Help with Payday Loan Debt
Payday loans can seem like a convenient option when you’re short on cash and need money quickly. Most payday lenders will lend money almost immediately and few require a credit check. That makes them a tempting option. Since these loans tend to be quite small (they’re usually for a few hundred dollars at a time), many people think that visiting a payday lender is no big deal. However, there are several problems with payday loans that make them very difficult to pay off.
Once a person gets into payday loan trouble, it can be quite tough to get out.
The Problems with Payday Loans
Payday loans are convenient, but this convenience comes at a very high cost. Many Canadian provinces have laws in place that restrict how much payday lenders can charge but, even with these restrictions in place, payday loans are very expensive. For example, in Ontario, payday lenders are not able to charge more than $15 for two weeks for every $100 you borrow. While 15% for two weeks may not seem like much, keep in mind that many credit card companies charge 20-25% per year in interest. Charging 15% for two weeks means the lender is charging 390% for a year.
Of course, a payday loan is supposed to be a short-term loan. You’re not supposed to borrow money for an entire year, so some may feel like the annual interest rate isn’t important. However, the reality of the situation is that many people who take out one payday loan are likely going to either have trouble repaying it in time, finding themselves taking out another payday loan in the near future, or doing both.
If you need to borrow a small amount of money for a short period, you are likely living paycheque-to-paycheque. This also means you don’t have any emergency savings. Since you have no room in your budget, paying back the interest on your payday loan will probably cause financial trouble. This means you likely won’t be able to pay it back in two weeks, and even if you do pay it back, you’ll be left short of money again relatively soon.
This cycle is how many people get into trouble with payday loans.
Getting Out of Payday Loan Trouble
If you have borrowed money from a payday lender and are finding it difficult to pay off this debt, here are some tips that could help.
- Modify your budget
- While paying off payday loans can be very difficult due to their high cost, it’s important to take a look at your budget and see if there’s anything you can do to make cuts so you can find the money to pay off the loan. Since payday loans are incredibly costly, it’s often a good idea to cut other expenses significantly for at least the short term so you can pay back the payday loan. This will get you out of your payday loan trouble and save you money that you would have spent on interest.
- Get a different loan
- As mentioned, payday loans are incredibly expensive. If you don’t pay them back in the initial two-week term, you’ll pay a lot of money in interest and other charges. The reality is that payday loans are about the most expensive type of loan you can get. Getting a different type of loan could help you free up cash to pay off the payday loan.
- While it’s generally not a good idea to take out new loans when you’re struggling with debt, the high cost of payday loans can make doing so a reasonable option. For instance, getting a personal loan, a line of credit, or even asking a friend or family member for help will save you a lot of money on interest.
- Try to earn more
- If you owe money to a payday lender, a short-term solution could be coming up with a way to earn some extra cash. You might be able to do some overtime at work, earn some money doing freelance or contract jobs on the side, or get some cash by selling a few items you no longer use at a yard sale or online.
- While this might not be a way to solve your financial problems long-term, it could help you pay off the payday loan and avoid any additional interest charges or penalties.
- Look for professional help
If you’re struggling with debt and having trouble paying off a payday loan or any other type of loan, speaking with a Licensed Insolvency Trustee can help. Trustees can review your situation and provide you with details on the options available to you. Most trustees offer this initial consultation for free.