3 Steps to Escape the Payday Loan Debt Cycle
Most Canadians who incur payday loan debt end up paying a lot in interest payments and fees. Frustratingly, payday lenders often collect on money that you don't have, which can cause huge Non-Sufficient-Funds, or NSF charges—that can be close to $50, every time they occur (we've written another article on how to avoid these, here). Research has shown that more than half of all payday loan borrowers are struggling to meet their monthly obligations. When you add up the steep interest payments, late fees and recurring NSF charges, it's easy to see how people can fall into the payday loan trap.
In this article, we'll share some methods you can use today to avoid the negative consequences of payday loans.
1. Create a Budget
The first step is to put together a realistic budget that includes how much income you'll receive over a week or month, as well as all of the expenses that you expect to incur during the same time period. By doing so, you'll be able to understand how much you'll be making, and how much money you'll have left over after paying for all of your expenses. What's left over can be put towards saving for your future, or paying down any expensive loans you have outstanding. If you don't have any savings, or if your expenses are greater than your income, think hard about what expenses you can reduce or eliminate entirely. For example, do you really need that expensive gym membership when the community center gym is half the price? We've written another article on how to budget effectively with the tried and true 50/30/20 method that you can check out as well.
2. Ask for an Extension
After you've created your budget and mapped out your expenses, you can figure out how much you can manage to pay on your loans every month. If you can't afford to pay what is due, talk to your lender. Communicate with the payday loan outfit that you won't be able to pay the entire amount outstanding on time. Tell them the amount that you can afford to pay, and ask for their understanding with your modified payment schedule. Being open with your communication lowers the likelihood that lenders will take money that you don't have, saving you potentially hundreds of dollars of NSF fees and late charges you may otherwise have to pay.
3. Get Debt Counseling
If you're deep in debt, if you've lost your job or are otherwise unsure of how to pay all of your loans down, you can engage companies that help with debt management planning. These companies are professional organizations that communicate with your lenders to help consolidate your debt payments into less frequent, more manageable occurrences.
Before Taking Another Loan, Consider the Alternatives
Before taking out another payday loan, think about the implications, first. Do you have the income to service the steep interest payments, and late fees, in the case that you don't repay exactly on the agreed-upon repayment date? Are you able to ask for an extension so that you don't get debited for cash you can't afford to pay back?
Start planning your financial wellbeing and set a budget. Know your expenses, and how much you have to put towards your savings or to pay down any existing loans you may have. If you need a spot before your next paycheck or need to avoid overdrafting your account, ask Bree. We'll be more than happy to spot you—without any interest or mandatory fees.
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