Drowning After Payday Loan ‘Rescue’

drowning-after-payday-loanAndre (not his real name) is a 34-year old native of St. Catharines Ontario. He earns a modest salary as a service representative in the call centre for a local company.

Andrea lives in an inexpensive apartment in the west end and owns an old Toyota Camry, which he uses to get back and forth from his job, and occasionally to see his family nearby.

Andre’s biggest expenses were his rent, car payment, and nights out on the town with his friends. Movies, drinks, burgers with the gang fill much of his lifestyle. He doesn’t spend a lot on bigger purchases, but still, Andre lives paycheque to paycheque. He owed about $6,000 on his credit card from a past trip for a friend’s wedding he was a part of, but was paying that balance off by about $300 each month. Andre had no emergency funds to speak of, just whatever credit was available on his card.

One Bad Decision

Andre’s problems began with one bad financial choice for a good reason. It all started with a recent night out. Andre was the designated driver that night and, even though he wasn’t drinking, he was hit by another driver. No one was hurt, but the damage to his car was substantial. The final bill was more than $5,000.

Unfortunately, Andre didn’t have enough money to pay for the necessary repairs so he maxed out his credit card again and took out a $1,100 payday loan to get his car back from the shop.

Sinking Lower and Lower

From that point forward, Andre’s financial situation spiraled downward. Paying back his payday loan meant he didn’t have rent money so he borrowed from another payday loan company. He also reduced his credit card payments to the minimum since he had no available cash to pay back more.

Andre stopped going out to save money but the financial damage was done. Every time his paycheque was deposited, he had to use most of that to repay a payday loan. That left no money to crawl out of debt, never mind pay for his rent and living expenses. Eventually he had to seek a second payday loan just to keep up with his rent and minimum debt payments.

Fast forward 10 months and Andre had a total of three payday loans, his credit card accounts were turned over for collection, and, tired of late and missed payments, his landlord threatened eviction.

Better Money Management?

From this scenario, it doesn’t sound like better money management would have helped Andre. Effectively the payday loan companies were eating away more and more of his pay every two weeks. Deciding to take out a payday loan seemed like a short-term fix to repay for the damage done to his car. But since Andre didn’t have the funds to repay the payday loan and his other debt, that one decision was the beginning of his financial trouble. A payday loan on top of other debt is almost always a recipe for financial disaster.

At his wit’s end, Andre contacted the Licensed Insolvency Trustee at the Hoyes Michalos office in St. Catharines for debt relief solutions.

The alternative which sounded most appealing to him was to develop a consumer proposal, which could be presented to his creditors, so that he would end up paying a single monthly payment that would be distributed among them all. The repayment period would last for three years in his case, and he would only be paying back a fraction of the total outstanding balances.

Best of all, his proposal payment meant that his monthly finances were now in balance again. Having learned, Andre started putting money aside each month. He still goes out with his friends, but isn’t using any new credit to fund any expenses. Andre did get a $500 secured credit card for when a credit card was required for online purchases. but he keeps that balance low and pays it in full each month.

Mostly he tells his friends never to take out a payday loan. He suggests they learn from his experience.

Help From the Debt Relief Experts

If you find yourself in a situation similar to what Andre experienced, contact a Licensed Insolvency Trustee for advice. As your consumer proposal administrators, they can help you recover from a crushing debt load, and get you back on your financial feet. You may have made some bad decisions to get this point, but your first good decision afterward should be to consult with a licensed professional to start working toward a debt-free life.

Category: Consumer Proposals | Tagged in:

Sep 20, 2017


About J. Douglas Hoyes

J. Douglas Hoyes, BA, CA, CPA, CBV, CIRP is a Licensed Insolvency Trustee and the co-founder of Hoyes, Michalos & Associates Inc., one of Canada's largest independent personal insolvency firms. As an expert in debt management, Doug has been helping people deal with debt for more than 20 years.

Join the Conversation

Leave a Reply

Your email address will not be published. Required fields are marked *

9 + twelve =