Post-Christmas debts likely to see consumers reach for costly Pay Day loans, warns EuroDebt

January 2011

After the expense of Christmas, the five or six weeks until January pay day can seem interminable for families already under financial pressure.

With day to day living costs still needing to be covered, the temptation to take out a Pay Day loan is at its highest in the first month of the year, according to leading debt management provider, EuroDebt Financial Services. But, as MPs debate capping of interest on Pay Day Loans*, the company is warning about the risks of Pay Day loans becoming a regular feature of an individual or family's monthly financial management. Essentially designed to provide a short-term fix, these loans charge high interest rates that could actually make debt problems worse in the long-term.

Vance Parsons, Director of EuroDebt says: "We know that almost a quarter of people that come to us for help, do so because they have got themselves into a spiral of debt, robbing Peter to pay Paul. As interest mounts, the debt spiral deepens and Pay Day loans can just add to this misery as all too quickly the cost of the loan increases making it difficult to withdraw from the agreement.

"We believe the best way to tackle financial difficulties is to take a long hard look at the total financial picture rather than just the monthly shortfall. Simple changes in direct debit timings can sometimes help and for those with more serious financial difficulties, negotiations should take place with creditors to agree a new repayment plan. It is not uncommon for someone starting a Debt Management Plan (DMP) with EuroDebt to have one or two Pay Day loan companies listed amongst a client's creditors. These can often contribute to a debt spiral, where earlier intervention by taking professional debt advice could have meant that the total debt to be repaid could have been reduced significantly."

The number of people taking out Pay Day loans has quadrupled over the last four years, with borrowers taking out an average of 3.5 loans a year**.

"The end of January can be a particularly bleak time for many people" adds Vance Parsons. "And we are concerned that many will see Pay Day loans as a quick and easy way to get to the end of the month. But these loans come with extremely high interest rates, which can leave anyone who defers payment or takes out multiple loans, sliding into a debt trap.

"We advise people to take this opportunity to look at their overall financial status, including all their debts, rather than just focusing on the immediate shortfall at the end of each month. A Debt Management Company can help you take stock of the bigger picture, which is the first step out of unmanageable debt. With some careful planning it is possible to take control of the monthly budget and get out of financial trouble."

* Pay Day Loans interest rate capping to be debated by a cross party group of Back Bench MPs – reported 18th January 2011, The Guardian
**Consumer Focus August 2010

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