How to Pay Off Your Payday Loan

Caught in a payday loan cycle? Have you become a prisoner to payday loans? It happens more often than you think. While the payday loan was originally meant to help borrowers cover unforeseen costs during a cash shortage until their next paycheque, more and more frequently it’s become a very expensive lifeline for Canadians struggling financially, making their situation much, much worse.

The importance of paying off payday loans

A report found that nearly 2 million Canadians use payday loans each year, with 50% having taken out more than one payday loan in the last three years. The same report finds that many borrowers were unsure of how payday loans work and just how costly they can be, which depending on the province you live in, can be as high as 650% in interest. But consider this:

• Your pet needs to go to the vet, which ends up costing you $300—money you don’t have. So, you take out a $300 payday loan for 2 weeks.
• Over that 2-week period, you’ll pay $45 in interest charges or $15 for every $100 borrowed, which works out to an annual interest rate (APR) of 390%! Now you owe $345.
• But you still have to cover all of your everyday, regular expenses on top of this new additional debt of $345. (And if you're anything like the nearly half of employed Canadians living paycheque to paycheque, this can be a very tall order.)  
• Can’t make your payment? You’ll be charged a penalty. Now you owe close to $400.

Want to know your debt options? Take our quick and easy Debt Assessment Quiz to find out how you can manage and reduce your debt.

Got a payday loan...now what?

• The amount you owe, including the fees, will continue to accumulate interest.
• The payday lender will begin contacting you to collect payment. Ignore them and they might try other means, such as contacting your employer in an attempt to reach you.
• The payday lender may sell the loan to a collection agency which will then be reflected on your credit report, lowering your credit score.
• The payday lender or collection agency could attempt to sue you for the debt owed.
• The payday lender or collection agency could attempt to garnish your wages or seize your property.

None of this sounds like much fun. So here’s how to pay those pesky payday loans off for good!

Ask about an extended payment plan

For payday loan payoff assistance, first try going to the source. An extended payment plan (EPP) from your payday lender gives you more time to pay your debt. Typically, an EPP provides four extra pay periods to pay back the loan without adding more fees or interest. In addition, you won’t be handed over to collections as long as you continue making your payments each pay period.

Ask your employer for a cash advance

Some companies are willing to help their employees out with advanced paychecks, especially if you have been on the job for a while and are trustworthy. Just be sure you have a plan in place to cover necessary expenses during the period when your paycheque will be a little lighter than usual, so you don’t fall back down the payday loan rabbit hole.

Sell items you no longer need or use

If you need a few thousand dollars, could you get by on public transportation for a while if you sold your car for some quick cash? What about equipment, furniture or electronics you no longer use? Or a set of winter tires you have in storage? Sure, parting with certain items can be difficult, but it beats getting collection calls and possibly being taken to court! Plus, getting rid of items you no longer need or use makes room in your life for other things. And any heartache will be fleeting once you’re stress-free and living debt free!

Ask for help from family and friends

Money has been known to damage relationships, so go about this carefully. First, determine how much you can contribute to the loan on your own so you’re asking for as little as possible. Then ask friends and family to make up the difference. Come prepared with a plan in place for how you’ll repay them; having it in writing will also make them feel more comfortable and will make you more likely to hold yourself to it.

Don't navigate debt alone. Our credit counselling service provides expert guidance and support to help you get back on track. Find out how Credit Counselling can help you.

Get a side gig or side hustle

Depending on your schedule and family responsibilities, a part-time job or side hustle will help you pay off your loans faster and accrue less interest. It could be something as simple as bagging groceries on the weekend or dog walking, or maybe you can dive into the gig economy, driving an Uber (you only work when you’re available) or selling your handyman skills on sites like AskforTask or Jiffy.

Dip into your savings

Planning for the future is important, but if using money meant for a another purpose, like a down payment or a vacation, can solve your payday loan crisis for good, it may be worth to dip into it. After all, the amount you pay in loan interest and fees could add up to more than what you take out of your savings in the long term! But before withdrawing, just make sure you're aware of any withdrawal fees or penalties.

Sign up for a Debt Consolidation Program

While debt consolidation loans exist, you need to have a good credit rating and credit score to get one—something most people who rely on payday loans don't have. If you have a few payday loans or other forms of unsecured debt, including credit card debt, but you don't qualify for a debt consolidation loan, a Debt Consolidation Program (DCP)might be another option. A DCP involves rolling all your unsecured debt into one monthly payment through a non-profit credit counselling agency, like Credit Canada. A certified Credit Counsellor will work with your creditors to help you pay off your debt over time, reduce or stop interest, and provide expert money management advice along the way.

Payday loan relief is available

If you’re knee-deep in payday loans and/or other forms of unsecured debt and you'd like some free expert advice on how to best tackle them, contact us at 1.800.267.2272. We offer free, non-profit debt counselling (including on payday loans!) and we can talk you through your options, and possibly set you up with a Debt Consolidation Program. Either way, all of our counselling is completely free, 100% confidential and non-judgmental. Stress-free days can start with just one phone call.