Belfast Telegraph

Consumer: How to...stay smart and steer clear of payday loan firms

By Claire McNeilly

There was good news this week after the Financial Conduct Authority (FCA) announced it was clamping down on payday lenders by forcing them to make tougher affordability checks and change the way they extend and collect loans.

It means that offers of a loan in minutes could become a thing of the past.

New rules to protect borrowers proposed by the FCA are aimed at ensuring that only people who can afford to repay a loan will be granted one.

Lenders will be prevented from rolling over loans more than twice to stop charges spiralling, and there will be restrictions on how many times they can try to take cash from a borrowers' bank account. The announcement came as research showed that lenders were not meeting voluntary codes of conduct, leaving borrowers under pressure to take on more borrowing.

To avoid payday loans and subsequent debt problems it's probably best to avoid getting into financial difficulty in the first place if you can manage it.

Here are five top tips that may help:

1. If you haven’t got it, don't spend it. If you want something, whether it's a new TV or a holiday, save up for it. If you don't need it immediately, start putting money aside.

2. Be careful with credit. Sometimes you need to borrow to tide you over until the next payday. If you can't avoid taking out a personal loan, credit card or overdraft, make sure that you can afford to pay it back before you actually sign up. Remember that it will probably charge interest.

3. Budget. In order to understand how much you have and how much you spend, you need to draw up a budget. Work out how much you earn each month, then how much you spend on essentials. If there's money left over, this is your disposable income.

4. Buy what you need. Before you buy anything, ask yourself whether it’s essential. Wait a while and then decide.

5. Spend wisely. There are many ways you can spend less every day, whether it's on food, energy or luxury items.

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