Payday loans are an increasing form of income for many individuals having financial troubles. When money is tight and an emergency comes up, or the funds to pay off a bill aren’t available, the answer seems easy: a loan!

However these short-term Payday loans, as appealing and convenient they may appear, are dangerous and can take a negative toll on your finances. Everyone should understand what Payday loans consist of, why they should be avoided, and learn the necessary steps to stop relying on these quick fix debt “solutions”.

Payday Loans, Quick Cash, Fast Money, Debt

What are Payday Loans?

What exactly are Payday loans you may ask? Payday loans are also called a payday advance, cash advance loan or small dollar loan. Basically, a Payday loan is short-term, and meant to last typically no more than two weeks.

Oftentimes there are individuals suffering from bad credit or have an urgent need for cash, this is when they will usually seek out money-lending companies to assist in bailing them out of their current situation.

The loan is intended to be paid by the time the individual receives their next paycheque.

The unfortunate reality is that these loans are often difficult to pay off in such a short period of time, thus leading the individual to take on a new loan to cover the previous one, ultimately creating a vicious cycle.

Reasons to Avoid Payday Loans

Payday Loan

With all the negative connotations associated with Payday Loans, there are clearly many obvious reasons to avoid these “Loan-Sharks” and “Predators”.

However, with the growing reliance on these quick-loans industries, it is evident that people are not taking into account the major cons that come with borrowing money.

 

 

 

Here are 3 Sensible Reasons to Avoid Payday Loans:

  1. High Interest Rates

One of the biggest negatives that comes with taking out a Payday loan is the high interest rate. More often than not, these interest rates are typically higher than a credit card or a personal loan.

Companies offering cash advance loans rely on your unfortunate situation, taking advantage and preying on those who feel as though they have no other option.

For every $100 borrowed, the Payday loan companies can charge up to $15 – $21 interest for a two-week period. (Surprisingly, this limitation of $21 was only put into effect in 2009).

With a two-week period, this may seem manageable, but for some individuals who constantly rely on Payday loans, this can add up to an annual interest rate of nearly 550%!

 

  1. Often Leads to a Debt Cycle

What starts off as a quick fix and a relatively manageable level of debt can quickly escalate due to the accumulating fees.

Sure, it seems like easy money and is essentially like getting your paycheck early, but the risks far outweigh the so-called “convenience”.

The funds are obtained quickly whether through a cheque or direct deposit, but the repayment process can be very difficult. Most companies require payment in full, and do not accept payment in installments.

 

  1. Unhealthy Financial Behaviour

Fast money, payday loans

Instant cash often comes with a price, in the form of high fees and interest rates. Nearly 2 million Canadians a year use some sort of payday loans, many of whom take longer than the agreed period to pay off said loan.

In order to healthily manage your finances, you must learn how to budget and set aside for emergencies.

Instant cash often comes with a price, in the form of high fees and interest rates.

Relying on Payday loans to cover ongoing expenses is a dangerous habit and leads to the vicious debt cycle as discussed.

 

How to Stop Relying on Payday Loans

Ending your usage of Payday loans can take some time, especially if you’ve entered into a cycle of debt.

What’s required from you is a detailed plan, commitment to the solution, and patience.

Quick fixes are never what you think they are, and getting out of these dangerous patterns are tough, but there are ways to manage and eventually resolve the situation.

Rather than subjecting yourself to expensive and unfair Payday loans, try these suggestions:

  • It’s always worth it to ask creditors to extend deadlines if you’re having debt issues, but always be sure to let them know if you’re going to be late with payments!
  • If you’re close with your employers, ask for a cash advance. This will get you the money you need sooner, but you must remember that your next paycheque will be short the advance you requested.
  • It may be ideal to ask your family for a short-term loan as well, if you’re comfortable having them know about your financial situation.

No matter what the situation, it’s always in your best interest to consult a professional who has experience in matters like these.

In some cases, a Licensed Insolvency Trustee can simply coach you into changing your financial behaviour and taking some steps on your own first without entering into a formal arrangement or filing a proceeding with the trustee.

Crawford, Smith and Swallow Inc. can help you re-work your personal budget; offer you advice and practical tactics on how to consolidate debt.

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If You Need To Consult With A Trustee About Credit Counselling, You Can Count on Crawford, Smith & Swallow Inc.

Once you start to realize that debt is becoming a burden and is leading you to seek out Payday loans, taking immediate action is paramount to your quick return to financial stability.

At Crawford, Smith & Swallow Inc., it is our professional mission to tailor the appropriate financial solution to serve your immediate need.

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