise in the amount of British adults who said they were likely to take out a payday loan in the next six months, the first increase since September 2012. 8% said it was likely compared to 6% in September 2013.
R3’s research also found that 43% of British adults said they ‘often or sometimes struggled to make it to payday’. Of those that agreed with the statement 59% said the rising cost of food was a problem, 52% blamed rising household energy bills and 38% said it was a rise in the cost of transport that was the issue.
We very much agree with R3’s comments on the matter. Paydays loans, although coming under greater scrutiny from regulatory bodies and suffering an unfavourable public opinion, are still the only way that some groups of people can access credit. Credit which is used not on extravagances but on the most basic of living costs such as utility bills, food, much needed repairs and travel costs.
People desperate to cover the cost of living are vulnerable to the lure of payday loans; the companies portray a sense of problem solving and ease of access which is highly irresponsible. Just this week Wonga had a TV advertisement banned for referring to an interest rate of over 5000% as ‘irrelevant’.
If we see further increased costs or an interest rate rise then we will see an even greater influx of people coming to us for help as they struggle to keep a roof over their heads, warm houses and food on the table.
It has been reported this week that almost a fifth of UK adults have resorted to using credit to pay for household utility bills according a survey by the Debt Advisory Centre.
As many as 18.9% have used credit to pay for gas, electricity or water, that’s a 300% increase on last summer.
Of those surveyed 25-34 year olds were most likely to say they have paid for utilities on credit as costs have risen across the board putting strain on wages. Country wide it is those living in London that struggled most with more than a third admitting to using credit for utilities compared to just one in ten in the South West.
In conclusion it is clear that the increasing cost of living is still having a massive impact on people’s ability to reduce down their debts, pay for essential goods and services and in some cases even just make it from one payday to the next. For some it has become a vicious circle of low pay, increased costs and unaffordable credit.