Are you stuck in the payday loan debt cycle? You take out a small loan to make ends meet but can’t afford to pay it off in the next paycheck, leaving you stuck between living paycheck to paycheck and getting further into debt. It feels like there’s no way out!
Luckily, this doesn’t have to be your reality! With some financial planning and self-discipline, getting (and staying) out of payday loan debt is possible. In this article, I provide solutions about how to get out of the payday loan debt cycle in Canada.
Popular opinion believes it is nearly impossible for individuals dealing with payday loan debt in Canada to extricate themselves from debt; however, that is not necessarily true if individuals actively pursue creative means of finding breathing room financially. In this article, I will introduce readers to potential solutions for Canadians struggling with short-term loans and help them find the best strategy for them.
What is The Payday Loan Trap?
The payday loan trap is a cycle of debt caused by taking out high-interest, short-term loans to cover everyday expenses. Payday loans are typically small loans due to be repaid on the borrower’s next payday. However, these loans often come with extremely high-interest rates and fees, making it difficult for borrowers to pay the loan off in full when it comes due.
As a result, borrowers take out more loans to cover their original debt, creating a cycle of debt that can be difficult to get out of.
What Happens if I Default on My Payday Loan?
Defaulting on a payday loan can have severe consequences for borrowers. Payday lenders typically pursue aggressive collection tactics, including calling your references, threatening legal action and even garnishing your wages.
If you fail to repay the loan by its due date, the lender may report the delinquency to credit bureaus, which could negatively impact your credit score. The lender may also seek a court order for repayment or desire to have the debt sold to a collection agency.
Can I get out of a payday loan?
The short answer is yes, you can get out of a payday loan. However, it is crucial to understand that getting out of a payday loan is not always easy or straightforward. Depending on your situation, there are several strategies you can use to get out of a payday loan.
The first option is to ask the lender if you can pay back the cash immediately to settle your debt. However, if cold feet aren’t the case and you can’t repay the loan, you’ll need other options.
One option is to negotiate with your lender. If you explain why paying the loan back in full is impossible, they may be willing to negotiate a payment plan with you. This can provide an opportunity to break the cycle of debt and get out from under the loan.
Alternatively, you can seek help from a credit counselling agency or nonprofit organization. These organizations may be able to offer advice on budgeting and other strategies for getting out of payday loan debt.
Finally, if your situation is especially dire, you may be able to file for bankruptcy. However, bankruptcy can be complex and should only be considered a last resort.
How to Get Out of Payday Loan Debt
Here is an exhaustive list of ways to get out of payday loan debt in Canada.
Make a Repayment Plan
Developing a repayment plan is the first step to getting out of payday loan debt. First, assess your financial situation and create a budget that reflects your income, expenses and any significant expenses you may have, like school, car or mortgage payments. Next, you’ll have to set a timeline for how long to pay the loan in full.
Negotiate With Your Lender
The first step should be to contact your lender and explain your situation. Then, ask them if they will negotiate a payment plan that works for both parties. Sometimes, lenders may be willing to reduce the interest charged or extend the repayment date.
File a Consumer Proposal
A consumer proposal is an agreement between you and your creditors that allows you to pay off your debt over a period of time with reduced payments. This option can help get you out of payday loan debt while allowing you to keep up with other bills and living expenses.
Start Making Payments
Once you’ve created an action plan, make sure you start making payments on time each month. Even small amounts can make a difference over time, but try to pay more than the minimum required. Cutting back on discretionary expenses can help free up extra cash for payments toward the debt.
Refinance Your Loan
If your credit score has improved enough since taking out your original loan and you have some additional funds that can be applied towards refinancing – consider this option as refinancing could provide lower interest rates or longer terms of repayment, which can make paying off the debt easier over time with smaller monthly payments and less interest paid overall.
Speak With A Credit Counsellor
Credit counsellors are available in Canada to help individuals manage their finances and assist with specific concerns like payday loans and other debts they owe.
Speaking with them may help you understand alternative options, such as consolidating multiple small debts into one larger loan at a lower rate of interest which could save money over time when making monthly payments on the total balance owed across all loans instead of paying them separately every month or at higher rates of interest as offered by some payday lenders.
Explore Government Programs
Governments across Canada offer programs for those looking for financial relief from payday lenders by helping borrowers reduce their debt load without turning to bankruptcy or consumer proposals.
Borrow From Family & Friends
Consider asking family members and friends if they can lend money while agreeing on an interest rate that reflects market trends so it is fair for both parties involved in the transaction (even if no funds change hands).
This way, you won’t be paying exorbitant fees because it is a personal network lending you money rather than traditional lenders charging more due to default risk associated with personal unsecured loans.
Seek Legal Advice
If things have become too overwhelming, contact a lawyer specializing in consumer issues such as debt negotiation & consumer proposal services or consumer protection law-related matters specific to payday loans in Canada.
They should be able to recommend potential courses of action based on your unique circumstance & goals, which could minimize risks associated with further compounding problems related to unpaid debt that may turn into lawsuits against yourself if left unchecked over more extended periods without regular payments being made.
Can Payday loans threaten you?
Payday loan lenders cannot openly threaten you to repay your loan immediately or anything like that. But the reality is payday loans can put you in a difficult financial situation if you don’t repay them on time, as the interest rates tend to be very high, and the loan amounts often have to be paid back in one lump sum.
If you cannot make payments, your loan could be sold to a collection agency, which might choose to take legal action against you if it can’t collect the debt. Therefore, it’s essential to understand the risks associated with payday loans and ensure you can pay them on time to avoid potential consequences.
Payday Loans Carry Risk
Payday loans can leave borrowers in an endless cycle of debt and unable to pay their bills. The Consumer Financial Protection Bureau estimates that 4 out of 5 payday loan borrowers roll their debt into a new loan within two weeks.
Before taking out a payday loan, explore other options that might be available to you. Consider speaking with a credit counsellor or financial advisor who can help you create a budget and debt management plan that works for your circumstances.
Consider talking to your employer about an advance on your salary or see if local charities have funds available for those in need. If all else fails, consider speaking with a lawyer specializing in consumer protection law.