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Tackling your debts

3 steps to get out of a payday loan nightmare

Posted 26 November 2019

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Understand your next steps

So you’ve taken a payday loan and the repayment is due, but you can’t afford it. At this point you might be tempted to take out another payday loan and use it to make the repayment.

You probably don’t need us to tell you this is a bad idea. You can’t borrow your way out of debt. If you are struggling with your repayments already, borrowing more will make things worse.

Don’t worry, we are here to help. If you follow our 3 simple steps, we can help you break the borrowing cycle, and start to work towards a debt free life. 

payday-nightmare

1. No more borrowing

You might think this is easier said than done. For some people, borrowing more is the difference between being able to eat and having empty cupboards. However, to get out of the debt cycle, borrowing needs to stop and it needs to stop now. Each time you borrow more, you’re making it harder to get your finances under control.

Try not to think of this step on its own. Instead look at the steps as a whole. By following every step, this should make no more borrowing a sustainable option.

2. Cancel your repayments

Payday loans are classed as a non-priority debt. Whilst your lenders might kick up a fuss (think emails, texts and letters) it is more important for you to put your money towards priority expenses such as food, council tax, and rent. Non-priority debts should only be paid with money you have left over after you’ve covered the essentials.

If you don’t have money to cover the essentials then payments towards your payday loans need to stop.

Cancelling repayments to your payday loan company isn’t always as straightforward as simply cancelling a direct debit. These types of companies often take their payments using a continuous repayment authority (CPA). That means if they are unable to withdraw the money from your account they can try again. You might also be charged by your bank if there’s no money in your account.

You can cancel the CPA by calling, emailing, or sending a letter to your bank:

By phone

If you call them, make sure to take the name of the staff member and the time and date you called. Don’t forget: it is your right to cancel a CPA. If for whatever reason the bank refuses, you should raise a complaint. If they continue to refuse you can raise your case with the Financial Ombudsman Service.

The deadline to stop the CPA is by the close of business (usually 5pm) the day before the payment is due out.  So make sure you call your bank in plenty of time to ensure the payment is stopped.

By letter or email

You can also send a letter or email to your lender requesting the CPA is stopped. You can copy and paste our template below, filling out the appropriate details in bold. Keep a copy of the letter you send for your own records.

Creditor name and address:
<insert credit name and address>

Account/Agreement No: XXXXXXXX


Your name and address:
<insert your name and address>

Date: XX/XX/XXXX

Cancellation of Continuous Payment Authority

Dear Sir/Madam

My payday loan with is being paid using a continuous payment authority.

I’m withdrawing my authorisation for any more payments to be taken from my account for this debt.

The last 4 digits of the card these payments are being taken from are <1234>.

In line with the Payment Services Regulations 2009 any more payments taken from the card will be an unauthorised transaction.

Please send me confirmation you have done this.

Yours faithfully

<insert name>

Please note, missing loan repayments will impact your credit rating and you may incur further interest and charges. That’s why it's vital to move onto the third step

Remember, having more money to cover your essential costs is far more important than a damaged credit score. You can rebuild your credit score in the future when your finances are under control.

3. Get expert debt advice

The final step is to contact an expert debt advisor. You can find an advisor via the Money Advice Service.

Your advisor will take the time to understand your financial situation and then recommend a way forward to enable you to get your finances back under control.

In fact, we suggest that if you are struggling with payday repayments you make speaking to a debt advisor your first step. That way they can advise you on the best way for you to go about step 1 and 2.

We understand that speaking to a debt advisor can seem like a very big step. Why not have a look at what other people who have taken that step have told us about their experience.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.