As people continue to struggle to make ends meet every month, payday lenders are beginning to grow in prominence with individuals turning to them to get a small loan to cover expenditure up until their next pay cheque.

The payday loan industry pledged in its customer charter in 2012 that it would take into consideration people's financial situation before allowing them to take out a loan with them.

However, new research from Citizens Advice has found payday lenders are pushing people into more debt by failing to carry out checks to ensure borrowers can afford to repay the loan they take out.

The Citizens Advice payday loan tracker found 65 per cent of people who took out a loan did not get asked about their financial situation, which is leading to seven in ten not being able to pay it back.

These figures – which are from an analysis of the first four months of findings based on feedback from customers who took out 1,270 payday loans from over 87 different payday lenders – also found customers who were not asked affordability questions. People also had repayment problems were let down by lenders as six in seven lenders did not offer to freeze interest and charges when the borrower agreed repayments.

Some 71 per cent of lenders did not explain how much it will cost to extend the loan and 84 per cent did not treat people sympathetically.

In the last four years the Citizens Advice Bureaux has seen a tenfold increase in payday loans as the cost of living rises and people struggle to pay for their bills and daily living costs.

Payday loans can lead to a situation where debt is never ending. For example, the research found that repaying £57 a month on a £500 loan for six months leaves the debt standing at £437. People naturally cannot afford to pay back the money all at once so are forced to maintain it for long periods of time, wasting money in the process.

It found that customers were pestered at work and even received phone messages on Christmas Day demanding payment, despite the customer saying they could not afford to pay. Many people who have taken out a payday loan are in financial difficulties and have turned to debt management for help.

An increasing number of people are now dependent on payday loans as paying back the loan severely reduces their wage meaning they need to take out another to get by.

Citizens Advice chief executive Gillian Guy said: "Payday lenders are not standing by their word to treat people fairly by checking they can actually afford the loans on offer. The knock-on affect of their irresponsible lending is devastating for families as they become consumed with debt.  

"Many find they have no money to put food on the table, pay the bills or get to work as lenders drain their bank account in a bid to claw back the debt," he added.

By Joe White

Almost half of UK adults are relying on their credit cards to bridge the gap between paydays, according to new research from cashback website Quidco.

Because living expenses are increasing at a faster rate than wages, people are finding it difficult to reach the end of the month. In the survey of 2,000 UK adults, over 66 per cent admitted they are frequently forced to use their credit card to top up their funds as they draw close to their next pay cheque.

On average, pre-payday overspending on credit card stands at £180 per person, with credit card debt amongst UK adults coming in at a worrying £1,600 each.

Unsurprisingly, the research also revealed almost one in seven adults are not living within their means and are falling into debt as a result.

Although 41 per cent blamed this overspending on the increasing cost of living, more than a quarter admit to spending money unnecessarily. 

As daily living expenses become a problem, people are beginning to change their shopping habits in order to make their money stretch further. Some 91 per cent said they now shop around for the best deals before making a purchase, while nearly a quarter find voucher and discount codes before they buy.

Managing director at Quidco Andy Oldham said: "Britons are undoubtedly still feeling the pinch when it comes to money management, as the financial climate fails to improve."

"Credit cards can be a tempting option, but there are other ways to soften the blow when making necessary purchases."

The most worrying thing about people relying on their credit card towards the end of the month is that they can soon rack up large amounts of debt. If an individual is forced to use their credit card every month then it becomes increasingly unlikely they will be able to pay back the money they owe.

Of course, credit card debt can soon spiral out of control thanks to the hefty interest rates they often charge, but another study by Moneywise has revealed many people do not know how much interest they are paying on their card.

The research found 46.5 per cent of credit card users have no idea of the interest rate they have agreed to.

Surprisingly, most people do not see a low rate of interest as an appealing aspect to a credit card, with more people citing rewards as the main reason they pick one up.

Only 14.4 per cent of individuals gave a low rate of interest as the main reason for taking out their card, while 13.6 per cent said a balance transfer offer was their biggest consideration.

Rewards can often be tempting but they can often distract people from looking hard at the small print. If individuals are being forced to use their credit card to get by towards the end of the month they could be racking up large amounts of debt by only making minimum or partial payments when the bill comes in.

For this reason, it is important for people to study the rate they pay on their credit card before their debt begins to spiral out of control.

By James Francis

Find out more about money management on the ClearDebt blog.

Four in ten adults in the UK (41 per cent) do not know what charges they will incur should they exceed their agreed overdraft limit, meaning they run a huge risk of getting caught short at the end of the month, according to new research by M&S Bank.

The company surveyed 2,000 adults and asked them about their banking habits. It found almost a third of people (28 per cent) use their overdraft facility, with half (51 per cent) incurring a fee for going over the authorised limit agreed with their bank. 

Males appear to be the most likely to creep past their limit, with 55 per cent admitting they incur charges regularly. Those aged 18-34 were the most likely to use their overdraft, with 37 per cent saying they did, compared to just 15 per cent of over-55s.

The research also found consumers do not often keep track of their finances, with only a quarter of people (26 per cent) checking their bank account on a daily basis. In fact 15 per cent of respondents admitted to only checking their account every fortnight or sometimes once a month.

Though people are checking their bank accounts, a high proportion do not set a monthly budget. Some 78 per cent admitted to not planning ahead with their finances, leaving many short at the end of the month. This could explain the reason for so many people falling into their overdrafts and having to pay charges.

It is the over-55s who were found to budget the least, with only 13 per cent setting out a monthly plan to track their finances, compared to 32 per cent of 18-34 year olds. 

On top of this, 48 per cent of individuals do not use direct debits to manage their monthly outgoings.

Chief executive officer of M&S Bank Colin Kersley said: "It's surprising how few set up direct debits or keep a monthly budget, which can be really useful to ensure you've planned for all your regular monthly outgoings."

M&S Bank listed five things people can do to help keep them on track with their finances:

1. Set out a monthly budget – allocating a set amount to spend on certain things each month will help to ensure individuals stay within their means.

2. Set up monthly direct debits – paying for things by direct debit means people are less likely to forget about payments. Many people often fall into credit card debt as a result of missing monthly payments by mistake.

3. Check statements regularly – keeping an eye on what is coming into and leaving an account will naturally help people keep on track of how much money they have available to them at any given time.

4. Be aware of any charges, such as any overdraft facilities – by knowing what the charges are, individuals will know what to expect at the end of the month and can then budget accordingly.

5. Ensure banks offers relevant services – some prefer to interact with their bank face-to-face, while others choose to use online or telephone banking and these services can certainly help people with their money management.

By Joe White

People in the UK have been warned to look further than initial promotions when looking to pick up a credit card in order to avoid falling into store card traps and credit card debt.

Price comparison website MoneySupermarket has examined the interest rates across a variety of retailers' credit and store cards and has found shoppers could be making big savings if they simply look beyond the appealing introductory offers and study the small print.

The representative interest rates on store cards analysed by MoneySupermarket.com ranged from 19.9 per cent to 29.9 per cent APR, which could allow a shopper to build up £141.07 in interest over 12 months if they make £500 worth of purchases.

Some retailers offer their own credit cards, which appear to give a lower rate of interest compared to store cards. The deals are usually very appealing with things such as initial interest free periods and rewards for making purchases. For example, the Marks & Spencer credit card has a representative APR of 16.9 per cent and purchases are interest free for the first 16 months.

However, although many of these cards have ongoing rewards schemes the interest free period invariably runs out and this could potentially lock an individual into a large amount of debt if they are not careful.

It should be said that store cards can offer great savings with their introductory deals. However, most will only really benefit if they can afford to pay off the full amount at the end of the period. 

MoneySupermarket noted the New Look store card offers customers 20 per cent off their first purchase when signing up to the card, while the Homebase store card gives the customer £60 worth of vouchers straight away. These offers can be very tempting but it is important to understand the dangers of using a card that accrues large amounts of interest.

Kevin Mountford, head of banking at MoneySupermarket, said: "Shoppers should be wary of the high interest rates that come with store cards, which will negate the advantages if the balance is not repaid in full."

By Amy White