Payday loans are one of the most dangerous types of debt you can ever get into. Consumers turn to payday loans when they’re desperate. Payday loans offer cash right away and almost everyone gets approved. The true cost of a payday loan often isn’t immediately apparent. They often come with dangerously high interest rates, some as high as 400% APR (annual percentage rate). Even if they are paid back within weeks, interest rates are steep.
How Payday Loans Work
Let’s say one morning you wake up and your car won’t start. You’ve been living on a tight budget and you don’t have the money to get it fixed. But you need your car to get to work. You take out a payday loan of $400 to get your car fixed. There’s a fee of $15 per $100. You have 14 days to pay it back (i.e., after your next payday). If you earn, for example $30,000 a year, now you’ve had to pay $480 on a $900 pay check. Even if you’ve paid on time without incurring additional interest, you’re now going to be short on your rent.
Payday loans can be the start of a vicious debt cycle that will keep you borrowing money just to pay back loans. It’s a difficult cycle to get out of and it often ends in insolvency – but it might make more sense to explore insolvency before falling into the payday loan trap. The insolvency process, whether it’s bankruptcy or a consumer proposal in Ontario, will wind up on your credit history. But if you’ve already been taking out payday loans and missing bill payments, that’s already reflected in your credit score. What you need is relief in order to rebuild.
When to Consider a Consumer Proposal
The earlier you consider a consumer proposal the better. You can talk to a bankruptcy trustee, now called a Licensed Insolvency Trustee, to ask about consumer proposal services and whether or not you’re eligible. Consider whether or not you might be insolvent before you take out a payday loan and you could save yourself money and stress. But a consumer proposal in Ontario can also be your way out of the vicious payday loan cycle.
What Is a Consumer Proposal?
A consumer proposal in Ontario is a way to reduce your unsecured debts like payday loans and credit card bills. If you’re insolvent, meaning it would be impossible for you to pay your debts based on your income and expenses, a bankruptcy trustee in Ontario can propose a reduction in your debt to your creditors. In exchange, you would pay a fixed amount of money each month to be disbursed to your creditors.
Consumer proposals in Toronto are handled by firms like David Sklar & Associates. These are registered professionals who have a duty to provide you with information and advice about insolvency. They are also the only professionals who can file for consumer proposals in Ontario. Visit bankruptcy trustees like David Sklar & Associates to ask about debt relief. They can get you out of the payday loan cycle.