As the New Year credit card bills start to drop through the letter box, people have been urged not to be tempted to go to the pay day loans firms.
Blackpool credit union teams have urged people struggling to deal with debts not to resort to the mega high interest rate loans or worse – illegal loan sharks.
January is the main month for people turning to high interest rate loans as the weight of Christmas spending bears down and experts say the debt can affect every element of someone’s life – even relationships, family and mental health.
More Britons are borrowing money to pay for Christmas costs than last year and one in four is feeling under pressure to overspend, according to new research from National Debtline, run by the Money Advice Trust. The debt advice charity says that with underlying borrowing increasing rapidly, many households risk falling into financial difficulty in January.
But for those who do find themselves in debt, Blackpool, Fylde and Wyre Credit Union and Preston’s GuildMoney offer a lifeline so people do not make the problem worse by borrowing more to pay off debts they already owe.
Mike Barry, operations director from Blackpool, Fylde and Wyre Credit Union said: “The post-Christmas period is a busy time for payday lenders because people have just gone through a high spending period and are then faced with a long January before payday.
“Some employers pay people earlier than usual in December so they have their salary before usual at Christmas.
“All that tends to do is extend the agony as people spend the money early that would have usually been to get them through January, so they feel compelled to take payday loans to see them through.
“Then at the end of January when they get paid, they have the payday loan plus interest taken from them just as the Christmas credit card bills are hitting the doormat and suddenly they are stuck in a cycle that they may take the rest of the year to get out of, just in time to do it all again next year. They often don’t see any way out of it.
“It’s vital that people break this cycle. We try to help in several different ways.”
He said members of the credit unions can get a payday rescue loan which can clear all people’s payday loans and spread the repayments at lower interest over a longer period to break the payday loan cycle.
They also offer debt consolidation loans at rates that can even beat the banks so people can clear their credit cards and lower their monthly repayments.
And credit union users can have a Christmas savings account which is locked through the year so that people can’t spend their Christmas money early and it’s there when they need it.
And members can get a free financial health check service which can help people to create a budget and look where they might be able to spend and save better.
The unions also have Christmas loans that can spread the payments through the year and help people to save alongside their loan repayments so that they start to build a savings buffer for the future.
Mike said: “The Financial Conduct Authority has put a cap on the interest rates pay day lenders can charge after all the scandals of recent years so we don’t see the 5,800 per cent rates that we used to.
“But they can still be charged at 1,300 per cent.
“Many of these lenders have closed down because they don’t make the massive profits they used to. That can be a bad thing as people with bad credit ratings might not be able to get a loan anywhere and then have to turn to loan sharks.
“Anyone finding themselves in that sort of debt should contact us. We can help clear the debts and spread the cost over a longer period. We also have a finanical health service run with the Citizens Advice to help people deal wiht their finances.”
Steve Oates, a loans officer from the Credit Union, said new customers coming in with financial details can in some cases get help the same day.
He said: “I have been here four years. With so many people budgeting is the main issue. When you are on a limited income having to pay gas electricity and feeding the kids is the priority. If you can’t make a payment on the day it becomes hard to catch up.”
A Blackpool man, who did not want to be named, today told how taking out a small loan from a pay day lender led to financial disaster.
He said: “Having the option of taking out a payday loan may seem like a great way to cover ‘unexpected’ expenses, however, my experience was totally different and left my financial situation devastated.
“It started off with me taking out a Payday Loan of £100 from a lender, and then paying back £130 on my payday the following week. I couldn’t believe how easy it was. The money was in my account within one hour of applying, and I was able to cover myself until the end of the month.
“I was paid as normal on the last working day, and before I’d even woken up, the lender had already collected the money. Instantly I was £130 down from my monthly wage, with the same amount of bills to pay out as the previous month.
“After about two weeks and running out of money sooner, I was left with the decision of ‘Do I see the month out, or do I use this company again?’ I made the stupid decision of applying for another loan, this time for around £200. I had to pay £260 back when I got paid. £60 interest. Extortion.
“I was too young and naive to think of the long term issues this could cause me as the money was easy accessible and I wouldn’t need to struggle for the rest of the month.
“Payday came around again, and before waking up, £260 was taken from my bank account and my loan was repaid. I took another payday loan out the same day, for the same amount of money that I had just paid back. £260.00. The end of the month arrived, and as each month went by, things started to spiral out of control.After a period of time, I eventually ended up with five separate payday loans, paying just the interest every month as to pay back the full balance I would have needed £3,500.
“My advice would be to avoid these loans at all costs. If you have a Credit Union in your town, and are struggling, go and speak to them. I was lucky in having such a great Credit Union and I managed to take out a low interest loan over a two year period to clear my payday loans.”