Dealing with Payday Loan Trouble
Payday loans can sometimes seem very convenient. If you’re a bit short on cash and you need some help to pay your bills, just until payday arrives, you might look at these loans as a solution to your problem. They’re convenient, you get your money quite quickly, and many payday lenders don’t even require a credit check.
However, all of this convenience comes at a cost and, in many cases, this cost can be quite high.
How People Get into Payday Loan Trouble
As mentioned, payday loans seem very convenient. But they can very quickly become a huge financial burden. One major reason why is that they charge very high interest rates. Several provinces in Ontario set limits for how much payday lenders can charge for their loans, but even with restrictions in place, a payday loan is usually more expensive than almost any other type of loan.
For instance, in Ontario, payday lenders are able to charge up to $15 for every $100 you borrow for two weeks. On the surface, this may not seem like much, but it works out to 15% interest for a two-week loan. Most credit cards charge about 20% interest, but this interest is charged annually. If you look at the annual rate on a payday loan, it adds up to 390%!
Of course, payday loans are marketed as a short-term solution. You’re supposed to pay them back in two weeks, but the reality for many people is that these loans cause long-term trouble. If you’re in a position where you need to borrow a few hundred dollars to make ends meet, you’re likely someone who is living paycheque-to-paycheque and/or someone who doesn’t have an emergency fund. Even if you can afford to repay your payday loan in two weeks, there’s a good chance that you may end up needing help again and you might turn to another payday loan.
Unfortunately, many people who get payday loans are unable to pay them back when they’re due, or they end up getting another one in the near future. This becomes incredibly costly and can seriously hurt your financial situation.
Solving Payday Loan Trouble
If you’ve ended up in trouble with payday loans, or if you’re having a tough time making ends meet and looking to payday loans as an answer, it’s important to know that there are alternatives out there.
- Payday loan alternatives
- If you’re having trouble making ends meet and looking for cash, getting a loan isn’t usually recommended. But if you are in this situation and you are looking for a loan, consider other options rather than payday loans.
- Personal loans, lines of credit, and even credit cards charge less interest than payday loans. These loans usually cost less and, while they may be slightly more difficult to get, they won’t be as expensive to get.
- However, before you take out any loan or any type, make sure you have a plan for how you will pay it back.
- Adjusting your budget
- If you’re having trouble making your payday loan payments, you’ll want to adjust your budget and cut spending so you can pay what you owe. Not only will this help you pay back the loan when it’s due, but restructuring your budget can also keep you from needing to get a payday loan in the future. If you create a budget that balances and allows you to put some money aside for emergencies, you won’t wind up short and you won’t need a payday loan.
- An emergency savings fund is critical. Life is unpredictable and unexpected expenses come up. if you don’t have any money put aside for emergencies, you may find yourself looking at payday loans for help when you have an expense that you weren’t able to budget for.
- If you find yourself frequently having trouble making ends meet, look at your spending and see if you can find any underlying causes for this shortfall. If you’re not tracking your spending, check out your credit card and bank statements for information into where your money is going.
- Getting help
- If you’re struggling with debt, unable to make ends meet, or turning to payday loans to try to keep up, you may be better off speaking with a professional.
- For instance, a Licensed Insolvency Trustee can review your financial situation and see what debt relief options are available to you. If you’re struggling with debt, talking to a trustee can be a good idea.