Payday loans are expensive. Lenders charge a ridiculously high interest rate and demand repayment in one balloon payment. Inevitably, this traps some payday loan borrowers into a debt cycle. As a result, the Ontario government is reviewing current payday loan legislation and it's considering changes. In today's show, Ted Michalos, my partner and co-founder, joins me to discuss some of the suggested changes, our own recommendations for the government, and which payday loan alternatives to consider before taking out one of these high interest loans.

Conventional wisdom says the following about payday loans:

• the interest rate is too high, well above the maximum rate of 60% set out in the criminal code of Canada, and this causes a financial problem for payday loan users;
• people turn to payday loans because they have a low income, can't access traditional credit and need a payday loan to cover necessities like rent, utilities and groceries.

I beg to differ with this wisdom.

While the interest rate is certainly an issue, it is not the real problem with payday loans. The real issue is total existing consumer debt. More specifically, it is the other debt that payday loan users are carrying before they take out a payday loan.