The Rise of Payday Loan Debt

The Rise of Payday Loan Debt

Payday loans were introduced to provide short term lending and assist people with a lack of money reach their next payday. The rise of payday loans started in the US and spread to the UK following the decline in the availability of credit from other sources.

Companies supplying payday loans admit heavy advertising is required to promote their services, with one payday lender spending £13 million in one year on advertising. Whilst this type of lending used responsibly can provide the short term financial relief that people desperately need, there are others who struggle to manage money and will inevitable sink further into debt.

Recent research has uncovered that a large percentage of payday loan lenders fail to conduct a credit search before supplying the credit. On average, people contacting a debt charity with payday loan debts will owe £1,200 and to 4 different payday loan companies. 21% of people said that whilst they worried about their payday loan debts and required help, that they would use payday loans to fund Christmas.

Payday loan companies charge high interest rates for short term lending – up to 4,000%. If money borrowed is repaid on time then the fee may be an extra £10 compared to borrowing it against your overdraft or credit card, however when payday loans fall into arrears charges and fees can quickly mount.

Payday Loan Debt Solutions

The Government has confirmed they will not place restrictions on payday loan fees and charges. In America there are a maximum number of times a person can roll over their payday loan. Each US State has its own law regarding how much fees a payday loan company can charge.

If the UK Government will not place restrictions on payday loans to protect consumers, then we can expect a rise in the number of people entering debt solutions to resolve their payday loan problems.

Solutions to payday loan debt problems will vary from person to person and the total amount of unsecured debt they owe.

If your debt level is under £5,000 and you can’t afford to make your contractual payments each month then token payments would be required. This means asking for interest and charges to be frozen and making less than the contractual payment, but enough to start repaying the debt. If interest and charges are not frozen then the debt will continue to climb.

If along with your payday loan debt you also owe money to other creditors, like the bank and credit cards, then you could consider the following solutions;

Debt Management Plan: An informal solution where a company manages your debt and will try to get interest and charges frozen. Your unsecured debt must be at least £5,000 and you must be able to repay at least £100 per month. Remember to find a free debt management company. The Debt Arrangement Scheme is applicable in Scotland.

IVA / Trust Deed: The IVA or Trust Deed Scotland allows a person who can’t meet their contractual obligation to repay a percentage of their debt, usually over 3 or 5 years. The minimum amount of unsecured debt for a Trust Deed is £10,000 and £12,500 for an IVA.

Bankruptcy: Another debt solution available to people with debt problems is Bankruptcy. Usually you would need to have more debt than just payday loans. If you don’t have available disposable income to repay anything towards your debt then you may wish to consider Bankruptcy.

Debt Support Trust is a register charity providing telephone and internet based help. The debt advice team at Debt Support Trust – (Twitter follow: is a mix of qualified debt experts and volunteers.


  1. The government has not confirmed that they will not place restrictions on payday lending at all. They have just commissioned PFRC in Bristol and TNS/BMRB to conduct research into rate capping and only this morning, the BIS committee met to take evidence from lenders and debt management professionals about practices in high cost credit.

  2. Hi Emma

    Thanks for your point, at present it’s a debatable issue. As recorded in the Independent on the 26th November ( the Government has chosen not to act on payday loan fees and charges at present

    I do accept there is research underway as you detailed ( which may change the Government’s position.

    My opinion Emma is that charges will be capped in the future, however the Government has confirmed they won’t cap fees and charges at present but instead opt for further research and analysis.

    Let’s hope for the people who struggle financially and are living a life with payday loan problems that we shortly have fixed rollover periods and maximum fees, similar to the US.

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