IF you’re struggling to make ends meet, you might think payday loans and credit cards are your only option – but this landed Miranda Malanga in £11,000 of debt.
Miranda, 34, who lives in Oxfordshire and is now a safety manager at a pharmaceutical company, found herself in a “vicious cycle” of taking out payday loans to pay for her bills when she was at university.
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Payday loans are short-term loans, usually for smaller amounts of money, given to people struggling to make their cash stretch until the next time they get paid – but they usually come with high interest rates.
Miranda reliance on these loans, along with mounting credit card debt from spending too much money at her favourite shops, meant she owed £11,000 by the time she finished her studies.
Miranda fell into a common trap of taking out new loans to cover what she owed elsewhere.
In all, she took out six payday loans, racking up debt of £3,200.
She also owed £2,500 store cards – a type of credit card, which you can only use in one shop.
On top of this, her credit card debt reached more than £3,200, she was £1,700 into her overdraft, and she owed £690 on her phone bill.
“Being in debt made me feel defeated,” Miranda said.
“I wanted to be out of my situation as fast as I possibly could.
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“I missed some of the payments on my payday loans, and I was getting chased constantly with phone calls, letters and emails.
“Some of the companies I took out loans with sold my debt on to a debt collection agency – it was really scary being chased by them.”
In 2014, Miranda decided to “stop sticking my head in the sand” and start paying her debt off.
In just 18 months, she had cleared it all and started building up her savings, eventually even buying a house. She explains how she did it.
Snowball method
Miranda sat down and picked through her finances to figure out exactly how much she owed and to who.
“I wrote down every single company I owed money to and calculated the amount I could afford to pay each month to clear each debt,” she said.
“I called each lender, was honest and shared details of all of my debts to see if I could set up a more affordable repayment plan.”
After agreeing better repayment rates with most of her lenders, Miranda worked out which debt to focus on – so she could pay off more than the minimum amount each month.
“I decided to use the snowball method to clear my debts,” she said.
“That meant clearing my smallest debts first, and paying off the biggest ones last.
Although many experts advise you to clear debts with the highest interest rate first so you ultimately end up paying less back in interest, this doesn’t work for everyone.
Miranda said: “I thought it would give me motivation to continue to pay off debt – I wanted to see I was making progress with my plan.
“Psychologically, this method helped me to keep focussed on my goal.”
Cutting outgoings
To clear her debts quicker, Miranda tried to cut her spending as much as possible.
“I would aim to spend £100 a month on food, avoiding branded goods and buying things in bulk,” she said.
“Meal planning helped me stick to this budget, as I would only buy the stuff I knew I needed.”
She got rid of of subscription, which saved nearly £100 per month.
“I had a couple of magazine subscriptions that saved me £30 a month after I cancelled them.
“And I got rid of my gym membership, which saved me £40 a month.”
Miranda also said she “quit my social life” to save her £250 a month.
Previously, she would spend up to £100 a month seeing her friends and £150 on train tickets to see her family and boyfriend of the time.
But she stopped that, choosing to stay in and save her cash instead.
Credit score concerns
It took Miranda 18 months to clear her debt.
“I felt great, but realised I had no savings at all,” she said.
“I had spent so much time clearing my debts when I could have been putting money aside for going travelling or saving an emergency fund.”
Her debt also left her with black marks against her credit score because she had missed some repayments on payday loans.
Your credit score shows how well you’ve managed your borrowings over the past six years.
Lenders use it to help decide whether or not to give you credit – so a bad score can stop your application being accepted.
Miranda waited until 2020 before she could start seriously thinking about buying a house she had been saving up for.
Having black marks on your credit file make it much harder to get a mortgage, but by then she had managed to improve her credit score significantly.
She said: “I regret taking payday loans out. “I was in a desperate situation where I needed money, but if I could go back I would never do it.”
How to get help with your debts
If, like Miranda, you’re finding your debts unmanageable, there are steps you should take to tackle your situation,
Here’s how to get yourself out of the red.
Dive into your finances
It can be tempting to try and ignore your mounting debt if you’re struggling to pay it off.
But the first thing you need to do is to sit down and understand exactly how much you owe, and who to.
Once you do this, you can calculate a budget based on your outgoings to see how much you can afford to put towards paying back your loans.
Speak to your lenders and be honest about your situation – you may be able to negotiate a more affordable repayment plan.
Prioritise your debts
If you don’t have enough cash to pay all that you owe, you should prioritise paying off your most serious debts first.
These are the ones that could see you lose your home or pay eye-watering interest rates, for example – like your mortgage, council tax and energy bills.
Pay off more than the minimum
If you can afford to, you should try and pay off more than the minimum amount on your debts each month.
Only meeting the minimum repayments means it will take much longer to clear your debt, and you’ll end up paying more in interest too.
See how much more you can afford to pay each month – and then decide which debt to focus your efforts on.
You might choose the snowball method like Miranda, and put more money towards your smallest debt first – or you could choose the debt with the highest interest.
Get advice
You can get free advice on how to pay off your debt.
Here are some charities and organisations who will help you get to grips with your finances and you don’t have to pay them a penny for their help:
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