Payday loans are a quick and easy fix when you’re in a financial emergency. However, if you’re already short on money, continuously taking out payday loans can lead to a never-ending debt cycle. In this article, we’ll discuss strategies to help you avoid getting into a debt trap and alternative solutions to your financial challenges.

What Is a Payday Loan?

A payday loan is a short-term, unsecured loan lent at a high-interest rate. The term ‘payday’ refers to the fact that it must be repaid when the borrower receives their next wages. The maximum amount you can borrow varies but is typically not that high, such as $1500, if you’re in Canada.

Websites like mycanadapayday.com allow you to apply for loans online, eliminating the hassle of visiting the storefront location and ensuring that you receive your loan within minutes of applying. This is very convenient when you need money in an emergency, and the process is relatively simple. The loan provider will generally require you to show proof of your income. The lender will then give you the amount, which you’ll have to pay back on your next payday, usually within two weeks to a month.

Tips to Get Out of Debt

The catch with payday loans is the high-interest rate many lenders charge. They usually do this because they don’t check whether you can pay back the loan or not. High-interest rates can be dangerous for borrowers since they’ll have to borrow more money if they can’t repay the first loan, trapping them in a debt cycle. Here are a few tips to help you get out of debt if you’ve borrowed a payday loan.

1.   Contact a Nonprofit Credit Counseling Agency

These agencies specialize in helping people struggling with their finances, including getting out of debt. A credit counselor can create a plan to get you out of your debt cycle by helping you make a budget, manage bills, and explore debt payment options. They can help you create a debt management plan (DMP) for a small fee. In this case, you pay the agency, which then pays your creditors. The downside of a DMP is that it can restrict your ability to borrow money in the future, as lenders view it as unfavorable.

2.   Try a Payday Loan/Debt Consolidation Program

The idea of consolidation programs is to borrow money at a low-interest rate and then use it to repay your payday loan, along with other high-interest debt you may have. You must repay the loan you take from the consolidation program, but this will be relatively easy since you can pay back every month in a manner that suits your budget. Another type of consolidation program is called a debt settlement program, in which a third party will repay all of your loans and charge you a monthly payment instead.

3.   Ask For Extended Payment Plans (EPP)

Sometimes, payday lenders offer EPPs. These allow you to repay your loan over a more extended period of time. This might not be the case for all payday lenders, so make sure you read and understand all the terms and conditions before signing the repayment plan. Some payday lenders also offer reduced terms and interest rates, so ask about that beforehand as well.

4.   Get a Payday Alternative Loan (PAL)

These loans, devised by financial credit unions, can help you repay your payday loan but with reasonable costs and repayment conditions. They are also less profit-oriented since they don’t have shareholders. PALs are short-term, and the borrowed amount can be between $200 to $1000, with a maximum interest of 28% annual percentage rate. You can pay the loan in monthly installments within six months. You must belong to a credit union to apply for one, but you can’t receive more than three PALs within six months.

Endnote

Payday loans can be life-saving in emergency situations to cover short-term expenses. However, the high fees and interest rates could lead you into a debt trap that borrowers should be aware of. Getting out of payday debt might not be easy, but looking for solutions and being debt-free will finally give you the financial freedom to start planning your future finances.