FALSE BELIEF..........destroying my life?

To your second question, yes.

DR is SUPPOSED to be automatically applied to your account based on some esoteric criteria that which no one seems to be able to figure out. How much apparently depends on your financial background as reported with CCRA. To your third question, yes the payments will go toward interest at first, but that is the nature of the beast! That's how loans work.  Now, if you default you will be paying interest until you pay everything or you die, whichever comes first. It ain't pretty. If I were you, I would use your IR sessions like poker cards, to help you over the tricky spots, but pay as much as you can, when you can.  

in response to question 1...

most of us on IR are unemployed or underemployed and since we have no (disposable) income, we cant make any payments

in response to question 2...

in my case, i couldnt make any payments at all but did have to make two interest payments (at the expense of my visa) while scotiabank lost my forms when reapplying for IR - they said i had to make the payments or they would not consider me for another IR period.  the magic formula to qualify for IR is printed right n the back of your application - if your income is so much they expect youto be able to make a payment of so much.  if the numbers dont jive, they generally qualify you for IR since the government will pay your interest for you.

in response to question 3...

DR is supposed to be applied after you have exhausted all IR (so 54 months) IF and i mean IF by some miracle you can qualify.  they do not do this automatically - you have to apply for DR, contrary to what you may have been led to believe.  when processing your DR application they will require your proof of income for the last YEAR - this means your income tax assessment.  they DO NOT consider any of your living expenses when processing your application.  if you do not qualify for DR - that's it.  there are no more ways to delay paying your loan.  if you are lucky, you will have a job and be able to start making your payments.  if you are unlucky, this means three nasty letters form the bank before they hand you over to the sharks (CA's) and leave you to rot.

initial DR maximum is 10K.  you can reapply for another DR IF you keep your loan in good standing and make payments in full and on time for a year.  when you reapply i believe there is another maximum of 5K, then another 12 month period of payments, another application and a final maximum of 5K.  sounds pretty screwed - if i could make my payments i wouldnt need DR, now would i.  so in theory your 50K loan could be reduced to 30K after 54 months of keeping your IR in good standing and 2 years of making all your payments in full and on time, IF you can qualify.  dont quote me but i think in order to qualify for DR at all you have to make less than 18K.  definately dont quote me on that though because i am specualting here.

if you can make a payment, make a payment.  any payments made while on IR go directly to the principal owing so in the end you benefit (in theory, depends on your situation after you have exhausted IR like i have).  you are responsible for your debts and should make every effort to repay your loans.  but do not pay your loans if it means starving for three weeks or getting your hydro shut off.

hope that helps.