Dealing with Debt
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  1. Dealing With Debt
  2. How to Escape a Payday Loan Nightmare

How to Escape a Payday Loan Nightmare

Getting trapped in a payday loan cycle is something that happens to a whole lot of people. Most unintentionally step into the web when they don’t have enough money to pay a bill and figure that getting a short-term loan or advance against their next paycheque will be manageable. It’s true that the first loan might be manageable if it is repaid in full and on time, but the problem arises when this no longer happens. Then, what makes this such a sticky web that many can’t get out of is that the interest and fees on payday loans are so high that it becomes extraordinarily difficult to get out of this hole and turn things around. It’s like trying to shovel snow with a small shovel in a blizzard.

Payday loans are among the most expensive credit options available to consumers in Canada. It’s not unusual for payday loan agreements to reflect an equivalent annual percentage rate of several hundred per cent. With borrowing costs this high, it can be extremely difficult for many people to recover from one payday loan, let alone a string of them. If payday loans have you trapped, here are some step to help you regain control of your finances, turn things around, and get out of the hole you find yourself stuck in.

A woman writing down a list of bills and payday loan debts on a notepad.

1. Make a List of All Your Bills and Debts

Although you may hate to look at your bills right now, your first important step is to get organized and make a list of how much you owe and what company you owe each loan to. If you took out instant online cash loans, search through your emails or apps to find your most recent loan agreements. You may also want to order a free copy of your credit report to see if there are any loans you’ve forgotten about, however, not all payday loan companies report their loans to the credit bureaus.

After you have made a list of your payday loans, then list out your regular debts. Credit cards, loans, utility companies, if you owe the landlord or dentist any money, write it all down as best you can.

2. List Your Most Important Expenses

Next, jot down your most important expenses. Focus on your family’s needs rather than wants, like your rent or mortgage, housing related costs — such as electricity, internet, taxes, insurance and repairs — transportation, daycare, groceries, and medications. If you created an emergency budget during the pandemic, now would be a good time to revisit it to help you narrow down your most important expenses. It’s important that you create a list of your most important expenses and how much you pay each month for those expenses. Then you can add up what you pay each month for all of these and know exactly how much money you need to spend each month for your most basic, essential living expenses.

3. Consider All Sources of Income

The way payday loans are structured, it forces you to focus on just your paycheques. However, most households have several sources of income, even if there’s really only one primary breadwinner in the home. In addition to regular paycheques, a household can also receive money each month from the federal government through the Canada Child Benefit (CCB), from their provincial government for benefits for lower income families, from alimony or child support payments, from rent from a roommate, from a part-time job, from a side hustle, or even from pension payments and assistance. These are all potential sources of income.


4. Bring It All Together

Now that you’ve created a list of all your loans and debts, listed your most important expenses, and have listed all income that comes into your home, you have the raw ingredients necessary to assess your financial situation and put together a plan to escape your payday loan nightmare. Your next step is to add up all your monthly loan and debt payments along with your most important expenses (the total of what you pay for all of these each month is your essential monthly expenses) and then subtract this total from the combined total of all your household’s monthly income. The result will show you if you are spending more than you earn each month. If you are, don’t worry. We’ll tell you who you can go to figure out how to resolve this. If subtracting your debt payments and most important expenses from your income leaves you with some money to work with, if this is a decent amount of money, you can use it to begin paying down your debt each month and live a frugal lifestyle until your debt is paid off. However, if you’re only left with a small surplus each month that realistically won’t pay off your debt very quickly, then keep reading, and we’ll show you what to do next.

An image showing balancing money which represents expenses, bills, and debts with an undetermined solution.

Your monthly expenses plus payday loan repayments must balance with your income. If this doesn’t balance, then some sort of solution will be required to make things balance. A credit counsellor can help you with this.

As you follow the steps above and gather and total up your numbers, you may find it stressful or worrying. These are normal feelings when you lay your financial situation bare and it doesn’t look good, but rather than letting your anxiety get the better of you, think of all this as a first step toward regaining your financial stability. Rather than simply allowing your creditors to call the shots, you’re putting yourself back in charge. And if you’re not sure how you can manage it all, you can get a professional on your side before things become worse. You will need your budget to balance, to make sure you’re not spending more than you earn, and an extra set of experienced eyes will help get you to the point of a realistic budget and options to deal with your debts.

5. Where to Find Help for Payday Loans

Payday Loan Companies May Offer the First Help

One of the first offers of help you receive may come from one of the payday loan companies you’re dealing with. If this payday lender offers you a loan with extended payment deadlines, read all of the fine print very carefully. Be sure to check and see what the equivalent annual interest rate is in the disclosure document. This reveals how much you will pay by the time all of the fees and interest are added on to the loan. Also consider if this one loan will truly help your situation, or if the lender is simply looking to minimize their own potential losses. When you’re dealing with a bunch of payday loans, you need help with all of them at once if you want freedom from the never-ending cycle of debt.

Banks and Credit Unions May Offer a Debt Consolidation Loan If You Credit is Good

If you happen to still have a good credit rating, you may be able to qualify for a lower interest debt consolidation loan from your bank or credit union. You can make an appointment to speak with them and bring along your list of debts that you put together. You should be open and honest with them so that if they are able to help you with a loan, you’ll get the help you need. If you have a mortgage and it’s with the same lender, they may have more options to help you than a lender at another financial institution.
The real trick with a debt consolidation loan, or any other kind of personal loan used to pay off other debt, is living with a realistic budget so that you don’t continually spend more than you earn, accumulate more debt, and essentially end up doubling your debt in and effort to get out of debt.

Getting Help from Credit Counselling Service

Realistic Help to Get Ride of Payday Loans

While the first two options listed above may sound nice, they probably aren’t going to work out for someone if they have several different payday loans. By the time someone reaches this point, they have typically exhausted all of the traditional options to deal with their financial shortfall. Rather than begin thinking of drastic options such as bankruptcy, we would strongly suggest talking to a non-profit credit counsellor – such as one of ours – first.

A credit counsellor starts by helping you create a realistic household budget that actually works for your situation. Once they’ve helped you create a realistic budget, this will determine the options that are available to you to allow you to deal with your debts. So it’s worth getting the ball rolling on this by outlining your budget as we described in the steps above.

Credit counsellors at non-profit agencies have a tool box of debt relief options that most consumers don’t even know about: solutions that go beyond a bad credit loan. A credit counsellor will help find an option that both addresses your current situation and fits with your long-term plans. They will answer your questions and explain the implications of any viable option. A lot depends on why you got into the payday loan cycle in the first place. Was it the high cost of living and simply trying to make ends meet? Maybe it was gambling or government debt. If there is someone who can help you better, the credit counsellor will refer you to the professional most qualified to help.

Having a friendly, professional, knowledgeable, and non-judgmental credit counsellor in your corner will help you navigate the nightmare of multiple payday loans. The credit counsellor also knows what rules apply to the payday lenders you’re dealing with. The great thing about their help is that it’s free and completely confidential. No one will ever know that you spoke with a credit counsellor unless you tell them, and if you want time to think about their suggestions and what they said, you can take all the time you need and there is never any obligation to work further with them unless you want to. Sometimes some good advice and suggestions are a great place to start.

You Can Escaping Your Payday Loan Nightmare with the Right Help

Whether you get payday loans instantly online or from a local payday loan store, they are the equivalent of paying a fee to take an advance on your paycheque, and just like borrowing from the future to pay for the present, you can’t borrow your way out of debt. Getting out of payday loan debt can be difficult, but it’s not impossible. With the right help, a realistic strategy, hard work, and some patience, anyone can get their finances back on track and look forward to a better, more stable, financial future. If you’d like to speak with a credit counsellor about your situation, feel free to give us a call. We’re always here to help.

Worried about debt?

Get help to overcome it.

The sooner you start dealing with your debt, the sooner you see an improvement in your credit report If you need some help getting started with a plan, or if you’re not sure if your budget is realistic, contact a non-profit credit counsellor for free, confidential help. Typically, the earlier you contact us, the more options you’ll have.

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