Salary Advance and Payday Loan Traps
Borrowing against next month's pay can turn into a cycle of rollovers and fees. How salary advance and payday loan traps work, the warning signs, and ways out.
A salary advance or payday loan solves this week's problem by borrowing from next month. The trouble starts when next month's pay is already short. Then another advance fills the gap, with another fee, and the cycle begins.
How the trap works
- A short loan with a fee that looks small.
- Payday arrives, and repaying leaves too little to live on.
- You roll over the loan or borrow again, paying another fee.
- Several lenders, several fees, and the debt keeps growing.
Warning signs
- Borrowing to repay other loans.
- Taking an advance every month.
- Using several loan apps at once.
- Fees adding up to more than the amount borrowed. See reading loan offers.
Ways out
- Stop taking new loans, even small ones.
- List every debt: lender, amount and due date.
- Contact lenders to ask for a repayment plan in writing.
- Seek free, independent debt advice in your country.
- Watch for "debt relief" scams charging upfront fees. See advance fee scams.
Before borrowing again, see borrowing safely. For more, see loan app scams and unlicensed lenders.
Frequently asked questions
What is a rollover?
Paying a fee to extend a loan you cannot repay on time. The original amount stays owed, and fees keep adding up.
How do I know I'm in a debt cycle?
If you borrow to repay other loans, or take a new advance every payday, you are in a cycle.
How do I get out?
Stop new borrowing, list what you owe, contact lenders about plans, and get free debt advice.
Sources
- What To Know About Payday and Car Title Loans, US Federal Trade Commission
- How To Get Out of Debt, US Federal Trade Commission
- Debt Collection FAQs, US Federal Trade Commission
