Why Credit Counselling Doesn’t Help with Payday Loans

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 paycheque. 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.