Question:

I work in construction and a few months ago when the second wave started I was running out of child support. A friend on my team suggested a payday loan. It got me the money I needed, but I had no idea it would snowball into huge debt. After I got the loan, the next month I couldn’t pay my rent anymore, so I got another loan. My truck was about to be taken back so I got loans online because my bad credit means I can’t get money from my bank. Now, I owe more money on all of these loans, plus the credit cards that I had already fully used before, than I earn. I have no idea how to make all the payments and the pressure is killing me. How do I get out of this huge mess? ~ Damon

A:

The pandemic has been extremely hard on all of us in different ways, and with the pressure on it can be difficult to step back and make thoughtful decisions. When it comes to our money, the long-term consequences of expensive decisions can unfortunately lead to difficulties.

A

recent poll

by the Credit Counseling Society shows that one in four Canadians feel anxious about their current financial situation. However, turning to expensive short-term loans ultimately does little to alleviate anxiety. Think of it this way: if you are strapped for cash now and have no savings on hand, how will you be able to pay off the loan in the short term, plus interest and fees, and still manage to live with the money you have left? As many have discovered, the answer is “you don’t”. You pay off the loan with the money you have available, but take out a new loan to hold until your next paycheck.

A payday loan, in person or online, can seem like an easy way to bridge a shortfall from one paycheck to another, especially if you’ve run out of conventional credit like credit cards, a line of credit. credit or overdraft. But the reality is, most people find out the hard way that they’ve inadvertently found themselves stuck in a debt cycle that’s hard to escape.

The more you ignore the debt, the worse it is

When you’re used to turning to any available credit card for a cash advance to cover daycare or rent, or clicking on an app for an instant online loan to pay for everyday expenses (eg. (eg groceries, gasoline, medicine, or household bills), it can be hard to imagine how you will survive without these lifelines. But when you ignore your debts, they risk getting worse, not better.

Our survey

also found that more than a third (36 percent) of Canadians would not seek professional financial advice until their debt reached an uncomfortable level. The truth is, those who contact earlier usually have more options available to them. And having a plan, no matter how difficult, is better than wondering when the other shoe will fall.

No one can dispute the convenience of an instant loan, and regaining control of your finances can seem like a daunting task. But honestly ask yourself what your future will look like if you don’t take action. How are you going to deal with all the stress and pressure?

Alternatives to Expensive Loans for People with Bad Credit

Learn how to escape the payday loan cycle

To break free from the payday loan cycle, you need to have an idea of ​​what got you in debt in the first place. Think about your situation and consider:

● Was there an emergency expense that wiped out your savings account and you didn’t have a chance to replenish it before facing the next cash crunch?

● Has your income decreased?

● Have your expenses increased?

● Where are you with your budget? Have you a?

● Are there any non-financial factors that have contributed to your situation?

● Do you have any debts that you should have paid off earlier?

Knowing why you applied for payday loans will help you take steps to avoid relying on it again to make ends meet.

Check your budget

Then take a look at

Your budget

. The best way to manage your debt will depend a lot on the situation. If you don’t have a budget, now is the time to create one. Once you know how much all of your expenses are, including a little savings for expenses that occur periodically throughout the year, subtract them from your income – how much do you have left? If you have some cash left, your options will be different than if we are talking about your entire paycheck.

Open a new bank account

Next, you’ll want to keep the paychecks you have safe. You may need to

open a bank account

at a financial institution where you don’t owe anything. When you accepted the payday loans, you also gave them permission to take payments from your bank account. As you work to turn your situation around, you need to keep the money you have safe. For other debts you have incurred, the same is true; your money could be deducted from a debt as soon as you deposit your paycheck.

Develop a payment plan

If you have money left in your budget,

propose a payment plan

to your lenders or payday loan companies. While they might disagree, staying in regular communication with them and making small, consistent payments is very helpful.

If you don’t have money available to make payments,

acquire help

before your situation gets worse. The last thing you want is to have your wages garnished and child support withheld at source. There is no shame in asking for help when you need it, just make sure it is reliable and available for free or at low cost. Expert advice will go a long way in securing the cooperation of your creditors as you work towards getting some relief from all of your debts.

Evaluate yourself for warning signs of debt

Create your own safety net

When setting your budget, be sure to set aside a small amount to open an emergency savings account. You might feel like the money would be better used to pay off your debt, but some savings will actually help keep you out of debt. It seems so counterintuitive, but

saving is really a super power

. Call it Plan B, a safety net, or just an emergency account. With a little cash to fall back on, you won’t need to take out a new loan when you face your next cash shortage. Start small and work your way up. You’ll be surprised how quickly this adds up.

Check your own credit report

There is no consistency across Canada as to whether or not payday lenders share information with credit bureaus about your background. Most of the bigger companies report your information, and some of the smaller companies don’t, unless you default. The best way to find out what’s on your credit report is to

get a free copy of your own report

.

Getting a copy of your credit report is also a good way to check where you stand with your other debts. While taking care of your payday loans may be a priority, by taking back control of your paychecks, you will be able to include all of your debts in your payment plans.

When it comes to bad credit, the big question isn’t whether your credit will get worse, but are you making progress in getting back on track financially? It is

not worth obsessing over your credit rating

; do whatever it takes to get back on track, align your spending with your income, manage all of your debt (not just payday loans), and your credit rating will straighten out on time.

Consumer protection

Most provinces in Canada have laws describing the maximum fees a payday lender can charge, how often loans can be renewed, and the remedies they should offer to clients who cannot afford to repay. their loan. Find out what lenders doing business in your province must adhere to by

your provincial consumer protection office

. Just know that no legislation can protect consumers from themselves. While payday lenders are required to disclose the costs of taking out loans to their clients, someone who is desperately trying to cope with a cash shortage is not focusing on the cost of borrowing. Receiving the money is all that matters to them.

The Basics on Payday Loans and Quick and Easy Cash

The convenience of instant cash and easy payday loans may seem like the help you need to manage your finances. But there is never a quick and easy solution to debt. Seek help as soon as possible, because now is always a good time to stop relying on an expensive, temporary fix to a more serious underlying problem.

Associated reading:

5 reasons to avoid payday loans

How to overcome 8 sources of financial problems

What to do after getting a raise

Scott Hannah is president of the Credit Counseling Society, a non-profit organization. For more information on managing your money or debt, contact Scott by

E-mail

, Check

nomoredebts.org

or dial 1-888-527-8999.

Copyright Postmedia Network Inc., 2021