Nine million use credit cards and payday loans to cover monthly household bills

Nine million use credit cards and payday loans to cover monthly household bills

By Tara Evans, 12 September 2012  Reproduced from www.thisismoney.co.uk

Almost a fifth of people are using costly forms of credit each month to help pay household bills, according to new research.

Some 7.5million people use credit cards with a further million turning to controversial payday lenders, according to estimates by bank Santander.

The figures signal a trend of households to turning to expensive forms of credit that add to their financial squeeze when the times comes to repay the money.
Debt: Millions of people are turning to high forms of credit to help pay monthly household bills

Debt: Millions of people are turning to high forms of credit to help pay monthly household bills

Typical credit cards interest rates are about 19 per cent (APR), but more worrying are payday loans which often charge eye-watering rates of about 4,000 per cent.

The short term loans are designed to bridge the financial gap before payday but if people are unable to repay they face extortionate levels of interest.

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The amount being borrowed each month adds up to £3.6million, or an average £259 for each borrower, according to the research.
There are also 4.2million people that turn to lower cost borrowing, Santander claimed, with around 17 per cent of those who borrow to make bill payments dipping in to an arranged overdraft.

Reza Attar-Zadeh, banking director at Santander, said: ‘In an ideal world, household bills should be one of the first costs to be covered when payday arrives, but as the research highlights, this isn’t always possible.

‘The cost of living is going up, driven in part by the rising cost of household bills, and as a result, millions of people are regularly borrowing money to make ends meet which cannot be sustained in the long-run.’

The research also revealed that despite 28 per cent of people looking into alternative payment sources to help cover bills, only 32 per cent regularly check for cheaper deals on services like utilities or TV subscriptions.

While only a quarter of people bother to check that they have sufficient funds in their account by scheduling bills or direct debits just after payday.

Younger bill payers are more likely to borrow money to cover bills, with 38 per cent of people aged 18-34 doing so.

This is compared to 30 per cent of those aged 35 – 54 and 17 per cent of over 55s.

More people in London use loans to cover bills than anywhere else in the UK, with 33 per cent doing this in an average month.

In contrast, the lowest is the North East, South West and West Midlands where just 22 per cent are doing so.

Read more: http://www.thisismoney.co.uk/money/cardsloans/article-2202122/Nine-million-use-credit-cards-payday-loans-cover-monthly-household-bills.html#ixzz26KxrJhH1

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