Q: About seven or eight months ago I was short on rent money again. I got a payday loan so that the kids and I didn’t get evicted. I managed to pay it back but then had to get another one. This started a cycle of getting more and more loans, but when my car broke down that was the final straw. My credit cards have been maxed out for months and the payday loan places have cut me off unless I start paying back what I owe. But all of my paycheques are going to bills. I go to the food bank as often as I can, my kids get some of their lunches at school, and it killed me to stop their after-school activities. Despite these cost-cutting measures I don’t know how much longer before we get evicted. What can I do? ~Tyler
A: Getting trapped into a payday loan cycle happens innocently enough for most borrowers. Most people step into the web when they are short on one bill or payment and figure that getting a short-term loan or advance against their next paycheque will be manageable. The first loan might be manageable if repaid in full and on time. The problem arises when this no longer happens. After all, payday loans are among the most expensive forms of credit available to consumers in Canada.
It’s not unusual for our clients to bring in loan agreements that reflect an equivalent annual percentage rate of several hundred per cent. With borrowing costs this high, it’s nearly impossible to recover from one payday loan, let alone a series of them. If you’re trapped by payday loans, here are tips to help you regain control of your finances.
Take stock of your bills and debts
As stressful as it might be, make a list of how much you owe and who the lenders are. If you took out instant online cash loans, search through your emails or apps to find your most recent loan agreements. You might want to order a free copy of your credit report to see if there are any loans you’ve forgotten about, however, not every payday loan company reports loans to the credit bureaus.
Once you’ve listed out your payday loans, list your regular debts. Credit cards, loans, utility companies, if you owe the landlord or dentist any money; jot it all down as best you can. Next, jot down your most important expenses. Focus on your family’s needs rather than wants, like your rent or mortgage, housing related costs — such as electricity, internet, taxes, insurance and repairs — transportation, daycare, groceries, and medications. If you used an emergency budget during the pandemic, revisit it to help narrow down your most important expenses.
Consider all sources of income
The nature of payday loans forces you to focus on your paycheques. However, most households have several sources of income, even if there’s only one breadwinner: Canada Child Benefit (CCB) quarterly payments from the federal or provincial governments for lower income families, alimony or child support payments, rent from a roommate, even pension payments and assistance are all sources of income.
It can be traumatic to lay your financial situation bare on one page, but rather than letting your anxiety get the better of you, think of it as a first step to regaining your financial stability. Rather than your creditors calling the shots, you’re back in charge. And if you’re not sure how you can manage it all, get a professional on your side before it gets worse. You will need your budget to balance, to make sure you’re not spending more than you earn, and an extra set of experienced eyes will help get you to the point of a realistic budget and options to deal with your debts.
Where to find help with payday loans
One of the first offers of help might come from one of the payday loan companies you deal with. If the payday lender offers you a loan with extended payment deadlines, read all of the fine print very carefully. Keep an eye on the equivalent annual interest rate in the disclosure document. That is how much you will pay by the time all of the fees and interest are tagged on. Also consider if this one loan will help your situation, or if the lender is simply looking to minimize their own potential losses. When you’re dealing with a series of payday loans, you need help with all of them at once if you want freedom from the never-ending cycle of debt.
If your credit rating is still intact, you might be able to qualify for a lower interest debt consolidation loan from your bank or credit union. With your list of debts in hand, make an appointment to speak with a lender. Be open and honest with them so that if they can help you with a loan, you’ll get the help you need. If you have a mortgage with that same lender, they may have more options to help you than a lender at another financial institution.
The trick with a debt consolidation loan, or any kind of personal loan intended to pay off other debt, is living according to a realistic budget so that you don’t end up doubling your debt in and effort to get out of debt.
By the time several different payday loans are involved, someone has typically exhausted all of the traditional options to deal with their financial shortfall. Rather than turning to the drastic option of bankruptcy, contact a non-profit credit counselling agency in your area first. Their primary purpose is to help individuals and families figure out their finances.
The credit counsellor starts by helping you create a realistic household budget that everyone can live by. When dealing with payday loans, it may mean stopping payments entirely and focusing on essential expenses first. Your budget will determine what options you have in order to deal with your debts, so it’s worth actively participating in the process of outlining your budget.
Credit counsellors at non-profit agencies have a tool box of debt relief options that most consumers don’t even know about, solutions that go beyond a bad credit loan. Your counsellor will help find an option that fits with your long-term plans. They will answer your questions and explain the implications of any viable option. A lot depends on why you got into the payday loan cycle in the first place. Was it the high cost of living and simply trying to make ends meet? Maybe it was a gambling addiction or government debt. If your needs will be better served elsewhere, the credit counsellor will refer you to the professional most qualified to help, such as an addictions counsellor or insolvency trustee.
Having a friendly, professional counsellor in your corner will help you navigate the nightmare of multiple payday loans. The credit counsellor also knows what rules apply to the payday lenders you’re dealing with: what is and isn’t allowed varies by province, both for the initial lending as well as the collection of debt thereafter.
The bottom line on escaping the nightmare of payday loan borrowing
Payday loans, whether you get them instantly online or from a bricks-and-mortar location in your neighbourhood, are the equivalent of paying a fee to take an advance on your paycheque. And just like borrowing from the future to pay for the present, you can’t borrow your way out of debt. It’s important to remember that getting out of payday loan debt can be difficult, but it’s not impossible. With the right kind of help, a realistic strategy, hard work and a little patience, anyone can get back on track and look forward to a stable, financial future.
Peta Wales is President and CEO of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Peta by email, check nomoredebts.org or call 1-888-527-8999.