Payday Loans – They’re a Trap!
Payday loans can be placed in the category of too good to be true. It is easy to find a lender, they are fast to get, and it is easy to qualify. A casual search on the internet reveals a surprising amount of different places where you can get a payday loan ranging from online offers to local storefronts. We admit that it is very tempting. If you currently have a payday loan you are not alone.
Typically, you only need to have a bank account, an address, and proof of income. Maybe you need some cash to go out with friends on the weekend or maybe you were in a situation where you’ve overspent for the month, and you’re a week away from your next payday and rent is now due and you don’t have it. What are people doing in situations just like this? Unfortunately, some are turning to payday loans.
It’s Easy to Fall Into the Trap
As Licensed Insolvency Trustees, we regularly see people who have fallen into the trap of a payday loan. The difficulty with this type of debt is that it comes with a sky-high interest rate in addition to administrative fees that make it very difficult to fully repay with your next pay cheque. Getting your first payday loan can start you down a slippery slope.
It will likely force you to go back to the same lender two weeks later to renew, or borrow more. Alternatively, it might cause you to go to a different payday loan lender to get the funds to make a payment to the first lender. In the famous words of Admiral Akbar: It’s a trap!
If you are currently struggling with your finances, or you already have one or more payday loans or installment loans, you probably have already come to the conclusion that a payday loan is not a long term solution. The high interest rates will not allow your payment to pay down much of the principle and the lender now has access to your bank account. Therefore, if you miss a payment, it may be taken out of your account at a time when you least expect it. If this happens your cash flow will become complicated fast.
Consider Your Options
Before getting your next payday loan you should consider whether you could obtain cash from any of the following sources:
friend or family member
overdraft at your bank
line of credit
cash advance from a credit card
sell something that you own
an advance from your employer
Although the interest rates charged on these alternatives can also be high, they are still much lower than what a typical payday loan cash advance would charge.
If you are already deep into the trap, and the tractor beam from the death star is pulling you in further, here are some possible remedies to get out:
Put in one month of extra work. This might take on the shape of working overtime or perhaps picking up a side job. However, don’t do this for too long or you will likely cause a burnout.
Try not to spend on anything but essentials for a month. In combination with point number one, this may provide enough momentum to break the cycle of payday loans. Try playing the game of seeing how long you can keep a twenty dollar bill without spending it.
It never hurts to speak with your bank. You may qualify for a debt consolidation loan or a line of credit. If so, use the funds to pay off your payday loan.
Finally make that budget. If you have never done this it may be a remedy. You could possibly discover where you can make the spending changes that are necessary to avoid getting another cash advance.
Have a household meeting and discuss expenses. Start keeping track by writing down your daily spending or perhaps you are comfortable enough with a spreadsheet or smartphone app to track your spending.
Make it a search and destroy mission to see if you can find some expenses that you can change. It may be as simple as packing a lunch for work every day instead of buying it at the gas station or lunch place.
Pro tip: If a lender has access to your bank account they can take a payment almost at any time even while you are sleeping. Therefore, opening a fresh bank account at a new bank or credit union will enable you to sleep at night knowing that your money won’t disappear because your lenders won’t know about the new account.
Reach Out for Help
If you are still faced with too much debt pressure, reach out for help. There are federal programs available for Canadians from coast to coast that can help change your financial life. A Licensed Insolvency Trustee (LIT) is a financial professional authorized by the federal government to help reorganize your finances. Often an LIT can see solutions that you can’t; utilize that expertise as a resource. There is a pathway to a better financial future that is available to you and a LIT can help you find it.
A LIT has the authority as the only debt professional in Canada to help you with either a consumer proposal or an assignment into bankruptcy. A consumer proposal is a lot like it sounds; you make an offer, or a proposal, to your creditors for a partial repayment of your debts, including payday loan lenders. Both of those options come with an immediate stay of proceedings which means that you can stop paying your payday loans immediately.
While some of these terms may sound scary they are actually very practical, federally approved options for Canadians from coast to coast. We would encourage you to schedule an appointment via telephone from the comfort of your home and ask questions.
Most trustees, including our office, will provide you with a complimentary confidential consultation where you can discover your options after which you soon will realize that there is a pathway to a better financial future. Go ahead and make that first appointment, it’s free.
May the force be with you.