You can’t borrow your way out of debt!

Monday, June 11, 2018 - 21:59

Money Management


You cannot borrow your way out of a debt problem. Many clients have been drowning in debt for quite some time and decide to start using cash advances from new credit cards to make minimum payments on old credit cards. This is never a good idea. If you can’t afford to pay the original credit card payments, you’re definitely not going to pay able to pay the second one. 

I can’t emphasize enough that payday loans should never be an option as it’s nearly impossible to get out of the cycle of payday loans. It is important that debtors exercise all options before even considering taking out a payday loan. 

Payday loans are expensive. These lenders can charge up to $21 for every $100 you borrow. That’s an obscured amount of money. Not only that, but payday loans usually result in a “never-ending cycle”.  The fees that go with payday loans accumulate quickly and many people end up taking out a second payday loan just to pay for their first one.

If you do find yourself drowning in debt, make sure you watch out for debt relief scams.

Debt relief companies will often times advertise that they can get you out of debt without going bankrupt! If it sounds too good to be true, it often times is. Unfortunately, it’s almost impossible for the average consumer to discern who they can trust.

Debt Settlement companies will offer to “negotiate” the settlement with your creditors on your behalf. But since most people don’t have the required money set aside for the lump sum settlement, the Debt Settlement company will “help” you by offering a “special” bank account in which you can deposit money until you have saved enough for the Debt Settlement company to negotiate with your creditors. It may be clear in the Agreement you are asked to sign – or it may be hidden in the “fine print” – but generally speaking, the Debt Settlement company will pay themselves a hefty service fee before they even make the Debt Settlement offer to your creditors.

In the meantime, most creditors will not have the patience to wait for you to save up for a lump sum settlement. Practically speaking, the only way the Debt Settlement companies can have success stories is if the creditors involved are too lazy or “stunned” to take collection action before the lump sum settlement is proposed by the Debt Settlement company.

I'm not saying all debt consultants or credit counsellors are bad. We have actually partnered with some not-for-profit United Way sponsored credit counsellors who are members of the Ontario Association of Credit Counselling Services. Check out our Community Partners page for a list of these credit counsellors. 

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