Payday Loan Debt Relief in Canada
In Canada, payday loans are being used more than ever before. In fact, many consumer proposals and bankruptcies filed in Ontario are linked to payday loans, which are increasingly used by those with overwhelming debts.
Payday loans are most commonly taken out when cash is needed quickly in between pay cheques to make ends meet. That said, they often spiral into payday loan debt which can be difficult to stop, particularly when used frequently. There are, however, ways to gain payday loan debt relief and begin a fresh financial future.
What happens when you get into payday loan debt?
Payday loans are a very expensive way to borrow money, and the frequent use of payday loans can be a sign that you need debt relief as in most cases, it is not sustainable. In Ontario, while there is a limit on the costs applicable to payday loans ($15 for every $100 borrowed), the interest rate can be astronomical. This is if your payday loan is paid on time – if not, you can incur an additional interest rate on top. When taking out a payday loan, it is important to be aware of your rights, including the following:
- You are unable to take out a payday loan with the same lender until your first payday loan is paid off in full (also known as a rollover)
- You are legally permitted two days to cancel your payday loan, without any penalties
- When taking out a payday loan, your lender must formally share the amount borrowed, the loan length, any fees and charges, and the due date in a contract
- You have no obligation to repay your payday loan ahead of the agreed due date
If you discover a payday loan lender that does not comply with any of these points, you should not proceed with your payday loan and reach out to a Licensed Insolvency Trustee to discuss your other options.
Alternatives to payday loans
Instead of risking getting into payday loan debt, it is worth exploring other options of gaining quick funds beforehand. You can begin to eliminate your reliance on taking out back to back payday loans by looking to an alternative option first, like the following:
- Emergency fund – it is important to build your own emergency fund so that you do not have to rely on taking out payday loans, and can comfortably pay your bills each month
- Small loan – explore other loan options, including borrowing from family or friends, or taking out a small loan or line of credit with another lender
- Overdraft protection – overdrafts typically offer a cheaper method of borrowing, with lower borrowing rates of around 21%
- Credit cards – credit cards usually offer lower rates and greater flexibility than payday loans, with borrowing rates of around 36%
If you believe that your credit card debt could become manageable, it is possible that you could pay back credit card debt by yourself. This can be achieved by having a considered budget and a debt reduction plan. It is crucial to be realistic yet disciplined with yourself in order to assess ways to cut your spending and to channel any money you save into repaying your credit card debt. The key advantage of paying off credit card debt yourself is that it will have the least impact on your credit report.
How to gain payday loan debt relief
If you are struggling with payday loan debt, it will be reassuring for you to learn that it is possible to gain payday loan debt relief. It can be overwhelming knowing where to start, so the best thing to do is to reach out to an experienced Licensed Insolvency Trustee. They will be able to discuss your financial circumstances and walk you through your debt relief options. At Spergel, we have been helping Canadians gain payday loan debt relief for over thirty years.
Although payday lenders will not likely be open to a voluntary debt management plan, here are the most common forms of payday loan debt relief:
If you feel like your payday loans are becoming too much, payday loan debt consolidation could be a good option. It may be that you have other debts too, like credit card debt, which can be consolidated in the same loan. A debt consolidation loan is a new loan that is taken out to combine other unsecured debts into one. The advantage of a debt consolidation loan is that you have just one manageable monthly payment, often at a lower interest rate. A debt consolidation should only be taken out if it is not high cost, and provides a solution to your payday loan debt.
In Canada, a consumer proposal is a legal form of debt settlement. As it is government backed, a consumer proposal must be filed by a Licensed Insolvency Trustee. Your trustee will work with you to calculate a reasonable and affordable monthly payment, and negotiate this with your creditors. This will clear any remaining payday loan debt, and also means you are able to keep your assets. As a legal form of payday loan debt relief, a stay of proceedings will be automatically triggered, offering you protection from your creditors.
If you are unable to afford a consumer proposal, filing bankruptcy is the next best option. Another legal form of debt relief backed by the Canadian government, bankruptcy must be filed by a Licensed Insolvency Trustee. Bankruptcy is the process of reassigning your non-exempt assets to a trustee, who will use them to go towards repayment of your payday loan debt. This is in exchange for clearance of any remaining debt, meaning you can begin a fresh financial start. Bankruptcy also triggers protection from your creditors contacting you or pursuing lawsuits.
Debt Help Learning Centre
If you’re just starting to explore your options, visit our learning centre to learn from our articles and resources to start on your path to debt freedom, and when you’re ready, our trustees are always available to listen.