How to Get Out of Payday Loans

Date posted: Sept. 10, 2015

Although payday loans are fantastic options for people who need immediate funds in emergencies, it is easy to fall into a never-ending cycle of fees and interest. If you find yourself unable to get out of the vicious circle of payday loans, you can take the following steps toward financial freedom.

How Payday Loans become Debt Traps

Many hardworking Canadian consumers utilize payday loans in times when funds are tight. Some of the most common reasons to take out these loans include car repairs, home repairs, and illnesses that prevent individuals from going to work and thereby decrease the size of paychecks. Payday loans are short-term solutions, so when borrowers are unable to repay them on time, the very high APR (up to 600%) continues to accrue on top of late fees and other charges. Soon, all the borrower can afford to pay is the renewal fees and interest while the principal balance remains untouched. If you find yourself in this position, rest assured that you can break the cycle.

Borrow from Friends or Family

The absolute best way to get out from under the payday loan trap is to borrow money from friends or family that you can repay with little or no interest. Although this option is not available to everyone, it can rescue you from throwing hundreds of dollars away on unneeded interest charges and late fees. It is also possible to draw up a legally binding contract with a friend or family member, which includes a plan for repayment – including specific amounts and interest rates. Sometimes, you can borrow small amounts of money from different friends and family members with separate repayment terms for each, making it easier to repay them according to your budget.

Take Out a Small Personal Loan

If you cannot borrow from friends or family, another option may be a small personal loan. Plenty of Canadian lenders offer personal loans to individuals with bad credit, and there are some advantages to this. First, lenders spread personal loan repayments out over a longer period, allowing you to make much smaller payments with a much lower interest rate. Next, if you have bad credit, you can put of collateral such as an automobile or other valuable item. This way, your loan is "secured." Use the funds to pay off the payday loan, and then make timely monthly payments until you have paid the full balance of the loan.

Consider Your Options Wisely in the Future

Of course, the best way to avoid the payday loan debt trap is to use these loans wisely in the first place. Only consider a payday loan in a true emergency, and be certain that you can repay the full amount plus any applicable fees on the scheduled repayment date. Never use a payday loan for frivolous purchases, for vacations, or for any other reason other than a true emergency since true unexpected events could lead you down a dangerous path. Once late fees and interest start to pile up, it is difficult to get things back under control.

If you are in serious debt and you cannot obtain the funds necessary for repaying a payday loan, the best course of action is to contact a credit counselor. These individuals work with you to help you better manage your money, settle your debts, and raise your credit score.

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