Is A Payday Loan A Good Idea?
In this video, Richard Killen, a Scarborough-based Licensed Insolvency Trustee talks about whether a Payday loan is worth considering.
I guess one can say that going into debt, any kind of debt, is hardly ever a good idea. Usually, the cost of the debt outweighs whatever benefits you may get from borrowing the money. However, sometimes debts make a good case for making some worthwhile. For instance, is a mortgage worthwhile? Because you borrow a large amount of money for buying a house, you are going to pay back that money with interest but the house will appreciate in value. And over time that appreciation more than outweighs the cost of the debt. Maybe that kind of debt is a good idea.
Ultimately, it always boils down to whether the cost too much and how much is the cost? Now there is going to be interest on any loan and that is what you must consider. Now, unfortunately, Payday loans are on the high end of all interest calculations so one can say that it is tough to say if a Payday loan is worth it.
If a Payday loan is a part of your coping with bills, you should consider having a consultation with one of our trustees. It may be the most stress relieving call you make this year.
Calculating the True Cost of Debt
Many people don’t have a clear idea of what their debt really costs them, whether it’s a credit card balance or a student loan. Financial writer Gail Vaz-Oxlade points out in “How Much is Your Debt Costing You?” that if someone buys a $2,000 TV on credit, with an 18% interest rate, the minimum monthly payment would be about $40. Of that payment, only about $10 would go to the principle and rest would cover interest. So if you just made minimum payments, the $2,000 TV would cost you $7,000 and would take 30 years to pay off.
To tally up the true costs of your debts, the sites for many financial institutions and credit-counselling agencies have calculators available for free use. Punch in your numbers and weep.
Credit Counselling Canada, the national association of non-profit credit counselling and government agencies, offers links to a variety of calculators. They include ones designed to help you to get a clear picture of your debt situation, change your spending patterns for your home budget, determine repayment strategies for your loans and lines of credit, track your weekly expenses and show you how to reach your savings goal. Its SMART (Specific, Measurable, Attainable, Relevant, Time-Bound) Worksheet can aid you in setting financial goals and putting them in action.
Most banks offer calculators to help you figure the cost of loans before you sign on the dotted line. Typical is TD Canada Trust’s Debt Repayment Calculator. Select your type of debt, the amount of the loan and interest rate, and then you’ll get back the numbers for how much you’ll pay in total, over what period of time. If the numbers for your debts become oppressive, TD also offers a Debt Consolidation Loan Calculator, showing how you can ease your situation by consolidating all your debts into a single loan, with one monthly payment that is probably lower than what you are paying overall now.
Students about to enter university or college, and their parents, should point their browsers to the Government of Canada’s CanLearn Loan Repayment Estimator. Plug in your settings and it will help you estimate the monthly payments you’ll need to make to repay your Canada Student Loan or other government student loans. Simply enter the total amount of your loan(s), select the interest rate and grace period options, and decide on the number of monthly payments that you would like to make. You can also compare repayment options.
The trick is to pay off the student loan before you hit retirement age.
If you are in debt and have questions, call us at Richard Killen & Associates. We would be happy to help you find a proper solution to your problem. 1-888-545-5365.
What Are the Alternatives in Coping With a Debt Crisis?
No one wants to go bankrupt. It is the last resort when faced with insurmountable financial problems. But even if your payments are in arrears and you are getting collection calls, there are other options besides a bankruptcy, which we at Richard Killen & Associates are glad to explain. These include:
Getting a Consolidation Loan
If you can qualify for a consolidation loan, you can bundle all your debts into a single package and make a monthly payment that will probably be lower than what you are faced with right now with all the individual payments. You can usually reduce interest and stretch out your repayment period. The trick is qualifying for the loan if your credit rating has taken a beating because of your financial difficulties. To get approved, you may need collateral, or a co-signor or guarantor – not always easy to find.
Making an Informal Arrangement
You can, perhaps, negotiate with creditors to reduce monthly payments. Or you might be able to get them to accept less than the full amount owed, if you have a lump sum payment you can make. In either case, you should use the services of a licensed trustee, lawyer, accountant or reputable credit counselling agency to do this, and beware of the many unscrupulous sorts out there poised to take advantage of your situation. Other pitfalls of this method include: the high degree of difficulty in conducting negotiations; creditors who can still sue you; no protection from garnishees; it doesn’t stop interest accumulation; and it needs to be accepted by all creditors before it can be effective.
Offering a Consumer Proposal
A consumer proposal is a legally binding agreement between you and your unsecured creditors to settle all your unsecured debts. It is filed with the government and managed by a licensed trustee, such as Richard Killen & Associates, under the supervision of the court. You will probably wind up paying back only a portion of what you owe – for instance 10, 20, or 30 per cent – and so get the debt relief you need without going bankrupt.
How this differ from the two options above? The three main advantages are:
- You don’t have to negotiate with each creditor separately.
- You only need a simple majority of the debts to be in favour, not all of them, to get it accepted.
- The creditors have to listen to you. If they ignore your offer they will be stuck with it, so you will have their attention.
In other words, you will be negotiating a settlement of all you unsecured debts from a position of more-or-less equality with your creditors. We usually don’t think of ourselves as being in that position with the banks and credit card companies, do we?
A proposal also stops all interest charges, halts lawsuits and garnishees, and does not require direct individual negotiations (the trustee handles this for you).
Everyone’s situation is different. To decide what is the best method of dealing with your debt problems, you need expert advice. At Richard Killen & Associates we offer a free assessment consultation, so you will have a clear picture of what your options are.
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