Low income debt risk ‘higher’ because of payday loans

The greater proportion of payday loans with high rates being taken out by those on low incomes means this group is at much more risk of getting into severe debt problems, an expert has explained.

Managing director of the Debt Advice Foundation David Rodger said such people have had difficulty accessing mainstream lending since the credit crunch, as banks tightened their lending criteria, meaning they are more likely to turn to be "easing their financial burdens" through payday and doorstep lenders.

However, he warned, this is a problematic approach because it often merely "defers the inevitable" and leaves people in much deeper trouble later on.

An IVA or debt management plan may be needed by those who do get into severe debt and Mr Rodger advised: "If the problem is unsecured debt that has become unmanageable then it's important that people who are struggling to meet their repayments seek help."

He also said some people with low incomes may find they can ease their difficulties by getting state benefits they may not realise they are entitled to, stating that £16 billion went unclaimed last year.

The greater debt problems faced by those on lower incomes were emphasised this week by the Consumer Credit Counselling Service.

It revealed that for its clients on incomes of £13,500 or less, the average amount of unsecured debt was 312,870, while overall debt was 199 per cent of income.

This compared with 124 per cent for those earning between £13,500 and £25,000 and 114 per cent for people getting between £25,000 and £50,000.

By Joe White