/ Money

My Christmas payday loan sent me into a spiral of debt

Piggy bank with Christmas lights

In this guest post, Skint Dad, a supporter of our Clean up Credit campaign, speaks openly about his experiences of payday loans spiralling out of control. He shares his story to help others from getting into debt…

Last year, my fiancée and I were both working and doing OK (so I thought) and I was determined to have a good Christmas. I knew we were both due to be paid just before Christmas and I knew we couldn’t leave it until then to do the Christmas shopping.

After checking the bank I could see we were already well into our overdraft and what was left would be needed for food and travel. I knew exactly what to do. Like I had done for the last few months before – I would take out a payday loan.

It was easy peasy – I just pulled out my phone, opened the payday loan app and within a few minutes I had the option to borrow some money. I had paid off last month’s loan so I was able to withdraw my entire limit which was £400. Fantastic.

Blown the lot on presents

That weekend we went shopping and blew the entire £400. But we hadn’t managed to finish the shopping or buy the food. So the following weekend we took out another payday loan for £500 from another provider. We bought the remaining presents, had a lovely lunch in town and did the Christmas food shop that evening online.

In total we had borrowed £900 in payday loans and had blown the lot on presents and Christmas food. Christmas came, we were paid and the payday loans collected almost £1,100 from our accounts.

We had a fantastic Christmas – the look on the children’s faces when they saw their presents under the tree. We sat down for Christmas dinner and it was brilliant. I was so glad that were able to afford to have these amazing couple of days, even if it was with borrowed money.

After Boxing Day we tried to get back to normality – but I realised we had terribly overspent. We had to continue taking out payday loans until we got to a stage where I couldn’t afford to pay them back. I had to pay a fee and more interest to carry it over to the following month.

Breaking the debt cycle

We knew we had to break this cycle but didn’t know what to do. We stopped paying other bills to pay the loans. We started selling gifts that were given to each other that wonderful Christmas a few months before for a fraction of what we paid for it in the first place.

We finally managed to sort it but at a high price. As of today we still owe a substantial amount and the interest is now frozen. From admitting we had gotten ourselves into this situation we were able to break free of this cycle of borrowing to pay borrowing.

We had let ourselves fall into a complete financial mess for a few days of happiness and months of misery. Yes we had a great time but that’s all it was, a great time which quickly passed.

It’s a sad situation to be in when you feel pressured that the norm is buying presents that don’t need to be bought. When you spend a fortune on food for a few days when the money could be spent buying a week’s food shopping and more.

Too much indulgence for just a few days

I love Christmas and I want make my children happy but no more am I prepared to sacrifice months of misery, guilt and debt just for a few indulgent days.

This year, instead of expensive gifts, we are buying things they actually need. Yes there will be a couple of toys but nothing compared to last year. Instead of expensive wrapping paper we will use newspaper and string, or paper bought cheaply in the sales last year. Instead of buying a massive food shop we will be sensible and buy to eat, not buy to waste.

Over the last few months I have realised that money isn’t everything and the love of family beats this hands down. From a carrot and a glass of milk left for Santa and his reindeer to a game of Cludeo on Christmas afternoon. These are the things that are going to make Christmas for us.

Which? Conversation provides guest spots to external contributors. This is from Skint Dad, author of http://skintdad.co.uk. All opinions expressed here are Skint Dad’s own, not necessarily those of Which?.

Comments
Profile photo of wavechange
Member

I don’t know what to make of this story. It sounds a bit like a premeditated act of getting into financial difficulty. If this highlights the need to do something about absurd interest rates, then something positive has been achieved.

The way forward is to go back to the old advice of not buying things until you have the money available.

Profile photo of malcolm r
Member

I’m afraid I have no sympathy. First, we as a country have to learn to spend what we can afford – budgeting our money sensibly is the key to living within our means. Second, it is pointless taking out a loan for £900 and shortly after having to pay back £1100. I know it’s Christmas, but why spend money you haven’t got and won’t have? This is a salutary lesson.
A plea I have made elsewhere – people in financial difficulties should be given help to learn how to plan their future affairs. Writing off debt should not be an option – someone else then suffers instead.

Profile photo of william
Member

I have to agree with Wavechange and Malcolm on this. Sorry Skint Dad. I’ve been unemployed for over 3 years now and still no where near getting into bed with these vultures, so it can be done. And no I’m still not eligible for benefits even after paying taxes for 25 years.

Profile photo of John Ward
Member

We thank Which? for bringing us the parable of the Skint Dad. I also go along with all the previous comments.

I regard the splashing out of £900 on Christmas presents and food, when already seriously overdrawn, was a grossly irresponsible act of reckless self-indulgence which could have destroyed the family, imperilled the children’s future, and led to total ruination, mental decline, serious illness, and never-ending welfare dependency. That such facilities are so readily available is shameful for our society. Skint Dad’s tale shows how adddictive pay-day loans are, with a minimum of deliberation and restraint on the part of the borrower. Just as with other addictions, there must be more help and support for people to assist them with managing their budgets, and the exploitative aspects of the pay-day loans business must be eliminated. A good move by Skint Dad might be to terminate his smartphone contract a.s.a.p., first to cut his expenditure and second to avoid the temptation of looking at a pay-day loans app.

Profile photo of pauliboo
Member

Why hasn’t anyone suggested financial education?

Surely the problem isn’t with payday loan companies and their fees, it’s with the lack of education of the people using their services.

Thankfully ‘Sir’ Martin Lewis is bringing financial education back into schools, and perhaps SkintDad’s children may comment on their father’s spending habit next time.

But even the most skint wouldn’t look at their at-the-limit overdraft and then take another loan out? Would they?

Profile photo of wavechange
Member

I think Paul is absolutely right about the need for financial education.

One of my biggest concerns is that it is now accepted that the majority of students will leave university with debt as a result of their student loan. Rather than acclimatising a substantial proportion of young adults to live in debt, I suggest that higher education should be properly funded, even if that means a substantial cut in the number of places offered. Perhaps give funding only to those who demonstrate motivation and ability.

We may not automatically think about students taking payday loans, but they do. Earlier this year, the National Union of Students ran a campaign because of the high cost of payday loans.

Profile photo of malcolm r
Member

I’m in two minds about student loans. There are too many poor courses (and staff) I believe that detract from the purpose of further education.- the technical colleges and polytechnics were better partners to universities for all concerned, plus apprenticeships. It is a pity that a “degree” became a status symbol leaving other qualifications seen as, quite wrongly, second best. Those who make the most of good degree courses will increase their earning potential and, as the loan only kicks in when earnings are adequate, is an investment. Those who pursue other forms of training, such as apprenticeships, pay for their training through lower-paid initial employment. Paying for further education should make the recipient more focussed.
These people are intelligent and surely know the stupidity of pay-day loans (especially when they don’t have a pay day). Part-time work, however menial, can top-up funds.

Profile photo of Skint Dad
Member

Thanks for the comments guys. As the writer of this post I agree with all of you. I made some very bad and reckless financial decisions in the past, stupidly thinking only of the here and now, and not of the consequences.

This was caused by a number of factors. The first one being greed and a want it now attitude. The second being a lack of financial education and foresight. Lastly thinking that by lavishing my family with gifts this would make them happy and would make up for the constant struggles up to that point.

The time I was describing feels like such a long time ago and we are now living a different life, within our means. I was lucky in the sense that I saw sense, so to speak.

I hope that by highlighting the situation we were in, I can hopefully deter other people of making the same mistakes.

This post is also on my blog and goes into more detail than above. Maybe if you get a chance you can pop over and read the whole post?

I am grateful that I realised the seriousness of the issues we were facing when I did, otherwise I do not know where we would be heading or what situation we would be in now.

Profile photo of william
Member

I’m not sure how financial education will help people. Will it cover things like the cost of running a mobile phone, the cost of all those coffees you buy on the way to, from and during work, it all adds up. And it just seems like common sense to me, rather than financial planning/education.

Profile photo of malcolm r
Member

william, I think financial education that looks at forms and costs of borrowing, making investments, making a household or personal budget, separating essentials from nice-to-haves, and so on are skills often learned as-you-go by some. But others lack the incentive to try and need coaching. So much better if these lfe-skills were introduced at school? For those for whom finances become a problem later in life there should be some way of looking at their personal situation and helping them sort it out for the longer term, without having to resort to short-term panic measures. Perhaps the banks and building societies should be made to offer this service to those in need – with the proviso that their help must not involve the sale of financial products.

Profile photo of wavechange
Member

William – It may be that financial education should start at the level of what many of us regard as common sense. Many individuals and couples that have a substantial regular monthly income could save a fortune by being frugal for a few months to enable them to pay off credit card balances and then paying off in full in future. Financial education is unlikely to help those who are compulsive spenders. In my time working in universities I met a fair number of staff and students with this problem, but I believe that it is fairly common in all walks of life.

I am very sorry to hear that you are still unemployed after three years and wish you the best of luck for next year. Maybe there are some opportunities in consumer affairs.

Profile photo of william
Member

Thanks for your concern, but I’m not looking for work. Having paid a small fortune in taxes while I was employed I wasn’t very impressed that due to not out spending my earnings I was entitled to nothing. Yet all the while my taxes went to those that must have and got it regardless of where it left them.

I’m looking at this time as a practice run for retirement, and I must say it beats work hands down apart from the lack of income.

Profile photo of malcolm r
Member

william, let’s hope that at long last we have welfare reforms that might make not working a less attractive option. It still leaves the (taxable) State Pension looking pathetic, though, when you can get up to £25k tax free. I think we were brought up in a time when pride made you prudent and self-sufficient. Having said that, I will quite happily help to support those genuinely deserving help – that is what a welfare system should be for.
When you retire you’ll wonder how you managed to find time to work.

Profile photo of Martyn Saville
Member

I agree there’s a need for borrowers to take responsibility for their borrowing. In an ideal world, nobody would borrow money they couldn’t afford to repay. Sometimes, though, unexpected events, other priorities and the borrower’s pride get in the way.

What I think Skint Dad’s convo highlights really well are the business models and the behaviours employed by payday lenders to exploit borrowers’ mistakes. Short-term debt can be a practical option for some people, but once you’re in, lenders try to keep you there, whether that’s through repeated rollovers, multiple loans with no data-sharing between providers, a lack of affordability checks, high default charges or an emphasis on convenience rather than cost.

While consumers have a responsibility to borrow responsibly, so too do lenders have a duty to lend responsibly and not to exploit their customers. That is why this market needs strong action and the FCA needs to be a strong regulator.

Profile photo of malcolm r
Member

Just ban the practice of irresponsible lending at extortionate rates by these legalised loan sharks. Why is that so unpalatable?

Profile photo of william
Member

All these companies must have a licence to operate, why isn’t that licence issued under stricter rules, And why is the issuer ( I think its the MoJ ) still issuing licences when clearly the market is in a complete mess.

Profile photo of Martyn Saville
Member

The Government recently announced proposals to introduce a cap in the high-cost credit market. I’m not at all opposed to a cap on the total cost of credit, so long as there’s evidence to show that this would improve competition and reduce consumer detriment. In fact, I’d suggest widening the scope so that any cap that’s introduced would cover all credit products (including overdrafts as well as payday loans).

The main risk of introducing a cap on interest rates alone is that lenders will instead hike their ancillary fees or their default charges in order to maintain their profit margins. I’d therefore argue that two caps would be necessary – one on the total cost of credit, and, within that, a cap on default charges, and rules on how they are imposed. Combined with robust affordability assessments, a limit on rollovers and restrictions on the use of CPAs, a limit on default fees to ensure they are both fair and cost-reflective would go some way to addressing irresponsible lending. A cap on default fees could easily operate within a cap on the total cost of credit.

Profile photo of Martyn Saville
Member

William – the Office of Fair Trading (OFT) currently issues credit licences for what is effectively an indefinite period. This clearly hasn’t been effective in clamping down on poor practice in the payday sector and we agree that reform is needed.

The regulation of consumer credit is transferring to the Financial Conduct Authority (FCA) in April 2014. Instead of being licensed, lenders will instead have to be FCA-authorised. In practice, this means that the FCA has much wider power over lenders, and firms have to jump over higher hurdles to be allowed to operate in the credit market. We’ve been calling for the FCA to have, and make use of, greater powers to clamp down on poor behaviour. We hope it will do so, and we’ll be keeping up the pressure.

Profile photo of william
Member

Thanks for the clarification . The MoJ issues licences to CMCs.

Profile photo of william
Member

Seems obvious to so many people that a cap on overall costs will just result in a hike on everything else. How come the people that think this stuff up , don’t see this? Clearly they have shown themselves not fit for purpose.

Profile photo of malcolm r
Member

Perhaps support for Credit Unions would be a better solution. As far as I have seen the cap on payday lenders still gives extortionate rates.

Member
John M says:
13 December 2013

Your views please on my concerns about the combination recipe of BINGO/GAMBLING APPS TV ADVERTS mixed in with a sprinkling of PAYDAY LOAN TV ADVERTS. Is it just me that worries about this and feels the ads are taking over especially during daytime tv

Profile photo of william
Member

You missed out PPI and accident cliams ads 🙁

At least the cash for gold ads seem to have gone by the wayside (for now)

Profile photo of malcolm r
Member

I’d like to see on-line gambling ads banned from TV, along with payday loans.

Profile photo of John Ward
Member

I entirely agree. I especially think it is completely wrong to lure people into on-line gambling with a promise of £30 free stake money. The bunco booths and three-card tricksters have moved into our homes now.

Profile photo of wavechange
Member

I wonder how many people who are short of money are buying lottery tickets. Anyone who wants to support charities would be better making a donation.

There are all these leaflets and scratch cards that invite people to make expensive phone calls in the hope of winning money or a valuable prize.

It is not just gambling that we are up against.

Profile photo of malcolm r
Member

Regrettably I have become very cynical about national charities. If a major one can pay off two staff members with £800 000 quite unecessarily, and pay high salaries to boot, I wonder where charity begins. I’m in the National Lottery (modestly) to win it (it’s bound to happen by the time I am 67,307), not to support the “good causes”. Sorry – what a scrooge

Profile photo of wavechange
Member

I agree, Malcolm. I started to be suspicious of major charities in the 80s when one was in the news for misuse of funds. I will always support friends if they are working for charities and donate to the chosen charity after a funeral, but that’s about it for the major charities. I have never bought a Lottery ticket but have helped write applications for Lottery funding on behalf of the small charity I work for.

I have no objection to those spending surplus money on gambling, but I wonder how much is spent by those in debt.

Member
John M says:
13 December 2013

I agree about PPI and ambulance chasing claim ads however my concern was with the PAYDAY LOAN companies supplying funding for the GAMBLING SITE. Becoming a vicious spiral of debt with absolutely no tangible benefit.

Profile photo of Beryl
Member

There is a kind of insanity that sweeps across this country every Christmastime, fed by subliminal advertising messages via the media. Unfortunately there is always going to be people who for one reason or another are more susceptible to this kind of pressure in a materialistic society.
Skint Dad would be well advised to follow the example of The Three Wise Men whose gifts were intended solely for a poor underpriviledged child and which symbolises (I assume) the real meaning why people exchange presents at Christmas and which after all, is essentially a time for kids.
Who is responsible for funding the ever increasing number of Regulatory Bodies springing up to control these loan sharks and opportunists who make a living from other people’s misery? Is this yet another burden on the Taxpayer?

Profile photo of Carole
Member

Why is it being suggested that being financially responsible should be taught in schools? This is again a lack of parental responsibility the same as not teaching children good manners. Teachers are there to teach academic subjects not be a substitute parent.

Profile photo of william
Member

I can only assume too many parents are doing a bad good. And rather than spend money on training them, its probably easy to dump on teachers ( unless you’re a teacher , but MPs aren’t, so they never think or worry about that ).

Profile photo of wavechange
Member

I am not sure that would work Carole. Many parents are not that good at managing money themselves.

Some children are fortunate enough to have parents that can offer help with their education including money management, but I believe we need to help the less fortunate. I do agree that parents have a responsibility but about all we can do is to encourage this.

Profile photo of Carole
Member

Good teachers are leaving because they are fed up with being used as substitute parents.

Well brought up/well behaved pupils are being denied a good education which in the long term affects society & the country as a whole.

Profile photo of wavechange
Member

I have not done any schoolteaching but I know that having to cope with the children of parents who don’t try to help their kids is a real problem. One of the reasons I left higher education when I was 60 was because I hated the dumbing down our teaching to ‘improve’ our students’ achievements.

As a science lecturer I felt I did have a role to play in improving students’ numeracy and writing skills and so did some of my colleagues, though it was not what we were employed to do. Doing this was rewarding and helped compensate for the need to remember to prune the content of my lectures each year. 🙁

Though I acknowledge the problem, I do think teachers have a role in helping children who do not receive much help from their parents, even though it is far from desirable. It would be far worse for society if we just focused on the well brought up and well behaved pupils.

Returning to the topic we have been invited to discuss, perhaps there is a case to make it more difficult to borrow money and to give some counselling to anyone before they are given substantial credit or a loan with a very high interest rate.

Profile photo of malcolm r
Member

When I was at school (in black and white days) the curriculum included art, woodwork, metalwork, domestic science, sport…. which I would suggest as practical subjects contribute to learning life skills, and were not strictly academic. Teaching budgeting, loans and mortgages, interest rates would, I would have thought, been suitable as part of a maths course – it might provide some insight as to why maths is a useful subject to those who might think otherwise. We also learned about business matters, stocks and shares, as part of a business studies course – also useful as life skills. School is surely about a mix of subjects, some of which are academic, others have more relevance to life.
Has something changed in education? Those teachers whose job or wish is only to teach academic subjects need not be affected. I would hope other people with the necessary skills and enthusiasm would be used to teach these topics.

Profile photo of Beryl
Member

Have we forgotten the time not too long ago of sub-prime and indiscriminate lending by the Banks, when credit cards were ‘ten a penny?’ Sorry for the pun! My late son was a manager at one of the Big High Street Banks and was under constant pressure from banking hierarchy to sell, sell, sell – anything from loans to mortgages, insurance etc., irrespective of the ability of people to repay. Targets had to be met – which is one of the reasons for the crisis we find ourselves in to-day.

There used to be a cultural ‘keeping up with the Jones’s mindset by the many at the expense of the prudent few who, although never getting into debt, are now currently seeing their savings gradually being eroded away by increased prices on basic essentials and low interest rates.

Now that the banks are under more stringent scrutiny by The Regulator, it would appear the ‘pay day lenders’ and suchlike have taken over where the banks left off. So I agree there is a definitely a need for the FCA to clamp down on these lenders.

Member
John M says:
14 December 2013

It is a sad thing to say but I have also stopped giving to national charities. The percentage of donation that actually reaches the needy is (if you believe Dispatches, Panorama, etc) a tiny amount. Local charities, such as Youth football team, yes. Then you can see your money doing good. Having said that I do still have a standing order to pay Macmillan cancer care nurses.

Member
David Wright says:
15 December 2013

The problems of Skintdad are extremely common and the key danger he faced was the short term high rate loan contracts offered by Payday lenders. At 5000% APR the interest piles up instantly and an inability to repay after a week immediately compounds the damage to someone’s personal finances. We all understand the problem but what is the solution?
Well – Credit Unions. They can help in the majority of cases and they by law can only charge 2% a month or 26.8% APR. Furthermore Credit Unions discuss your personal budget before issuing a loan to ensure that you can afford to repay it. Their loans are usually for 6, 9 or 12 months, and they encourage you to start saving a little for the next rainy day. Joining a credit Union can be a life changing decision. It helps you take control of your finances and if you run into further difficulties a Credit Union will normally try to help you sort it out.
The major problem with credit unions is that no one seems to know about them and as a result they struggle to achieve the critical mass of business to make themselves self sustaining. Martin Lewis is their greatest advocate and now the Archbishop of Canterbury has lent his support.
Credit Unions help and indirectly advise, educate and change habits. Please do recommend them.
I chair SurreySave Credit Union, so if someone lives or works in Surrey or Kingston you can encourage them to contact us at SurreySave.co.uk

Profile photo of goldtopia
Member

The influx of Bulagarians and Roumanians next year with rising crime rate are going to see borrowings on these loan comapanies with false references that will never be repaid. Hopefully that will put pay day loan comapanies out of business.

Profile photo of Beryl
Member

More congratulations Which?
Headline news this morning (Friday) 20th December. Govt looking into ‘Pay Day Lending’ TV
Advertising. Concerns raised about the effect on children. Keep the pressure ongoing Which? The Govt are listening.

Profile photo of william
Member

Indeed this is good news. Although I’m saddened that its taken this long, and probably would never even have seen the light of day but for an impending election in 18 months time.

Are there grounds for campaigning to reduce the maximum term of a parliament from 5 years down to 2. It would certainly focus the minds (I laughed a little when I wrote that) of politicians to start being active from day 1 instead of partway through year 3. Just a thought.

Profile photo of william
Member
Profile photo of malcolm r
Member

I’m not clear about the purpose of the newspaper report. Is it to show how stupid some people can be, or to criticise the loan companies? Hopefully it is both.

Profile photo of malcolm r
Member

Looking again at this Mail Online article, it seems to have emanated from a national press agency SWNS.com who buy stories. Seems a bit contrived, doesn’t it – professional photos etc. Is it a stunt or a means of raising money to pay for pressies?

Profile photo of william
Member

I first saw it on a couple of news channels and then went looking for an online article to link. And avoided linking The Mirror and Daily Star.

Looking at the comments others have posted on the newspaper websites, seems like the majority don;t think very highly of this person.

What I find interesting is she’s blaming the payday loan companies and not herself.

And as far back as November there were warnings that as many as 1.2 million people could turn to payday loan companies to fund their Christmas. 🙁