Manage Debt Between Payday Loans

_{By Bromwich+Smith Staff | 1000 words | Reading Time: 5 minutes | Date: 2023/11/30}

If you find yourself in a cycle of debt, unsure of how to manage your finances between paydays you are not alone. More than 50% of Canadians are living paycheque to paycheque, and that means for many the final days before another payday can be difficult. With the added stress of the holiday season, many may be looking for a quick fix in order to supplement for the upcoming expenses they are seeing hit their bank accounts.  Options like a line of credit, applying for a payday loan or using credit cards may seem like a simple solution when there are consequences wo each of those choices.  

For many, putting holiday expenses on a credit card seems like the easiest option. When we don’t see the money leaving our bank account, it is easy to overspend and go above any budgets you may have intended to keep.  Credit cards can lead to a cycle of debt which can quickly spiral into larger problems. If you carry over a balance, you are likely seeing high interest being charged meaning you are paying more for your initial purchase. Additional fees to consider are annual fees, late payment fees, over limit fees and cash advance fees- all things that add up and end up costing more. Carrying more than the recommended 30% balance will show that your debt ratio may be more than you can handle and you will have a harder time obtaining new credit with favourable terms.  

Canadians may want to be aware before they pull out their credit cards this holiday season that now credit card fees at the terminal, could be passed along to you. Retailers and service vendors are now able to add the credit card fees back onto your bill which could add an extra 2% of the total purchase price to your bill. Avoid the extra cost by paying with debit, cash or cheque when possible. We know that there are times where your only option is to use credit this holiday season, so staying aware of additional costs will guide you to success. 
 
Many stores will be pushing their own credit cards throughout the holiday season. You may think this is a great way to open more credit and save money at stores you already shop at. Keep in mind that every time you fill in an in-store application, the lender looks at your credit. This means your credit could take a hit, and for those who are looking at renewing mortgages, applying for loans, or financing a new vehicle soon this could make it that you are no longer eligible for those loans. 

Another popular option is a line of credit. You may already have one, or are considering applying for one to assist in holiday expenditures. Keep in mind that there are Pros and Cons to this option. 

Pros: 

Flexibility in borrowing, allowing you to use then funds when needed up to your approved limit. 

Lower interest rates compared to other borrowing options. 

Revolving credit allows you the freedom to borrow, repay and borrow again. 

Many options with secured or unsecured borrowing choices.  

Cons: 

Interest Fees! If you are not able to stay on top of your payments, you can see substantial interest fees. Its easy to carry a balance with rotating credit which can lead to financial challenges later on. Be aware of your terms and conditions and if your rate is variable which could lead to higher than anticipated fees.  

Risk of overspending! 

Credit score impact. Opening a LOC will affect your credit score with the borrowing looking at your credit, and any late or missed payments, or high utilization being reported. 

Secured LOC. If you have secured your LOC through your house you risk loosing your home if you fail to make payment.  

One extreme we often see used, are Payday loans. It is estimated that over 2 million Canadians use this high cost loan every year.  While a quick loan before payday may seem enticing, and the offers of quick cash deposited directly into your account the same day may seem “ too good to pass up” beware the hidden dangers. These seemingly easy loans, often come at extremely high interest rates, and primarily pays off the interest portion of your loan first, before the loan itself gets paid. Meaning if you later decide to pay off the loan in full you will have to pay much more than the original loan was for. Often, these lenders will want to keep you as a client and will continue to offer you enticing offers once your loan is close to completion. Be aware of where your money is going and the full commitment before signing up for any loan, through a Bank or any number of loan vendors. 

Be mindful this holiday season, to keep your bank account on track. If you don’t have the necessary funds to purchase extravagant gifts, hold back on your purchases. It is ok to say no this holiday season and to gift yourself a healthy bank account instead. Limit the social gatherings if they are piling up. Don’t feel the pressure to get a new outfit for every holiday function you need to attend, and do not feel pressure to buy extra gifts this year. A handwritten note of appreciation will go further than you know! Set realistic expectations with your children this holiday season. That new gaming system may not be in the cards this year but help them set a realistic plan on how to get there. Maybe they can shovel neighbours’ sidewalks and earn a portion of the money for that big ticket item. By being open and realistic about your finances, you will set your household up for a Happy Holiday season! 

Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at  1.855.884.9243,, Live Chat or you can request a call back at contact us page. We want to see you flourish!    

FAQ Related to Pay Day Loan:

1: How can I avoid falling into a cycle of debt during the holiday season?

Be cautious with credit cards to prevent overspending. Consider using debit, cash, or cheques to avoid additional fees. Plan realistic budgets, limit social gatherings, and prioritize needs over extravagant gifts.

2: What are the potential drawbacks of putting holiday expenses on a credit card?

Credit cards may lead to a cycle of debt due to high interest rates and additional fees such as annual fees, late payment fees, over-limit fees, and cash advance fees.

3: What should Canadians be aware of regarding credit card fees during the holiday season?

Credit card fees at the terminal may be passed on to consumers, potentially adding an extra 2% to the total purchase price. Using alternative payment methods like debit can help avoid these costs.

4: Is applying for a store credit card a good idea during the holiday season?

Applying for store credit cards may impact your credit score, potentially affecting eligibility for loans or mortgages. Consider the long-term consequences before filling out in-store applications.

5: What are the pros and cons of using a line of credit for holiday expenditures?

Pros of a line of credit include flexibility, lower interest rates, and revolving credit. Cons include the risk of overspending, potential credit score impact, and the risk of losing collateral if the line of credit is secured.