Today I’ve spent over 4 hours working through the finances of a very close family friend, who has racked up thousands of pounds in debt through taking out ill-advised, super-high interest “payday” loans. Thousands of pounds.
Is this her fault? Well, yes, and no.
Yes – because she was the one who signed up for these accounts and borrowed money
No – because the amount she initially borrowed only tallies up to about 1/4 of the amount that she now owes, as the interest payments are between 150 and 1000%.
This makes me so angry! Yes, I’m angry with her for being so stupid as to take out the loans in the first place, but more than that I’m absolutely fuming that it’s legal for these companies to even operate!
These companies aren’t even the worst there are. A quick Google search provides literally hundreds of payday loan companies, promising “up to £800”, “£500 NOW”, “payday in 15 minutes, up to £1000” … but what they don’t tell you (until you’re practically confirming the agreement) is that you will then pay astronomical interest rates, meaning that – for example: if you borrow £200, you have to pay up to £750 total.
Interest starts accumulating the day that you take out the loan, so even if you pay back exactly what you borrow on the payment date, you will ALWAYS need to pay an additional amount.
Essentially this is a complete rip off; not designed to help people if/when they are in genuine financial trouble but to make huge amounts of money.
These companies will offer you more money than you ask for, because then they can charge you a higher rate of interest. They convince you this is ok by telling you that they’ve “run a credit check and you have a good rating” … these people are trained to convince you that you need more than you thought. They suck you in!
Once you’re in, you get emails telling you that you can rollover your loan; put off paying it for a week, two weeks. Each day you have the loan, you’re accruing interest…until you finally realise the severity of the situation and that you simply cannot pay it back.
So what do you do then? A quick Google search and you can find hundreds more companies, willing to loan you the amount to cover your first loan with their own interest rate.
This just leaves you shifting your debt around from one company to another – thinking that you’re being proactive in paying it off, but you’re not. You’re kidding yourself.
Essentially, if you take out a pay day loan, you lose. Always. There is just no way to win, no matter what the company tells you.
Argh I am just so frustrated.
Living debt-free, and understanding money management, are very important to me. Growing up we frequently had very little money – not through mismanagement, but other circumstances. While my mum did amazingly in managing what we did have, so we never went without the genuine essentials (a home, electricity, heating etc) we often had to go without what lots of people would count as necessities: haircuts, new school shoes, birthday parties.
Oftentimes my mum would walk round the supermarket with a calculator, choosing only the absolute essentials and stopping when she’d spent her budget.
Nowadays we are on a much better setting, and I have my own income with more than provides for all my needs (and allows me to pay back my student debts and build up my savings account) but the lessons I learned as a child will never leave me.
I don’t ever want to be in a situation where I have to turn to others to rescue me from my financial catastrophes. As soon as I was old enough, I got a part-time job and worked throughout my A-levels so that I could pay for my own things. I got a second job when my exams were over, and saved this money for Uni expenses.
Basically, from the age of 16 I had my own income, my own budget and if I didn’t physically have the money for something, I didn’t buy it.
This isn’t bragging, but at 18 I had: paid for all my own driving lessons, bought my first car (including tax, and insurance!) and bought a laptop for Uni. I bought all my own clothes, shoes, make-up, craft stuff and also gave mum some money each month towards my living expenses.
I learned these lessons the hard way, and it really worries/upsets me when I see kids today with literally no clue about the value of anything. The kids that I work with have absolutely no idea how to manage their income or create a budget.
These are the kids that in a few years time will be those who take out the payday loans and get into horrific amounts of debt, that they may never get out of by themselves.
It makes me angry and really, really sad.
*Note: fortunately, for our family friend, she asked for help and we are able to give it. We’ve called her creditors to adjust payment schedules and have worked out a plan to pay them off in more a manageable way. She should have cleared her debts by the summer.
One final thing (and then I’m heading to bed!) … if you are in a situation like this, there absolutely is help available.