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IVA advice firms categorise debts in
different ways. Some debts are more important and are described as being
priority debts. Other debts should, in theory, only be repaid once priority
debts have been dealt with. A mortgage or rent payment is clearly a priority
debt in the eyes of anyone who provides IVA advice. Non-payment of housing
costs could lead to homelessness, a generally avoidable outcome. Payday loans
(like a payday loan, credit cards, store cards, or a normal bank loan) are
non-priority debts. Of course you should pay them if you can afford to, but
only after you have covered essentials like your mortgage or rent.
The knowledge of IVA advice
professionals does not extend as widely as might be hoped. Individuals who are
facing mounting debt problems often don't find it easy to break down a
financial problem methodically as described. That's not surprising when you
consider the huge potential costs (in interest and charges) associated with not
repaying a payday loan. It's also not surprising if the means for direct
collection of the money owed is granted to the payday lender at the point of
borrowing.
The end result is that even when
people cannot really afford to, a payday loan is often fully repaid. Frequently
this leaves people with insufficient funds to pay their mortgages or rent so,
if they can, they must find the money somewhere. What's the easiest way to get
the money? Taking out a payday loan seems to have fitted the bill for a million
people around the UK in the past year.
This type of borrowing is totally
unsustainable as it results in a repaid build-up of debts that eventually will
have to be dealt with. This is the point at which IVA advice providers, debt
management companies and debt charities are contacted by an individual who has
come to the realisation that they cannot cope financially any longer.
The build-up of payday loan debt is
not fully down to the need to fund essential costs however. IVA advice
professionals report that their clients have received "special
offers" from payday loan companies to get quick cash for a summer holiday,
for their birthday, or for Christmas. Anyone who has struggled financially for
a period has probably done without many "luxuries" and cannot be
anything other than tempted for some short-lived financial freedom. Inevitably
some people succumb and find that they are further in debt.
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