Payday loan companies present a very compelling case that short-term borrowing can be a viable option when trying to get out of debt.
Payday loan companies regularly charge interest fees with an APR rate in the thousands making what seems like a small amount to pay back a real challenge to afford. It can become a problem with people constantly relying on loan companies to lend them the money they need to get through the week, only to be hit with huge charges at the end.
A fight back is building against payday loan companies with a new report prompting calls for children to be protected from their adverts. An online YouGov survey, commissioned by The Children's Society, found that 74 per cent of parents would back a ban on payday loan adverts from being aired on TV and radio before the 21:00 BST watershed.
Youngsters are being regularly exposed to adverts for payday loan companies which puts even more pressure on struggling families. The survey found that almost three quarters of children aged between 13 and 17 had seen or heard an advert for payday loan companies in the last seven days. Brand recognition was also high with 55 per cent of children being able to identify at least three lenders.
The Children's Society, through its Debt Trap campaign, is now calling for similar restrictions for payday loan advertising that is already in place for gambling, alcohol, tobacco and junk food. The charity wants the government to amend the Consumer Rights Bill which would see payday loan advertisements banned on television and radio prior to the 21:00 BST watershed.
Matthew Reed, chief executive of The Children’s Society, said: "Through our frontline work we see first-hand the devastating impact of debt on children's lives. We know it’s become a daily battle for families to pay the bills, meet the mortgage or rent payments, and find money for food or other basics. One setback or even a simple mistake can lead to a spiral of debt."
So how can people avoid the pitfalls of payday loan companies? Here are a few examples of ways to avoid falling into the traps of high interest loans.
It can be difficult with a family and bills to pay for people to budget correctly but it is imperative to help avoid the temptations of payday loans. Each month, set out a plan of what needs to be paid and what is left over. The surplus should be used sensibly with extravagances only indulged once or twice a month.
Having a clear plan of what is going out every month will ensure there is not a big shock when bills need to be paid. Always leave a bit of extra money spare in case gas, water or electricity is bigger than first thought.
Grocery shopping can quickly add up if people are too frivolous with their spending. The rise of supermarkets such as Aldi and Lidl has ensured that it is affordable for people to do a "big shop" and not be completely out of pocket by the end.
Like with budgeting, make a clear plan of what needs to be bought and any treats can be purchased if there is money left over.
Don't be afraid to ask for help
Many people end up in financial trouble because they simply haven't asked for any help. Mortgage providers and utility companies can be open to freezing short-term payments allowing people to get to a more stable financial position and give them that bit of breathing space they need.