We all borrow money for different reasons, and we do it sometimes. Being broke is as normal as breathing in and breathing out, but where it gets tough is when you begin to struggle with mounting debts. Ways Canadians have managed their finance could include taking out credit card debt, personal loans, and payday loans. Payday loans especially have some peculiarities, which we will still look at in this blog. But if you want to be sure if using a Consumer Proposal as a debt relief method to reduce your payday loans can work, you’re in the right place. Let’s find out if a consumer proposal can reduce payday loan debts.

What are Payday Loans?

A payday loan is a loan you take out with the expectation that you will repay it on your next payday. But it is not as simple as it sounds. Taking out a payday loan is not the same as asking your friend to loan you $100 and you will return it when you have received your paycheck. You receive your paycheck and you return $100, with zero interest attached. If you take out a payday loan, you’re expected to repay on your next payday which could be in two weeks, with a 15% interest rate. Paying an extra $15 on a $100 loan may not mean much to you, but remember it’s for just two weeks. Some lenders may even charge up to $17. If it still doesn’t seem high, let’s look at the APR on a $15 interest charged on a $100 payday loan.

For a $100 payday loan with a $15 fee over 14 days, the Annual Percentage Rate (APR) would be approximately 391.07%. This high APR demonstrates how expensive payday loans can be when annualised, despite seeming affordable over a short-term period. Now you see how expensive a payday loan is?

Hence, if you have mounting debt that includes credit card debt and payday loans as well as any other unsecured debt, a Consumer Proposal can reduce them for you. Now let’s look at a Consumer Proposal closely.

How a Consumer Proposal Works 

A consumer proposal is a legal agreement that occurs between you and your creditors to pay less than what you owe. Does this include a payday loan? Absolutely! In fact, all unsecured debt can be filed under a consumer proposal. Your debt can be reduced by up to 80%. Let’s put this in perspective. If all your unsecured debt is up to $250,000, if you get up to 80% reduction, it means you will only be paying $50,000 for five years and the rest of the $200,000 will be forgiven. In a nutshell, if your total unsecured debt is less than $250,000, you qualify for a consumer proposal.

What is the Difference Between a Secured and an Unsecured Debt?

Imagine yourself as a 10-year-old who has two friends who both want to borrow a toy from you.

With the first friend, you say, “You can borrow my toy, but I’ll hold onto one of your toys until you give mine back.” This is like a secured debt. If a bank lends you money for a car or a house, if you don’t pay back the money, the bank can take your car or house.

With the second friend, you just let them borrow the toy without holding onto anything of theirs. You just trust your friend to return your toy. In the case of unsecured debts, this trust doesn’t just come without a price. The price you pay is the high interest your unsecured creditors charge you. So, secured debts have low interest but with a collateral while unsecured debts have no collateral but high interest.

Should I File for a Consumer Proposal?

If you have a stable income and your total unsecured debt doesn’t exceed $250,000, you can file for a consumer proposal. Meanwhile, even if you don’t qualify for this debt relief option, you can speak with one of our debt consultants at EmpireOne Credit to know what to do and how to reduce your debt.

Another good thing about a consumer proposal is that you get to protect your assets. That is, you won’t have to surrender your assets. Imagine working so hard all your life, only to lose your assets because of debt. That’s not going to happen in a consumer proposal, but you can’t say the same for bankruptcy.

Being in debt isn’t the end of the world, and everyone goes through this once in a while. Even if you have battled debt in the past and are going through it again for the second or third time, nobody will judge you for that. At EmpireOne Credit, we have friendly and empathetic debt consultants who will listen to you and assist you in your dream to get rid of debt. Your debt can be reduced by up to 80%, and interest will stop immediately. Call us at (416) 900-2324 to schedule a free consultation with us. Being debt-free feels good!