By Marcus Leach

As nearly half the population (45%) struggle to make it to ‘payday’, a payday loan will become a reality for many. New research by insolvency trade body R3 reveals that 3.5 million adults are considering taking out a payday loan over the next six months.

The research also shows that of those sampled who had taken a payday loan, 60% regret the decision and 48% believe the loan has made their financial situation worse. Only 13% believe their payday loan had a positive impact on their finances.

“Payday loans are not the best way to resolve debt struggles. We know that many who take them out find them to be a negative experience, often escalating financial troubles,” Frances Coulson, R3 President commented.

A new group of ‘zombie’ debtors – who currently pay only the interest charges on their debt and not the debt itself – has also been identified by the research.

One in six individuals are only able to pay the interest on their debt rather than paying off the debt itself. This breaks down into 11% who are only servicing debt on their credit cards, and 9% who are only paying the interest charges on their overdraft.

“We hear talk of ‘zombie’ businesses, but seeing individuals run their finances in the same way is troubling. ‘Hanging on’ each month simply cannot be maintained forever. This group will have very few options should interest rates rise or their circumstances change,” Coulson continued.

The highest ever levels of concern over debt were recorded in this quarter’s Personal Debt Snapshot run by R3, with nearly two thirds (60%) of individuals worried about their debt levels. This is up 13 percentage points on July’s figure and 21 percentage points up on this time last year. In London this figure rises to 67%, but peaks at 70% in the North East where concern is at its highest.

As debt concern rises, the research reveals that saving is at a low. The number of individuals with no savings at all has risen sharply from 19% last quarter to 27% this quarter. Overall, 40% of the population is saving less at the moment than usual, compared to 27% of the population a year ago.

“Having a financial buffer is crucial to weathering periods of difficulty. If struggling to payday becomes a regular occurrence, seeking financial advice should be a priority over short term high interest credit.” concluded Coulson.

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