How to repay payday loans

You can apply for a $4,300 term loan and consolidate these debts into one new loan. The interest rate you can get will depend on how good or bad your credit score is. The lower your score, the higher your interest charges. Some alternative lenders offer small loans at rates as high as almost 60%. Although high, it is better than continuing the cycle of payday loans. (It should be noted that legal “usury” in Ontario is 60% interest: a lender cannot charge this amount on an offered credit. This is why so many payday loans or their sibling installment loans are at – you guessed it – 59.9% interest.)

Most of the people I meet who have payday loans or installment loans that I’ve talked about have never read the agreements they’ve signed. When I tell them the interest rate and terms (“Total Cost of Borrowing” is a particularly scary line item), they are shocked. You can also consider a cash advance on your credit cards. Again, the rate is high, often as high as 29%, but still less than the cost of a payday loan.

However, as is often seen, people who turn to multiple payday loans do not have good credit. This means that their borrowing options are limited. In this case, a better option may be to consult a nonprofit credit counselor. They can help you negotiate a repayment plan through what is called a debt management plan. There are, however, two important things to know. First, you will have to pay off all your debts in full. Also, not all payday loan companies will agree to a debt management plan or waive interest charges.

Unfortunately, the people I meet every day usually owe more than just a payday loan company. Our clients, in addition to several payday loans, owe an additional $30,000 in other unsecured debts like credit cards and bank loans. The payday loan is a symptom, not a central problem.
If you have other large unsecured debts, you may need the protection and debt relief offered by a Licensed Insolvency Trustee.

Once you’ve got your payday loan debt under control, take extra steps to ensure you won’t need to resort to a payday loan in the future. If you’re low on money each week, find a way to balance your budget by cutting costs or increasing your income.

To protect yourself from temporary cash needs, start building an emergency fund and consider overdraft protection. While overdraft protection comes at a high cost, it’s again less expensive than a payday loan and less likely to put you on a repeat path to running on the payday loan treadmill.

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