Most of us are aware of the dangers of payday loans, but Danny Cheetham’s story goes to show just how quickly things can spiral out of control.
We’ve all seen the adverts. We all know the major payday loan companies. We’re all aware that the loans come with four-digit interest rates. But it’s not until you hear the story, warts and all, of someone with payday loan debt, that you can fully understand the dangers that they pose.
Danny Cheetham first took out a payday loan when he 19 years old, studying at university. Just under five years, and several payday loans, later, Danny found himself in £26,000 of debt.
Now 29, Danny is fortunately on the road to becoming debt-free. We got in touch with him to find out more about how his relationship with payday loans became so troublesome, and how he’s managed to turn his life around.
Taking out his first payday loans
Danny’s first experience with payday loans came in 2008, when he was just 19 years old. As a student at the University of Salford, Danny supplemented his Maintenance Loan with his income from two jobs.
Trouble struck when he was invited to a club night in nearby Blackpool. Payday was coming up, but Danny was a little short of what he needed to make the trip.
So, while we strongly advise that you live within your means and wouldn’t classify a night out as a justifiable reason to borrow money, it seems that Danny at least had a firm plan of action for how he’d repay his payday loan. And in this instance, Danny did repay it pretty quickly.
Skip forward a month, once the first debt had been repaid in full, and money was starting to run a bit short again.
*as Danny himself points out, the fees for bounced payments are now a lot lower, if not free, if you choose the right bank account
Of course, if you continue to need payday loans, the chances are you’ve not got a great deal of money lying around. And if you’ve not got much money lying around, you’ll soon be unable to repay the debt in full at the first opportunity. And once that happens, the interest really starts to kick in.
How Danny’s payday loan debt spiralled
Danny’s situation was made all the worse by the fact that, having started to take out payday loans, he developed a serious gambling addiction. In his own words, he said that getting approved for loans gave him “a similar feeling” to the rush of gambling.
At the time, he initially tried to use gambling as a way to clear his payday loan debt.
However, despite experiencing some success with gambling, the lows by far outweighed the highs.
At this point, you’re probably wondering how Danny was allowed to continue borrowing money when he already had a few payday loans, most of which were going straight into gambling.
Well, when it comes to borrowing money, you usually have to show the lender a whole host of documents to prove that you’ll be able to pay it back. These checks are usually pretty rigorous – or, at least rigorous enough that most of the people accepted will have a good chance of repaying the debt.
Not so with payday loans.
As Danny explains, despite the fact that he had several payday loans on the go at once, companies were still happy to lend to him.
Danny says that at his very worst moment he had 26 active payday loans, and was only managing to make the minimum repayments on each one.
How to get out of payday loan debt
£26,000 is a lot of debt to repay in any scenario. But with the interest rates of payday loans, clearing a debt that large seems impossible – especially considering that Danny was repaying £1,700 every month in interest alone. To put that in context, you’d have to earn over £25,000/year to have enough money (after tax) to cover this.
Clearly, getting out of the debt was never going to be a straightforward task – and nor was deciding to do something about it in the first place.
Once Danny had decided he was going to dig himself out of his debt, he now had to figure out how he was going to do it. This time, rather than looking for ways to make money quickly, Danny tried to deal with the causes of his problems – not just the symptoms.
However, while not every lender agreed to cooperate with Danny, he still saw the process as a positive one.
Since then Danny has slowly but surely been chipping away at his debts, and he aims to be debt-free by 30.
Alternatives to payday loans
Despite the dangers of payday loans being so well publicised, the unfortunate reality is that, for many people, they can seem like the only option.
As someone who has been in that very position himself, Danny is better placed than most to empathise with students who are considering taking out a payday loan. So what’s his advice?
Should your family and friends be unable to help with your financial troubles, Danny still doesn’t think you should turn to a payday lender.
He rightly says that credit cards come with a much lower rate of interest than payday loans, and as such could be the better option if it’s a straight choice between the two.
However, credit cards are not a perfect solution, and we’d strongly advise against using them as a primary method of escaping debt.
Fortunately, Danny also has a number of other suggestions.
Credit unions are non-profit organisations which offer savings, loans and other services. They’re owned and run by their members, so the emphasis is on providing a good service, not making money.
That said, while credit unions are arguably kinder than banks and payday loan providers, they are a lot more difficult to secure a loan from. If you’re unable to get support from a credit union, or only need to make up a smaller sum, Danny has a few other suggestions, too.
We’re fully behind Danny on this one. In fact, we have guides to the things you can sell right now and the childhood toys you own which could be worth thousands!
Beyond that, Danny recommends looking for work and even speaking to your university.
What changes should be made to payday loans?
Although they were relatively unregulated when they first came onto the market, payday loans have recently become subject to some stricter regulations.
For instance, all lenders must now appear on at least one comparison site, and on their own sites they must “prominently” link to a price comparison site.
What’s more, borrowers can no longer be forced to pay any more than 0.8% of the amount borrowed per day, and will never have to pay more than 100% of the loan in fees and charges.
When we asked Danny what he thought of the changes, he saw them as the first step on a very long road in the right direction.
Danny also believes that, given the often perilous situation that people taking out payday loans find themselves in, the terms of the borrowing need to be more considerate.
Despite much of the blame clearly lying at the feet of payday lenders, Danny feels that better financial education could also help prevent more people ending up in the situation he found himself in.
In fact, as part of Danny’s journey to becoming debt-free, he’s been keen to join the battle to educate young people about the dangers of payday loans.
Debt Hacker is a free service that operates on a not-for-profit basis. You can find out more info about them on their website.
Have you had experiences with payday loan debt? If so, and you’d like to share your story and educate students on the dangers of payday loans, get in touch with us.