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How to get out of payday loans

Learn where to get payday loan help and how to get out of that payday loan cycle.

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By

Leanne Escobal

&

Stacie Hurst

Updated

Fact checked

If you had to borrow a payday loan and couldn’t repay by the deadline, you might have chosen to take out another “just to get by.” This probably led to an additional loan with more fees, likely followed by another and another, and soon the debt started to pile up. If you find yourself in this situation, there’s still hope – you can get out of a payday loan cycle and avoid the huge costs of debt. All you need is the right strategy and proper planning.

What to do if you’re struggling with how to get out of payday loans

If you’re experiencing financial hardship and would like to speak to someone for free financial counselling to get payday loan help, you can call Credit Counselling Canada at 1-866-398-5999. It’s open from 8am to 5pm, Monday to Friday.

How does the payday loan cycle of debt work?

Payday loans are loans that come in the form of a cash advance – usually for small amounts of up to $1,500 – that you’ll need to pay back by your next paycheque. They are relatively easy to qualify for even with bad credit, making payday loans an easy and convenient way to get your hands on fast cash.

But that convenience often leads to trouble…

The problem is that payday loans often come with extremely high fees that can cost you hundreds of dollars on top of what you borrow. This can lead you to owe more than what you can afford to repay each month. When that happens, people often end up borrowing a second payday loan to cover your rent, groceries and other expenses.

In the end, you may find that you’re stuck in a loop of taking out and repaying payday loans like clockwork in order to cover the loan fees and your expenses. This can end up costing you thousands of dollars above what you originally borrowed over a long period of time.

How to get out of payday loans

One of the best things you can do when considering how to get out of a payday loan debt cycle is to find a way to consolidate your debt and lower your monthly payments. Because payday loans carry extremely high interest rates — anywhere from around 400% to over 700% – you’ll want to stop borrowing and merge all your loans into one larger loan with a lower, more manageable APR. In fact, a survey conducted by the Financial Consumer Agency of Canada found that one-third of the people who use payday loans repay it using something other than their paycheque.

You can get payday loan help using any of the following methods:

  1. Debt consolidation loan
  2. Balance transfer credit cards
  3. Debt relief companies
  4. Nonprofit organizations
  5. Asking friends or family for help

1. Debt consolidation loan

If you’re stuck in a cycle of applying for payday loans to get to your next paycheque, you might benefit from a debt consolidation loan. These loans are offered by reputable financial institutions, and many are designed for borrowers with bad credit. You’ll typically just need to be able to prove that you have enough income coming in to cover your repayments.

Once you’re approved for a debt consolidation loan, you can use it to pay off your payday loan. You’ll then be able to carry that balance forward with lower interest rates and a longer repayment term. This means that you’ll be able to make small monthly repayments that fit your budget, and you won’t be stuck paying hundreds of dollars in fees every two weeks.

What if I have bad credit?

You can still get payday loan help even with bad credit through debt consolidation loans designed for people with bad credit. You can expect interest rates on these types of loans ranging anywhere from 10% to as high as 50%, which is higher than you’d get with a standard loan. But a bad credit debt consolidation loan will still be much cheaper than the hundreds you’ll pay in interest with a payday loan.

If you’re borrowing under $2,000, you may also be able to apply for a no credit check loan without any hassle. Alternatively, see if you can enlist a co-signer.

Compare debt consolidation loan options

We’ve curated a list in the table below of Canadian providers offering debt consolidation loans. You can compare the side-by-side features of multiple loan providers you’re interested in by checking the “Compare” box beneath each option.

1 - 5 of 5
Name Product Ratings Interest Rate Loan Amount Loan Term Requirements
LoanConnect Debt Consolidation Loan
LoanConnect Debt Consolidation Loan
Customer Survey:
★★★★★
5.99% - 46.96%
$500 - $35,000
12 - 60 months
Requirements: min. credit score 300
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View details
goPeer Personal Loan
goPeer Personal Loan
Not yet rated
8.99% - 34.99%
$1,000 - $35,000
36 - 60 months
Requirements: recommended income $40,000/year, no payday loan debt, min. credit score 650, min. 5-year credit history. (Avg. approved rate of 15.80%)
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View details
SkyCap Financial Personal Loan
SkyCap Financial Personal Loan
Customer Survey:
★★★★★
19.99% - 39.99%
$500 - $10,000
9 - 60 months
Requirements: min. income $1,666.67/month, full time employment/pension, min. credit score 575, no bankruptcy
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View details
Mogo Personal Loan
Mogo Personal Loan
Customer Survey:
★★★★★
9.90% - 46.96%
$200 - $35,000
6 - 60 months
Requirements: min. income $13,000/year, min. credit score 500
Go to site
View details
Loans Canada Debt Consolidation Loan
Loans Canada Debt Consolidation Loan
Customer Survey:
★★★★★
6.99% - 46.96%
$300 - $50,000
4 - 60 months
Requirements: min. credit score 300
Go to site
View details
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How to compare debt consolidation loans

If you think that a debt consolidation loan is the right fit for you, you’ll want to start by comparing lenders. You can begin to look at some of the following features to find the best loan for you:

  • Interest rates. Look for the lowest interest rates on offer so that you can put the largest part of your payments towards your principal.
  • Fees. Watch out for hidden fees in your contract so that you’ll know what extras you’ll need to pay.
  • Term. Search for the shortest loan possible with payments that you can still afford. This will make sure you don’t end up paying more interest than you need to over time.
  • Repayment conditions. Try to find a lender with flexible terms and the willingness to work with you if you run into financial difficulties.
  • Customer service. Find a lender that has good customer ratings and a reputation for responding quickly to customer issues and concerns.

2. Balance transfer credit cards

Balance transfer credit cards are another good option to consider on your search for payday loan help. These types of credit cards let you move your debt and pay little to no interest on it for a period of time. For example, a balance transfer credit card may offer a 0% APR for 10 months. That means you get a 10-month break from interest payments while you pay off what you owe.

To start with this option, find a balance transfer credit card that lets you transfer your payday loan debt. When comparing card providers, you can give more consideration to those that offer longer zero-interest periods so that you have the most time to pay off your debt.

You’ll typically need good credit to get the best balance transfer credit cards. However, you may be able to qualify for some balance transfer credit cards with fair or bad credit.

To learn more, check out our guide to balance transfer credit cards.

Compare balance transfer credit cards

Name Product Balance Transfer Rate Balance Transfer Fee Purchase Interest Rate Annual Fee call to action Min. Credit Score Description
Tangerine Money-Back Credit Card
Tangerine Money-Back Credit Card
1.95% for the first 6 months (then 19.95%)
3%
19.95%
$0
Go to site
More Info
Min. recommended credit score: 600
Earn 10% cash back (up to $100) when you spend $1,000 in the first 2 months. Valid until January 31, 2024. Plus, get a 1.95% interest rate on balance transfers for the first 6 months.
RBC Cash Back Mastercard
RBC Cash Back Mastercard
0.99% for the first 10 months (then 22.99%)
3%
20.99%
$0
Go to site
More Info
Min. recommended credit score: 650
Get a 0.99% introductory interest rate for the first 10 months on balance transfers and cash advances. Apply by December 6, 2023.
BMO CashBack Mastercard
BMO CashBack Mastercard
0.99% for the first 9 months (then 22.99%)
2%
20.99%
$0
Go to site
More Info
Min. recommended credit score: 660
Get 5% cash back on all eligible purchases in the first three months of card membership (up to max. spend of $2,500). Plus, get a rate of 0.99% on balance transfers for 9 months. A 2% fee applies to transferred balances.
Tangerine World Mastercard
Tangerine World Mastercard
1.95% for the first 6 months (then 19.95%)
3%
19.95%
$0
Go to site
More Info
Min. recommended credit score: 600
Earn 10% cash back (up to $100) when you spend $1,000 in the first 2 months. Valid until January 31, 2024. Plus, get a 1.95% interest rate on balance transfers for the first 6 months.
BMO Preferred Rate Mastercard
BMO Preferred Rate Mastercard
0.99% for the first 9 months (then 15.99%)
2%
13.99%
$0 annual fee for the first year ($29 thereafter)
Go to site
More Info
Min. recommended credit score: 660
Get a rate of 0.99% on balance transfers for 9 months with a 2% transfer fee. Plus, get the $29 annual fee waived in the first year.
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3. Debt relief companies

Debt relief companies will evaluate your personal finances and help guide you in coming up with a plan to get out of debt – whether that’s through debt settlement, debt consolidation, credit counselling, consumer proposal or bankruptcy. This option is best suited for people who are struggling with multiple types of debt by helping you take control of your finances and avoid bankruptcy.

See if a debt relief company is right for you

1 - 2 of 2
Name Product Free Phone Consultation Time to Debt-Free Requirements
Debt.ca
Debt.ca
12 - 60 months
$10,000+ in unsecured debt & a hardship that's preventing you from paying your creditors
A nationwide service that can help you find a solution to reduce your debt payments by up to 50%. Request a free consultation with a trained debt relief specialist. Services include debt settlement, consolidation, credit counselling, debt management, credit card debt, consumer proposal and bankruptcy.
Go to site
More Info
Consolidated Credit Debt Relief
Consolidated Credit Debt Relief
36 - 60 months
You need help getting out of credit card debt
Make one payment each month and Consolidated Credit will distribute the funds to your creditors on your behalf. Costs vary depending on the debt solution. Services include credit counselling, debt management, consolidation, credit card debt, home equity, consumer proposal and bankruptcy.
Go to site
More Info
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4. Nonprofit organizations

Some nonprofit organizations like Credit Canada and the Credit Counselling Society exist to help you pay off your debt by offering debt consolidation loans, credit counselling services and credit advisors who negotiate with lenders on your behalf. Often, these companies can help lower your monthly debt repayments, lower your interest rate and help you become debt free faster.

If it seems likely that you will not be able to pay back the full amount you owe, your advisor may even submit a Consumer Proposal to your lenders. If they agree to to the terms, this proposal will provide a way to pay back as much of your debt as you can.

You can find a reputable adviser through one of the credit counselling associations listed on the Government of Canada website. Before settling on a counselor, it can be a good idea to:

  • Contact and interview multiple counselors
  • Only consider counselors who don’t charge for their services
  • Understand the terms of working with your counselor

5. Ask friends or family for help

After explaining your situation, one of your friends or family members may be willing to loan you the money you need without having to take out more loans. This type of “personal” loan often has the advantage of no interest attached, making this an attractive option when you need payday loan help.

If the person you talk to is unable to lend you the money directly, you may want to ask them about cosigning a loan with you. This option can be risky for the cosigner, so some may not want to put their credit on the line. But if you can prove you’ll be able to make the monthly payments, a cosigned loan will generally have better interest rates.

How else can I get out of payday loans?

If none of those methods are a good fit for you, then here are a few other options you can consider when wondering how to get out of payday loans.

  • Secured loans. You may be able to get approved for a bigger loan with lower interest rates if you put an asset on the line to secure your payments.
  • Peer-to-peer loans. Peer-to-peer loans offer lower rates, more flexibility, quicker turnaround and fewer fees than many traditional banks.
  • Business loans. You could get a low-interest rate on your loan if you’re using your funds to pay for business expenses.
  • Filing for a consumer proposal. If you’re not able to get credit from anywhere else, you could consider filing for a consumer proposal to consolidate your debt.

Can a payday lender garnish my wages?

Yes, if you don’t repay your payday loan, a lender or debt collector can usually sue you to collect. If they do so and win, or if you don’t dispute the lawsuit, the court will rule against you. The court order will state the amount of money you owe, which means the lender or collector can then get a garnishment order against you. Wage garnishment means your employer is legally obligated to hold back a portion of your wages for your debts.

What could happen if you default on a payday loan

The 4 tips to get out – and stay out – of payday loan debt

Debt doesn’t come out of the blue. When you take a deeper look at your finances, you’ll likely find structural issues that led to your need for a payday loan. Credit counseling and budgeting are great ways to develop financial literacy and understand how debt works. Once you know how to tackle your spending habits and lower the costs of your day-to-day life, you’ll improve your credit and reduce your chances of being caught in a cycle of payday loan debt again.

Here are some other ways you can chip away at your debt without having to rely on loans and credit cards:

1. Create savings by cutting expenses

When your finances are stretched thin, any extra money helps. Examine your monthly spending and think about what you could eliminate. Some options are going without cable TV for a few months or cutting out daily extra expenses like coffee or snacks.

2. Find odd jobs

You might be surprised how easy it is to make extra cash. The Internet offers a wealth of gigs that you may be able to quickly qualify for and complete.

3. Sell things you don’t need

Most of us have things laying around the house that we no longer need. If you’re willing to part with them, websites like Kijiji or eBay are great places to sell from the comfort of your home, and the money you earn could help you pay off your loan quicker.

4. Set a budget

Setting a weekly and monthly budget can give you the structure you need to make wise spending decisions. Once you’ve created a reasonable budget, set systems to help you stick to it. For example, if you’re tempted by credit cards, put them away and only use cash for a few months. This should help build your patience while lowering your future debt. Learn how to create a budget in our step-by-step guide here.

Ask an expert: What if I can’t repay my payday loan when it’s due?

Logan Alec

Logan Allec, CPA

Founder of personal finance blog Money Done Right

Ask for an extended payment plan instead of taking out a new payday loan. This should give you more time to repay your loan without any additional fees or interest added on to what you’re already paying back.
Don’t wait until the last minute to ask for an extended payment plan, however. Reach out to your lender as soon as you know you won’t be able to pay.

Bottom line

When you’re grappling with how to get out of payday loans, realize that it’s not necessarily easy, but it is possible. By consolidating your payday loans and paying down your debt, you can work your way out of a debt spiral while building good financial habits.

Frequently asked questions about getting out of payday loans

  1. Financial Consumer Agency of Canada – Payday Loans: Market Trends

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