Most debt advisors recommend against debt management using payday loans. Find out more in this article from Cashfloat.
- Payday loans can be useful, but will worsen your situation if you are already in debt
- Responsible lenders will only approve you for a loan if they deem you capable of repaying it
Cashfloat.co.uk is a responsible lender of unsecured short term loans in the UK. We are here to help our customers overcome short term money shortages and we do everything we can to ensure that our loans do not cause debt distress.
This article advises people who are considering using a payday loan to manage debt. Payday loans should never be used to delay confronting a debt problem. As we will explain in this article, people struggling with debt should seek an appropriate debt solution, such as a debt management plan (DMP), and avoid all forms of credit while clearing their debts.
Can High Cost Loans Help to Manage Debt?
Some people who cannot make repayments for their debts are tempted to apply for a cash loan to access funds to use to make those payments. This is always a bad idea. All this does is allow a person to delay confronting their debt problem and, on top of this, it makes their situation worse. We recommend that anyone in any form of debt distress does not apply for a payday loan.
Payday Loans Can Be Useful
In the past,instant loans were the subject of much criticism in the press and deservedly so. Until recently, there was little regulation about the rates of interest charged and the terms under which money could be lent with payday loans. The interest and conditions which came with payday loans resulted in many instances in which borrowers ended up owing continually rising amounts of money, having only borrowed small sums to get them through to their next payday.
Rules introduced by the Financial Conduct Authority in 2015 have tightened regulations on payday loan providers. Borrowing is now safer for people who need to access funds with a payday loan. There is a place for payday loans and they have proved to be useful for many people. Payday loans allow people quick access to money, with funds sometimes being available immediately after application. It is often possible for people to borrow more with a payday loan than they would be able to with an alternative form of credit, such as a credit card. Payday loans are useful for people who need quick access to funds when they are absolutely certain that they can pay the money back in time.
But They’re not a Debt Management Solution
Payday loans are most useful when an emergency arises and a person cannot access urgently needed money until they get paid. For example, when urgent car repairs need doing or a central heating boiler breaks down, payday loans can bridge the gap. While this is the case, it is important that they are used in the right situation and not irresponsibly. Borrowing money with a payday loan to delay confronting a debt problem will not resolve the problem, but will only worsen the situation.
Do not attempt to apply for a payday loan if you are struggling with debt.
Taking Out a Payday Loan While on a DMP
As well as for people who are beginning to deal with a debt problem, as we will explain later in this article, it is also very inadvisable to apply for a payday loan if you are already on a debt management plan or have made another payment arrangement with your creditors. If you are struggling to repay what you owe, you should not take out further consumer credit.
How to Deal With Debt
Here’s what people should do instead. If you have come to the point where your debt has become unmanageable you should confront the situation and find a solution that will help you to regain control of your financial life.
Confront Your Debts and Seek Help
For people who cannot budget themselves to make the normal payments that they should towards their debts, it will be necessary to find a debt solution. For these people, the situation may seem desperate and it may be difficult to see a way out. However, there are ways to deal with even the most serious debt problems and no debt problem is unsolvable. Resorting to using a payday loan to service existing debts will only provide temporary relief and worsen the situation.
If you are struggling with debt, generally it is best to seek help to deal with it. Luckily, nowadays, there are many debt charities and organisations which can help. Organisations such as StepChange, Citizens Advice, National Debtline, Christians Against Poverty and PayPlan can all provide free, professional and impartial advice to people struggling with debt. On top of this, many of these organisations go even further by giving in-depth support, such as by negotiating with creditors and arranging debt management plans or by leading people the whole way through an alternative debt solution. These organisations exist to help people who are struggling with debt and have helped a huge number of people to overcome debt problems.
Avoid Debt Management Companies
As well as debt charities, there are many fee-charging debt management companies, such as the Financial Wellness Group, DFH Financial Solutions and MoneyPlus Advice, who offer to help people experiencing debt problems. You should avoid debt management companies. These companies charge high fees to their clients at a time that they can least afford them and the services they offer are no different to those which you can receive for free from a debt charity.
Make Sure You Pay Your Priority Debts
While you are beginning to get to grips with troublesome debts, you should make sure that you pay your priority debts first. These are debts for which the consequences of not paying them will be greater than other debts. Often this is secured debts, such as mortgages and secured loans, but can also be rent, council tax, utility bills or various other types of debt. The consequences of not paying a mortgage, for example, could be repossession of your home. This compares to non-priority debts, such as credit card bills, where a creditor would have to take you to court before being able to threaten any of your assets. The immediacy and the severity of the threat of not paying priority debts makes it more important to pay them than non-priority debts.
Who To Contact if You Can’t Repay a Payday Loan
If you took a payday loan from a responsible lender and are unable to make repayments, you may be able to come to an arrangement with your lender without the help of a debt management charity. In many cases a lender will be able to offer favourable repayment conditions to people who are facing financial hardship.
Many creditors will be able to set up a repayment plan and often, after one has been arranged, they will not pursue the debtor anymore. Contacting creditors directly without the help of a debt charity is normally best done by people who are confident in their ability to do so and when debts are uncomplicated and when there are relatively few creditors in number. If you have several creditors or are otherwise finding the situation difficult to deal with it is a good idea to seek outside help to deal with the situation.
Cashfloat is a responsible direct lender. We always strive to agree on an affordable repayment plan or settlement with our customers if they are experiencing financial difficulty. We urge our customers to call our friendly team for help if they are struggling to make repayments, as we feel that any financial situation can be dealt with through patience and care.
Should Someone on a Debt Management Plan Take Out a Payday Loan
If you are on an active debt management plan, it is not a good idea to apply for more credit. We strongly discourage anyone on a debt management plan from taking out a payday loan.
People on a debt management plan will find it difficult to make repayments for any additional money that they borrow because they will be living on a strict budget while paying off their pre-existing debts. As well as this, taking on credit while on a DMP could be a breach of your plan agreement. Doing so could cause your creditors to reject your plan and take legal action against you to recover the debt. On top of this, if you apply for credit, you are likely to be charged a high rate of interest or refused altogether because of the damage your DMP will have done to your credit rating.
Where someone does have a large expense to cover and needs to access funds, they may be able to negotiate a temporary reduction in their monthly payments through their debt management plan provider.
What is a Responsible Short Term Loan Lender
If you are considering applying for any type of short-term loan, you must approach a responsible lender. In some cases, people are refused access to payday loans. If this is the case, there will be a good reason behind the decision. A responsible payday loan lender will always ensure that it acts in the best interests of its customers. Suppose a payday loan lender refuses to extend credit. In that case, they may be taking this action to ensure that they are not worsening the situation for someone who is already experiencing financial difficulties. As well as avoiding lending money to people who are already in debt, responsible lenders should offer:
Transparency
Assistance
Compliance With Financial Conduct Authority Guidance
The level of openness that a company displays will help to tell you whether they are trustworthy or not. A payday loan lender that displays the interest rate and basic terms of a loan may appear trustworthy. However, there are other things that you should take into account as well.
Other basic things to know are what will happen if you miss a payment, what will happen if you default on a loan, what their policy is regarding repeat borrowing and rolling over loans and whether your personal details will ever be passed to other agencies. A responsible lender should publish a comprehensive and detailed guide to short term loans that they provide. On top of this, they should be on hand if a customer needs a question answered and should be responsive to the needs of their customers.
While it is clear that it is not possible to manage debt with payday loans, some lenders now actively seek to help those who find themselves in difficult financial circumstances.
When some people may inappropriately be looking for a last-minute debt solution with a payday loan, they may actually find help that is right for them. One major short term loan lender in the UK has set up a collaboration with the debt charity, Christians Against Poverty, to get customers of theirs who are experiencing difficulty with debt, quick access to appropriate help and support. Cashfloat publishes this blog which covers a range of financial topics for its customers. We provide as much assistance to our customers as we can when they face financial difficulty.
The Financial Conduct Authority publishes guidance into how short term loan providers should operate. A responsible lender should follow this guidance to ensure that they provide the best possible service to their customers, as Cashfloat does.
Conclusion/h5>
When you search for a solution to a debt problem it is often difficult to see the wood for the trees. Resorting to using a payday loan to avoid confronting a debt problem will only provide temporary relief and will make your situation much worse in the long run. Making a resolution to resolve a debt problem and consulting a debt management charity, like Christians Against Poverty, will help you realise that you are not alone and that thousands of other people are in the same situation. On top of this, debt charities will normally guide people the whole way out of their debt problem.
To read about chossing Credit Spring vs a payday loan, click here.
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