Getting Out Of Payday Loan Debt Fast

Breaking Free from the Chains of Payday Loans: A Comprehensive Guide to Debt Relief in Canada

Payday loans are a common go-to for many Canadians with less-than-perfect credit. In fact, the Canadian Bankers Association reports that approximately 4.52% of the population has utilized these short-term loans. It’s a staggering figure that equates to over 1.5 million Canadians. Despite their convenience, payday loans often contribute to the accumulation of debt, making them challenging to repay. Consequently, a significant number of individuals are exploring debt relief for payday loans. If you find yourself caught in a perpetual payday loan debt cycle, this guide offers practical solutions.

Understanding the Payday Loan Debt Cycle

Payday loan debts can feel like a never-ending cycle, but breaking free is possible. The first step is to diminish, if not entirely eradicate, your dependence on payday loans. Below are some essential steps to consider:

1. Avoid New Payday Loans

Resist the temptation to apply for a new payday loan. Consider alternative ways to generate additional income, such as using platforms like TURO, Uber, or Task Rabbit, or selling unused items in your home.

Take advantage of social programs and food banks in your vicinity to reduce your grocery bills. In Toronto, for example, the New Toronto Street Food Bank provides 2-3 days’ worth of food for those in need.

2. Identify and Address Your Financial Issues

Understanding the root cause of your financial problems is crucial. If you’re overspending or unsure where your money is going, it’s time to create a budget. If you’re feeling overwhelmed, consult a credit counselling agency. They can help assess your situation and design a feasible budget.

3. Prioritize Debt Repayment

With a sustainable budget and supplemental income, strive to allocate any additional funds towards your payday loan debt. Consider the snowball or avalanche method of repayment:

Snowball Method: Start by paying off the smallest debts, then use the funds from those to pay off the next loan.

Avalanche Method: Begin by repaying the loan with the highest interest rate.

Negotiating Payments with Your Lender

Contrary to popular belief, you can renegotiate your payday loan terms with your lender. If you anticipate difficulty in making your payment before the due date, it’s advisable to communicate with your lender beforehand. Possible renegotiations could involve altering the payment terms to make repayment more manageable.

Consolidating Your Debts

A debt consolidation loan can simplify your debts into one loan with a single payment and interest rate. The goal is to secure a loan with a lower interest rate, which can ultimately save you money. However, most personal loans used for debt consolidation require good credit for approval. If you have poor credit, you may need a cosigner or a home equity loan, if applicable.

Exploring Payday Loan Debt Relief Options

If the payday loan debt cycle continues to plague you, consider the following debt relief for payday loans options:

Consult a Credit Counsellor

A credit counselling agency can provide professional advice tailored to your specific situation.

Enroll in a Debt Management Program (DMP)

A debt management program or debt consolidation program might be a suitable option after consulting a credit counsellor.

File a Consumer Proposal

If your creditors reject your DMP, you might consider a consumer proposal. For this, you’d need to consult a Licensed Insolvency Trustee. They can negotiate a payment plan with your creditors through a consumer proposal, which is legally binding.

Bankruptcy: The Last Resort

Bankruptcy should be considered a last resort when seeking debt relief for payday loans. You’ll need to hire an insolvency trustee to file for bankruptcy. While bankruptcy can absolve your debts, it also results in an R9 rating on your credit report for 6-7 years.

The Ramifications of Defaulting on Your Payday Loan

Failing to repay your payday loan by the due date can lead to a series of repercussions:

Contact from Lender: Your lender will attempt to contact you and inform you of the potential consequences of failing to pay.

Withdrawal of Funds: The lender may try to retrieve the owed money directly from your bank account.

Debt Collection: Your loan may be outsourced to a collection agency for recovery.

Wage Garnishment: In extreme cases, lenders may take you to court to have your wages garnished
until the outstanding loan is paid off.

Why Are Payday Loans Hard to Repay?

Payday loans often come with high-interest rates (APRs between 400% – 600%) and short repayment terms, typically two weeks. These factors, coupled with borrowers’ existing financial obligations, can make the loan challenging to repay, leading to an ongoing cycle of debt.

When to Seek Help for Your Debt Problems

If your payday loans are becoming unmanageable, it’s essential to seek professional help before the situation worsens and leads to bankruptcy.

Final Thoughts on Payday Loan Debt Relief

Debt caused by payday loans can be overwhelming, but there are options. Whether you need advice and a budget, or a more drastic solution, reaching out to a professional is a great first step towards debt relief for payday loans.

FAQs About Payday Loan Debt Relief

Can I consolidate payday loan debt?

Yes, consolidating payday loan debt using other credit products is possible. However, ensure it’s financially sensible before proceeding.

How long will a payday loan stay on my credit report?

Information about your payday loan will remain on your credit report for up to six years.

Why is it difficult to repay payday loans?

The high-interest rates and short repayment terms of payday loans can make repayment challenging.

What happens if I can’t repay my payday loan?

Defaulting on your payday loan can lead to late fees, bank overdraft fees, collection agency calls, a mark on your credit report, litigation, and wage garnishment.

Can a payday lender sue me?

Yes, your lender can take you to court to recoup outstanding funds, but each province has a statute of limitations on debt.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.