Here are some options to solve your payday loan predicament

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If your car repair bill was a bit more than you expected and your credit card is maxed out, or maybe you need a little extra cash to pay what you owe your daycare, a payday loan is a way of taking a cash advance against your next paycheque.

Using one payday loan may feel innocent enough, and it can be done without all the paperwork you’d have to do at your bank or credit union to get more overdraft protection or increase the limit on your line of credit.

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But payday loans come with some of the highest interest rates in Canada, and along with substantial fees, the overall cost of borrowing makes them an extremely expensive way to cover a budget shortfall. If you can afford to pay back the loan, it might leave you short of cash until you get your next paycheque. Many of those who can’t afford to pay it back end up taking a second payday loan to pay back the first.

Rules between provinces vary on these so-called rollover loans, but even where they are restricted, desperation breeds innovation. Borrowing from one payday loan company to pay back a loan at another quickly leads to committing more than your entire next paycheque, leaving no money at all for rent, food, daycare, gas and other essentials. What started out as a way to get by for a few weeks turns into a stressful and expensive predicament with no end in sight.

It’s not unusual for someone to have seven to 10 payday loans by the time they seek a debt counsellor’s help. My clients come from all walks of life and face immense stress. They have exactly zero dollars in their bank account and face garnishments, offsets and legal collections if they don’t quickly figure things out.

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The biggest problem they usually have is figuring out where to start. Being stressed and overwhelmed doesn’t let you think as clearly as you need to about your own situation, so a qualified, objective credit counsellor at a non-profit agency is a great person to walk you through your debt-relief options and provide you with guidance.

The counsellor will start by getting an idea about your income and expenses. This is essential because if your budget is too tight and there’s no money available for debt payments, the options for how to deal with your payday loans will look different than if there’s some money available in the budget that could be used towards payments.

Next, the counsellor will ask you about your bills and debts. They will create a list and prioritize them in order of which should be taken care of first and which can wait. Not all debts are treated equally at the same time; some need to be paid first due to who the creditor is — for example, tax debt owed to Canada Revenue Agency.

Before looking at repayment options, your counsellor will calculate whether your budget balances or not. We know of less traditional options that can help people when they can’t afford to make payments, as well as when they do have at least some money to make payments. Your counsellor will review viable options for you once they have a thorough understanding of your circumstances.

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If you’re tempted to go it alone, it helps to be aware of the types of options you may face. For example, a payday loan lender might offer you a loan at a lower interest rate so that you can make payments over the next year instead of with your upcoming paycheque. This might sound like a great deal, but read the fine print to see if it covers only its loan(s) or those at other payday loan stores, too.

Also, look at the effective interest rate and the cost of borrowing disclosure document. The percentage indicated there combines the interest and fees into one number, so you can compare apples to apples when it comes to figuring out your options. A 12-month pay-down loan at a payday lender could still have significant double-digit interest rates to contend with.

You may want to ask the lender at your bank or credit union if you qualify for a debt-consolidation loan. If you do, the interest rate will typically be less than what a payday loan lender offers and it will allow you to consolidate all your payday loans into one new loan.

Consolidating 10 or 12 loans into one will make it easier to pay the debts off, but only if you also live according to a realistic budget that helps you avoid relying on credit to make ends meet. The last thing you want to do is dig yourself deeper into debt while attempting to pay off what you already owe.

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Whether you get your payday loans in person or instantly online, you are paying a fee for an advance on your next paycheque. Rather than trying to borrow from tomorrow to pay for today, look for a practical plan, one that with patience and dedicated effort will allow you to secure a more stable financial future.

Sandra Fry is a Winnipeg-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt for more than 27 years.

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