Are you thinking of getting a payday loan to cover your expenses until your next paycheque? A payday loan might seem tempting. It’s hard to walk down the street these days without noticing a cash store that specializes in these small to medium-size loans. Do a simple online search for payday loans and you will find countless websites that offer cash loans, approved in minutes. But you should know that payday loan debt is the most expensive kind of debt you can have because of the extremely high interest rates.
If you are dealing with the affordability and debt challenges that so many Canadian households are experiencing, you may think you need the extra cash a payday lender is offering. But you should avoid this type of bad debt that is extremely expensive and time sensitive.
1. Try talking to your family and friends.
Before you resort to getting a payday loan, consider having an honest conversation with family or friends about your situation. If you’re having difficulty finding extra funds this year, you’re likely not alone. The pandemic has left many households feeling financially stretched. Family and friends can be a great source of support any time you’re feeling overwhelmed by your financial problems and can support you in finding the right debt solution.
2. Contact your creditors.
If you are having trouble making a bill or credit card payment, try talking to your creditors. Most creditors will understand your situation and work with you by extending your due date. The same may be true of your landlord. Just remember to have that discussion before your rent is due and keep your word. It’s important to correct the issue so that it’s not happening every month.
3. Explore payday loan alternatives.
If you are in a bind and must borrow money, learn about your options for credit. There are much cheaper ways of borrowing money than going to a cash store and getting a payday loan. Your bank might be able to offer you a line of credit, overdraft protection or a cash advance on a credit card.
If poor credit is stopping you from accessing these more affordable types of credit, consider speaking to your employer about getting a short-term advance on your wages or cashing in a few vacation days. If you have the skills and the time to take on additional work, you might also consider freelancing or working a part-time job evenings or weekends.
4. Speak to a debt professional.
If you can’t make it to your next paycheque without relying on credit to make ends meet, it’s time to meet with a professional. A Licensed Insolvency Trustee will review your situation and speak to you about debt solutions that are much less expensive than a payday loan. Filing a consumer proposal can substantially reduce your unsecured debts, freeze interest charges and lower your monthly payments.
5. Start building an emergency fund when you can.
Given the choice, most people would prefer to avoid payday loans. Unfortunately, when your credit is poor and you are unprepared for a large expense, a payday loan may seem like the only option. An emergency fund can help you prepare for the unexpected.
It takes time and patience to build a healthy emergency fund. Most financial advisors recommend setting aside 3–6 months’ worth of expenses. But even a much smaller emergency fund can help you pay for a surprise vehicle or home repair. During a layoff, a more robust emergency fund can temporarily cover the costs of groceries, rent and utilities. The point is to get started as soon as you are financially able to. Every contribution helps.
Using a payday loan is never a good idea. For people who regularly rely on cash stores and quick online loans, the likelihood of getting into a payday loan debt trap is extremely high. With so many Canadians already living paycheque to paycheque, payday loans are not the answer.
Before you reach for a payday loan, reach out to a professional. Book a free, no-obligation consultation with a Licensed Insolvency Trustee today.