Why Credit Counselling Doesn’t Help with Payday Loans

Payday Loans & Credit Counselling

It’s not uncommon for individuals grappling with debt payments to resort to payday loans. In fact, an astounding 40% of people embroiled in debt utilize payday loans on top of their existing unsecured debt. With several online payday loan lenders, falling into the payday loan trap becomes all too easy. The question then arises: Why credit counselling doesn’t help with payday loans?, and what alternatives exist?

The Payday Loan Cycle

Typically, the cycle begins when an individual takes their first payday loan to tide them over until their next paycheck. However, this often leads to a shortfall in the following pay period, resulting in the need for additional payday loans to meet ongoing expenses.

The Case of Mary

To illustrate why credit counselling may not be the best solution, let’s consider the case of Mary (name and details changed for confidentiality). Mary found herself saddled with 11 different payday loans, totaling nearly $16,000.

Case Study

Mary sought assistance from a credit counselling company, hoping to consolidate her debt into a more manageable monthly payment. However, the plan proposed by the credit counsellor was not financially viable for Mary.

The Flaws of Credit Counselling

Mary’s credit counselling agency proposed a repayment plan that involved steep initial payments that Mary could not afford. Over the course of 60 months, she would have had to pay a total of $15,897.71, including interest and counselling fees. Additionally, the plan did not take into account Mary’s other debts, leaving her to manage those payments on her own.

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A Total Debt Assessment

Mary sought further assistance and underwent a full debt assessment. The assessment revealed that she had $71,000 in unsecured debts, including:

Payday Loans: $19,000

Bank Loans: $39,700

Credit Cards: $5,000

Tax Debts: $3,900

Other Financing Loans: $2,500

Given Mary’s income and total debt, it was determined that she could realistically offer her creditors a settlement proposal of $420 per month for 60 months.

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The Advantages of a Consumer Proposal

A consumer proposal would allow Mary to repay a total of $25,200, eliminating $71,000 in debts. This is significantly less than the payments required in the first 18 months of her proposed debt management plan, which only addressed her payday loan debt.

Bankruptcy: A Last Resort

Despite the advantages of a consumer proposal, Mary’s unstable income made it difficult for her to keep up with the proposed payments. As a result, she ultimately filed for bankruptcy. This option was made available to her because she consulted a Licensed Insolvency Trustee who understood her situation and recommended the best course of action.

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Final Thoughts

If you find yourself in a similar situation, burdened by multiple payday loans and other complex debts, it is crucial to consult with a Licensed Insolvency Trustee. They can provide a comprehensive review of your financial situation and guide you towards the most appropriate plan of action.

Why credit counselling doesn’t help with payday loans? The answer lies in understanding your unique financial situation and exploring all available options. Whether it’s a consumer proposal, debt management plan, or even bankruptcy, the right solution will depend on your needs and circumstances.

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During our initial meeting, they took the time to understand my debt and financial circumstances. They explained the various options available to me and helped create a personalized plan that would be most beneficial for my situation. With their assistance, I was able to avoid declaring bankruptcy by presenting a consumer proposal to my creditors. Fortunately, my proposal was accepted, and I am extremely relieved to finally be free of debt, all thanks to BankruptcyCanada. The burden on my shoulders feels significantly lighter now, and I truly believe that Bankruptcy Canada has the most skilled specialists in debt relief.

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