A Sheffield insolvency expert has criticised the growth of pay day loans and the crippling cost of child care for people on low incomes.
Gareth Self, a member of the Yorkshire committee of the insolvency experts association, R3, and an insolvency practitioner with the Sheffield-based P&A Group, was speaking in the wake of new research by R3.
The study showed that more than seven out of 10 people in Yorkshire with pay day loans give a higher priority to paying off the loan than buying food – which is well above the national average.
“According to the providers, payday loans were created as a one-off fix to a financial shortfall, but in reality leave some unable to buy clothes for their family or even to buy food,” said Mr Self.
“These findings illustrate that while these loans are convenient and quick to access, paying them back can be a much greater slog. I would question whether the loan was right in the first place if repaying it means someone has to prioritise that over food.”
R3’s research also showed that almost two out of five people currently paying for childcare in the region have had to dig into their savings to cover the cost and almost a third had used their overdraft.
“The crippling costs of childcare are well reported,” said Mr Self.
“This research shows us that of those who currently pay for childcare, many are dipping into savings or an overdraft. In addition, 25 per cent of respondents in the region use loans from the bank or friends and family, with another 15 per cent resorting to credit cards to meet these costs. It is clear that paying for childcare is proving a real struggle.”
On the bright side, more people think their financial situation will improve over the next six months, for the first time since July 2010.
“Signs of optimism are clearly to be welcomed, and many have tailored their budgets to suit their circumstances by now,” said Mr Self, adding: “I remain concerned for those on the extremities of the debt landscape, those with no savings or saddled with high cost loans, and would urge this group to consider all their options, including speaking to a professional.
“In the past those worried about their debt spoke of one-off events that happened to them, such as losing their job or partner or something they did such as paying for an expensive holiday, being the cause. Nowadays, rising living costs and stagnant wages failing to keep up is a reason alone.”