There's something about payday loans for young people that makes people feel slightly queasy. It's the killer combination of seeming to offer an easy and immediate solution to your problems, and the unbelievably massive interest rate lurking in the small print.
It would seem therefore that these loans are for people on low incomes who have exhausted all their options. However, new figures have revealed that these aren't the only people falling victim.
High earners take loans
According to Instant Loans Direct, around 57% of the people using one leading payday loans company are earning between £25,000 and £50,000. They are bringing in well in excess of the national average and should surely have the resources that mean they are never backed into the corner of a payday loan.
So what's happening?
On the one hand, they are being priced out of high street loans. With an average interest rate of 12.49%, they are put off the idea of borrowing money formally on a long-term basis. As a result many have been busy over the last few years borrowing up to their overdraft and credit card limits in order to maintain their lifestyle during what they hoped would be a brief downturn.
They have reached a point where every month their salary simply brings their bank account back to zero, and meets the minimum credit card repayment. They may get by on their credit limits in any normal month, but when faced with big expenses like holidays, home or car repairs, they have nowhere else to go.
Giles Coutts of Instant Loans Direct says: "Many assume it's only those on low incomes struggling to get cash from their bank and who resort to payday loans for taxi drivers. But it's actually the middle-earners whose budgets are being bust and who need the cash most desperately to cover them, usually for ten days until payday."
These payday loans are structured to appear affordable. Customers typically borrow a few hundred pounds for less than a week in order to tide them over to the next salary payment. In return they pay what feels like a relatively small amount of cash, possibly around £75.
However, when you boil this down and work out the interest rate it's easily 1,000% on many loans - making every other form of borrowing seem like an absolute bargain.
Instant Loans Direct is one player in this market. Coutts argues that his rates - of just under 500% - compare well against the 1,000% or more charged elsewhere.
What can you do about it?
However, while shopping around for a payday loan may be a very short term solution, next month you need to have started to tackle the underlying problem or you'll be playing catch-up for the rest of your life.
The answer in many cases is the most frugal three months of your life. Cutting costs to the bone for this sort of period, spending less than £4 a day on food and drink, turning the heating off, staying in every night, walking everywhere possible and staying off the phone should make a dramatic difference to your spending. Likewise, trawling the market for the cheapest deals on utilities, phone and broadband will help. Meanwhile, car booting and eBay should help top up the bank balance and eat into your debts. At the end of the three months you should at least have a little wiggle-room.
This should mean you don't need an extra couple of hundred quid at the end of the month, so you have an extra £75 to repay your debts at the start of the next month, and your vicious circle becomes a virtuous one.