Quick loans, cash advances and debt: what to do when payments become impossible?
When you are faced with something unexpected, or when money runs out before payday, quick loans or cash advances can seem like a good solution. The money is deposited within a few hours and urgent expenses or bills can be paid (groceries, rent or another payment that cannot wait).
The problem starts when this temporary solution becomes a habit. If you regularly have to borrow to pay current expenses or to repay another debt, your financial situation should be reviewed. High interest, fees and minimum payments can further reduce the money you have left each month.
This does not mean that you have failed or that your situation has no way out. Many people end up in a cycle of debt after using credit to get through a difficult period. What matters is recognizing the signs and acting before the debts become too large for your ability to pay.
A free consultation with a licensed insolvency trustee will let you know which solutions can help you.
Why can quick loans make debt worse?
Quick loans can make debt worse when they are used to make up for a shortage of money that keeps coming back, instead of helping in an exceptional situation.
A cash advance really can solve an urgent problem. But the amount borrowed then has to be repaid with interest and sometimes fees. If your budget was already in the red before the loan, adding a new payment can make the following months even harder.
And if you use a quick loan to pay another debt, things do not get better: for example, you borrow to make the minimum payment on a credit card, then you use that card to buy groceries. The financial problem is simply moved from one debt to another.
Over time, several payments can pile up:
- short-term loan;
- cash advance;
- credit card;
- line of credit;
- personal loan;
- overdue bills.
Even if each payment seems manageable on its own, the total amount owed each month can be too high for your income.
If you currently have too much debt, it is better to step back and look at your situation as a whole rather than looking for a new way to borrow.
What are the signs that cash advances are becoming a problem?
Quick cash advances become concerning when they are no longer used only to handle an emergency, but are necessary to make your budget work.
Here are a few signs to watch for:
- you borrow in order to repay another debt;
- you ask for a quick loan before almost every pay;
- you use a credit card to pay for groceries or housing;
- you only make the minimum payments;
- you constantly have to move money from one account to another;
- you no longer know exactly how much you owe in total;
- your monthly payments take up a large part of your income;
- you receive calls, letters or notices from your creditors;
- you quickly take out a new loan after repaying another one;
- you no longer have enough money for essential expenses after making your payments.
A single one of these signs does not necessarily mean that you are insolvent. But having several of them can mean that your debt load exceeds your ability to repay.
What should you do if you can no longer repay a quick loan?
The first thing to do is to avoid solving the problem urgently with a new loan. It is better to follow these steps to understand exactly where you stand.
Make a complete list of all your debts
Start by listing your financial obligations. Write down the balance, the minimum payment required, the interest rate and the creditor.
Include quick loans and short-term loans, credit cards, lines of credit, personal loans, overdue accounts, tax debts, student debts and any other amounts you owe.
This step often shows that the problem does not necessarily come from a single large debt. Sometimes it is the accumulation of several payments that makes the budget unmanageable.
Avoid asking for a new loan to pay another one
When a minimum payment is due quickly and money is short, taking out another loan can seem like the only solution. Yet this strategy risks prolonging the problem.
You are then repaying one debt with another debt, while potentially adding new interest and new fees. The total amount to be repaid will then keep growing.
Before asking for a new cash advance, check whether your budget really allows you to repay that loan.
Assess your real ability to repay
Add up your monthly income and subtract your essential expenses. Then add the minimum payments required by your various creditors.
If there is almost nothing left after current expenses and debt payments, you have to ask yourself whether the current repayments are sustainable in the long term.
A situation where you constantly have to use credit to pay for essential expenses will not be solved by cutting an occasional expense.
Ask for a professional review
When debts become difficult to manage, you do not necessarily have to figure out on your own which solution to choose.
A licensed insolvency trustee can review your financial situation, your income, your assets and your debts in order to explain the options that could help you (debt consolidation, consumer proposal, etc.).
Can you include a quick loan in a consumer proposal?
A consumer proposal is a process governed by the Bankruptcy and Insolvency Act and administered by a licensed insolvency trustee. Depending on the situation and on the creditors’ acceptance, it can allow you to offer a partial repayment of certain eligible debts, with payments set according to the person’s financial capacity.
The goal is to find a realistic way to settle your debts when the current repayments are no longer possible.
The proposal can include certain unsecured debts such as credit cards and personal loans. Some quick loans or cash advances can also be included in a proposal when they are unsecured debts, but this has to be verified by the trustee.
Consolidation, proposal or bankruptcy: which solution should you consider?
There is no single solution for everyone who is in debt. The choice depends on your income, your debts, your ability to repay, your assets and your personal situation.
Debt consolidation
Consolidation generally consists of grouping several debts into a single financing. This can simplify payments and, in some situations, reduce the cost of interest.
However, to have access to it, you must qualify for new financing from your financial institution. Someone who already has a lot of debt, insufficient income or a weakened credit file might not be eligible.
Debt consolidation can therefore be worthwhile in certain situations, but it is not automatically the best solution.
The consumer proposal
A consumer proposal allows an eligible person to make an offer to their creditors in order to settle their debts according to terms adapted to their financial capacity.
This legal process is administered by a licensed insolvency trustee. The terms can vary considerably from one file to another.
This solution can be considered when a person is unable to repay their debts under the current terms, but has a certain financial capacity (stable income allowing them to make the payments offered in the proposal).
Personal bankruptcy
Personal bankruptcy is another procedure provided for by the Bankruptcy and Insolvency Act. It can be considered when the debt level is too high and the other solutions do not make it possible to restore the financial situation.
That said, filing for bankruptcy is not an automatic consequence of having several debts (including quick loans). A complete review is necessary before determining whether this procedure is appropriate.
Why consult before taking out a new loan?
When someone is under heavy financial pressure, it is normal to look for a quick solution. Yet asking for a new loan without knowing your real ability to repay can push the problem back rather than solve it.
A consultation makes it possible to look at all of the debts and not only at the most recent loan.
This will help you avoid:
- the accumulation of new interest;
- the fees associated with several loans;
- late payments;
- collection calls;
- repeated use of credit cards;
- the deterioration of your credit file;
- the gradual increase of monthly payments;
- the loss of control over your budget.
If your debts are already difficult to manage, it would be important to know all of the available solutions before making a new financial decision.
Credit card debt and cash advances
Credit cards can play an important role in a cycle of debt. A card can be used to deal with an unexpected expense, then a cash advance can be used to make the minimum payment. When this situation repeats itself, the balance can become difficult to reduce.
Credit card debt therefore has to be considered together with your other financial obligations. Managing to make the minimum payments does not necessarily mean that the debt has become manageable.
The most important thing is to determine whether your situation really allows you to reduce your balances, or whether you have to keep using credit to pay your expenses.
Do I have to file for bankruptcy if I have too many loans to repay?
No. Having several loans (and credit cards) or being unable to make certain payments does not automatically mean that bankruptcy is necessary.
The best solution depends on your overall financial situation. A consumer proposal, a consolidation or another solution can often be possible.
But when a person no longer has the capacity to repay their debts, bankruptcy can be an appropriate solution.
That is why it is better to have your financial situation reviewed by a trustee before making a decision or going further into debt.
The purpose of this consultation is not to push you toward a particular procedure, but to let you understand the choices available to you.
When should you consult a licensed insolvency trustee?
You can consult as soon as you notice that your debts are starting to exceed your ability to repay. There is no need to wait for collection calls or for several missed payments.
A free consultation (by phone) can be useful if you regularly use quick loans, cash advances or your credit cards to pay for essential expenses.
The earlier you consult, the more you will be able to make an informed decision instead of acting in a hurry.
Borrowing again is not always the best solution
A quick loan or a cash advance is sometimes considered to meet an occasional need, but when you regularly have to borrow this way to pay your expenses or your other debts, it is time to look at the situation differently.
You do not have to be ashamed of your debt. A difficult period, a drop in income, an unexpected expense or a build-up of credit can quickly upset a budget.
What matters is not staying alone with the problem and not multiplying loans without knowing where they are taking you. Solutions can be considered depending on your situation.
Frequently asked questions
What should I do if I can no longer repay a quick loan?
If possible, avoid immediately asking for a new loan to make the repayment. Instead, list all of your debts and assess your real ability to repay. A free phone consultation with a licensed trustee can let you know which solutions can help you.
Is it a good idea to ask for a cash advance to pay a debt?
A cash advance (or an online quick loan) can let you settle an urgent payment, but it adds another financial obligation. If you regularly have to use an advance to pay your other debts, it may be a sign that your budget is no longer viable.
Can a quick loan be included in a consumer proposal?
Some quick loans can be included in a proposal when they are eligible debts (unsecured debts). But the eligibility of these loans has to be verified by the trustee.
What is the difference between debt consolidation and a consumer proposal?
Consolidation generally groups several debts into new financing from your financial institution, while a consumer proposal is an official procedure (governed by the government) that allows a trustee to present a realistic repayment offer to your creditors.
Do I have to file for bankruptcy if I have too much debt to repay?
Not necessarily. Bankruptcy is a possible solution, but it is not automatic. A review of your situation will determine which options could suit you.
When should you consult a licensed trustee?
You can consult as soon as your payments become difficult to make, as soon as you borrow to pay other debts, or as soon as you are no longer able to balance your budget.
A free consultation to take stock
If you are using quick loans or cash advances to pay your current expenses, you do not have to wait until the situation becomes uncontrollable.
A free consultation with GOBEIL GROUPE CONSEIL can let you take stock of your debts, your income and your ability to repay, and then better understand the solutions that could be available.
This phone conversation is meant to help you see your situation more clearly and make an informed decision, with no obligation and no judgment.
We serve every city in Quebec, since many steps can be completed remotely.
