The controversy surrounding the use of payday loans seems incessant, as is the trap of payday loans in which a borrower can get caught when he is financially desperate enough. Every day, all across Canada, people get caught by payday lenders, who take advantage of their desperation to make big profits while ruining the financial health of the victim. In fact, in Canada, many places are trying to prohibit the use and sale of payday loans because of the lasting financial impact they can have on consumers.
This is a big problem that the Quebec Prêts team often sees among its current and potential customers. Someone found himself trapped in a vicious cycle of revolving payday loans, with apparently no way out, unless he ran into debt for months or years, or went bankrupt. But, what other options do you have? Here are our tips.
Why are payday loans so dangerous?
Before moving on to debt options, it’s important to understand exactly what payday loans are and why they can be so dangerous for your finances. First, a payday loan works as its name suggests. The cycle begins when someone has trouble paying for something important. These may include car payments, rent, groceries, or any other expense that must be paid within a time limit. These people need money fast, so they opt for a payday loan instead of an alternative like a credit card or a personal private loan. Once they have obtained the loan, they will have until their next pay day to cover the entire loan, usually two weeks, according to a typical biweekly pay check.
Here is the problem. This loan will probably come with a huge interest rate (usually just under 500%) that many borrowers do not take into consideration because of their need for quick money. Their salary, meanwhile, comes with tax deductions, which is not enough to pay the entire loan. This is where the cycle starts, which sometimes does not stop. Many borrowers find it difficult to repay the full amount of the loan, interest charges and charges and before realizing it, are already trapped.
Ways to Debt a Payday Loan Debt
If you are considering a payday loan to solve your financial problems, we invite you to reconsider this option. There are countless other options to help you deal with your situation that are not only safer, but will help you get out of this debt as quickly as possible and get you back on track.
If you are currently suffering because of your debts, the good news is that there are several options to help you break a vicious circle and improve your financial situation.
Talk to a professional
The first thing to do if you have the feeling that your loan debt is on payday is sure to become out of control, is to talk to a financial advisor or a credit counseling agency. One of the many problems with payday loans is that since they are usually a small amount, about $ 1,500 or less, people tend to want to try to deal with their problems alone. It is good to ask for the help of a professional advisor, because he or she can offer you other options that you have not even thought of, other than declaring bankruptcy or staying in debt for a long time. period. Banks will also have financial advisors who can give you a free consultation, and together you can find a solution that best suits your problem.
Pay off your debt immediately no matter how
The simplest and most effective way to manage your payday loan debt is to do everything you can to repay all of your debt. Having your bank account emptied until your next payday to pay off a debt is much less serious than falling into the vicious circle of payday loans. Work overtime, reduce all unnecessary expenses and save as much as possible.
One of the main differences between debt consolidation and the next option, a debt management program, is that it will have no effect on your overall credit rating. With a debt consolidation, you will consolidate your payday loan debts with all your other unsecured debts that you might have. Then you will make a more affordable monthly payment to pay off the total amount of your debts. While you will be using another loan, the interest charges will be much lower than those of a payday loan.
Debt Management Program
This option is generally good for those who have a very bad debt record, which can happen after being trapped with payday loans. After talking with a professional. One of the options that will be available to you is to enroll in a debt management program. This advisor will then work with you to help you manage your debt, negotiate with your creditors, and set a monthly payment schedule over a four- or five-year period, rather than a one-shot, as you would with a typical payday loan. The problem with this option is that just like debt consolidation, a debt management program is not a legally strict process, which means that your payday lenders may not accept the offer. Plus, once your debts are paid in full, a note from the debt management program will appear in your credit report for 3 years, and your credit rating will be R-7.
With this option, you will need to hire a licensed insolvency trustee, a professional to be regulated by the Superintendent of Bankruptcy of Canada who has received professional training to deal with consumer proposal and bankruptcy cases. First, you can get a free consultation with them. They will evaluate your current situation and consider all possible options to deal with it. If you decide that a consumer proposal is the best option, the trustee will contact the payday loan lender and any other creditors with whom you may be involved, and then negotiate for you. Your debts and interest charges will then be frozen and you can pay them in monthly installments through the Insolvency Trustee. This is the best alternative to bankruptcy, but be aware that you will have to pay a standard tax, designated by the government for their services, and your debts will have to be paid over a maximum period of 5 years.
This option should not be considered as an option of last resort because of the negative effects it will have on your finances in general and more particularly on your credit. Again, you will need to hire an insolvency trustee to declare bankruptcy. Yes, your debts will be taken care of, but your credit will be ruined for at least 6 years. In fact, a “black note” will appear in your credit report throughout this period, which will significantly affect your ability to obtain a loan until this note is withdrawn. Lenders, creditors and anyone else who assesses your file before deciding to provide you with a service, for example homeowners who want to rent you an apartment, will probably not want to help someone who is not only already bankrupt but which could also be a risk in the future.
Manage your payday loan issues as soon as possible
As mentioned above, payday loans will usually be of a small amount, so repaying them using all the available money you have is the easiest way to break the cycle of payday loans. However, we are aware that this is not always possible for everyone. Financial situations vary from person to person. However, even if a payday loan can start from a small amount, with extremely high interest charges and other similar circumstances, the debt that will follow may quickly become out of control. For this reason, it is best to get a head start on the process and talk to a financial advisor or credit counselor before the situation worsens and bankruptcy is a way out.