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Escaping the Payday Loan Trap

Updated on June 25, 2014

An Economic Sign of Trouble

Getting caught in the payday loan trap is common In today's economy. With gas prices approaching $4.00 per gallon, food prices rising at record rates and health insurance costs rising as much as 20 percent in one year, there is one relatively new industry that is flourishing by feeding off the financially challenged. The payday loan industry is experiencing tremendous growth in recent years. Virtually unknown only several years ago, the loan stores are opening up almost daily in every low and middle income neighborhood in the states where they are legal. The internet has virtually thousands of sites where anyone, with a job and direct deposit, can get a loan deposited directly into their account with no credit check. The internet lenders are generally more predatory in nature than their storefront counterparts as they are not regulated and can charge interest rates that would be usurious and illegal in any other financial industry. Many of them allow customers to rollover their loans until the next pay period for a fee rather than paying it off in full. Some actually make it extremely difficult to pay in full by requiring 72 hour notice by fax prior to the ACH withdrawal date. They know that most people do not have faxes in their homes and will generally will not remember to do it. For example, if George takes out a 500.00 loan on the internet and agrees to pay back 600.00 on his payday by allowing the payday loan company to ACH debit his account, he will receive an email stating that his loan is due on the 15th. This email is sent on the 11th and says, if he wishes to pay the loan in full, he must fill out and email, or fax, the attached statement within 24 hours. It is Sunday and he does not see the email until Monday morning. He is now at work and tries to fill out the form on line to email back but cannot type in the blanks. He does not want to print it for fear of his coworkers seeing it so he waits until he gets home. Now it is too late. The company will take the 100.00 from his account and he still owes them 600.00 on the next paydate. The problem now is his rent is due on that date also.

Getting Trapped

The 1st of the month is quickly appoaching and George begins hearing a noise from the front brakes in his car. He takes it to the shop and is told that he waited too long and they have to cut the rotors and replace the pads. They also disovered his brake lines to be dangerouly worn, Total cost 375.00. He has no choice but to pay. Now, between rolling over his 600.00 loan again and subracting the cash for his repairs, George has found himself short of the rent. So what does he do?. He goes back on the internet antd takes another loan from a different company for $300.00 more. Now he owes 900.00 with 300.00 due on the 15th from the second loan and 600.00 also due the same day on the first loan. However, this time, he realizes that the 600.00 has to be paid in full as only two rollovers are allowed and the 300.00 he can rollover at a cost of 60.00. There goes most of his check leaving him short of his utility bills and car insurance so he starts to panic and takes a third loan for 500.00.

As a moderator and counsellor on a prominent website dealing with debt, it is not uncommon to see guests who come there looking for help with as many as a dozen payday loans or even more. Some of them have paid as much a $1000.00 on a $300.00 loan. They are ashamed and scared to a point of insomnia and can no longer focus on anything, including their jobs. One person, as I learned later, had become suicidal. It is a very difficult situation but there is a way out. The poverbial light at the end of the tunnel does exist..

Escaping the Trap

The very first thing a person should do to get out the the payday loan trap, is to list all the loans they have by category (internet or storefront) the amount borrowed from each and the total amount paid to each, including interest and rollovers. The next thing to do is to check the lending laws of the state you live in to determine the maximum interest allowed and are rollovers permitted. Contrary to what the lenders will tell you, most states require lenders to be licensed in the state, regardless of their geographic location, and must abide by the laws of that particular state. Most, but not all, internet lenders are not licensed anywhere and many are located offshore with only mail drops in the US. Wilmington Delaware has a huge number at a Mail Boxes Etc.there due to the the states soft lending laws. A helpful site for this info is

After you have determined the above, you must see if any of them are members of the CFSA, a membership organization of payday lenders. These will almost always be the storefront lenders. Their members are required, under the membership rules, to set up payment plans for those who are in trouble. You must however request a plan before you default. Because the storefronts are legal operations, and abiding by state laws, you are required to repay your loan and interest or they can sue you for the amount plus attorney fees and court costs. Contact them and tell them you need to make arrangements and they will usually be obliging..

The next step out of the payday loan trap is to close that checking account before the next pay date and ask your payroll department for a live check for a while until you feel it is safe to open a new account. Do not let any of the internet lenders know in advance of your plans or they will hit your account immediately. You must then send a letter to each of the lenders revoking any wage assignment agreement you may have signed and give a copy to your payroll department. Wage assignments are not garnishments and can be legally revoked by the signer at anytime. The lenders will still send the assignment to your employer, regardless of the revocation, but at least you will not have your paycheck handed over to them. You must also check with your bank to be sure they will not force open your account if an ACH withdrawal comes through after you close it. Once you have done all this you have your life back and can make the internet lenders deal with you on your terms and not theirs. Remember to never give them any new account info or card information. They can clean you out. Pay them only by money order, wire or preypayed debit card.

You have at least a moral obligation, when caught in the payday loan trap, to pay back what you borrowed plus interest under the laws of your state. Make it clear to them in writing that this is what you are paying and not a cent more. You can expect nasty phone calls, threatening you with arrest at your job and all sorts of other illegal nonsense, of which they cannot follow though. Do not allow them to intimidate you. Stand your ground. Some will turn you over to third party collectors. If that happens you must send the collector a debt validation letter asking them to prove that the debt is yours, how they arrived at the amount and that the lender is licensed in your state. Nine times out of ten you will never hear from them again. Remember if an internet payday lender is illegal in your state they will not have the power to collect there and they know it. They will resort to intimidation as their only recourse. The few that are licensed will be much easier to deal with and will usually come to a settlement agreement with you, For those who choose the path of harassment, send them certified, cease communication letters and do not hesitate to file complaints with the Better Business Bureau, the Attorney General in your state and the state where they say they are located, the financial regulatory agency of your state and the FTC.

Remember, if you are ensnared in the payday loan trap, that most payday lenders are predators and their sole purpose for existence is to suck as much from their financially vulnerable victims as is possible. Escaping them is traveling an avenue that is difficult and stressful but it is the only road that will lead to freedom from the snare that that entangles so many in this era of economic turmoil.


Submit a Comment
  • frogpatch profile imageAUTHOR


    7 years ago from Jersey Shore

    It says that the comment was "deleted by user." You may have accidentally deleted it yourself. Please post it again.

  • profile image


    7 years ago

    I placed a comment but it's disappeared!

  • frogpatch profile imageAUTHOR


    7 years ago from Jersey Shore


    Payday loans are illegal in the state of New Jersey. They can not arrest you nor can they take any legal action against as they are breaking the law. It is a civil matter. Their "lawyer," I guarantee you, is not a lawyer who passed the NJ bar and is allowed to practice in NJ. I actually doubt that he is a lawyer, he is Mr BS. Do not worry as there is nothing they can do to you except make empty threats. Please go to and post your story and the name of the Payday Loan company that is threatening you about these illegal collection tactics. They are probably located off shore and are blowing a lot of smoke. Just hang up on them. You already paid them the principal and have no further obligations legally. I am a moderator on that site, under the same name as here, and you will receive a lot of help. Just go there to the payday loan help forum and I, and a lot of others will help help you. Tell us the name of the payday lender because we have all the information regarding all of them. Please let us help. I also live in New Jersey by the way. Meanwhile you must close your account or you will get charged NFS fees and have all of your money taken from you. Get a live check for now and open another account. When you post on the site I mentioned please use the same name as here so I know it is you.

  • profile image


    7 years ago

    This was THE biggest mistake of my life! But I had no choice as I did not have any income for the summer and had to pay my mortgage. Could not get a normal loan, so I gave in. Actually I don't blame the payday loan companies as I do myself for being so dam stupid! They let you know what the deal is right up front.

    My problem was I paid the loan back extremely late as they threathen to have me arrested and I would lose my drivers license and they would contact the school where I teach at, etc. They claim that I was committing fraud by deception to collect funds with the intention of paying it back. Even though I paid it back that day, their lawyer said that I still could be arrested as New Jersey has a zero tolerence law and they wanted to make an example of me. Does anyone know if they can still arrest me even though I paid the loan in full?


  • frogpatch profile imageAUTHOR


    7 years ago from Jersey Shore

    Thanks Monica. I moderate a site where posts from terrified people with as many as 15 of these loans out at one time are common. They watch their accounts get overdrawn by thousands due to snowballing fees and they receive bogus threats of arrest. They are overwhelmed to a dangerous level both mentally and physically. It is a very serious situation.

  • monicamelendez profile image


    7 years ago from Salt Lake City

    Great advice frogpatch. This is a dangerous dangerous trap, one that hopefully most people will be able to avoid in the first place. I took out one payday loan a long time ago, fortunately it didn't become a habit!

  • profile image


    8 years ago

    You give me hope

  • Douglas45 profile image


    10 years ago from Winston-Salem, NC

    Great site. I once had Check Cashing locations in L.A. You are insightful in your analysis.

  • profile image

    Get Fast Cash  

    10 years ago

    I totally agree that Payday loans can be a trap. You need to use them in a safe manor and be educated about what your doing when using them. I highly recommend going to for more information about payday loan.

  • profile image

    Personal Loan Cash 

    10 years ago

    Payday loans can be a trap. It's hard to pay them off once you get caught up in them. The best way to do it is to pay the balance off as quick as possible to avoid APR charges. Borrow the money from family or a close friend. But be sure to pay them back too. Or work extra on the weekends to pay them off. Save up, don't spend money on unnecessary things.

  • MoneyManagement profile image


    10 years ago

    Great information,

    Its so easy to be enticed in to using the Payday loans but once you start you find quickly find there's no easy way out.

    They certainly don't make your financial situatuon any better.

  • frogpatch profile imageAUTHOR


    10 years ago from Jersey Shore

    Leland, You apparently posted this in error!

  • profile image

    Leland W. Elliott 

    10 years ago

    Please return the title for my pickup which was paid in full in Feb. # 001-869234625. The letter sending my refund check of $11.14 number 979941 stated that my collateral release will be sent under separate cover. Please send my PU title. You may also close this account. Leland W. Elliott

  • profile image

    How Payday Loans Work 

    10 years ago

    Great hub about how to get out of payday loan debt. If these loans are used responsibly they are helpful, but often people don't use them the right way or borrow more than they can pay back on time and wind up getting deeper into debt. This isn't a traditional loan and people have to be aware than this is only a quick fix and not the all end solution. Thanks for sharing this helpful information and I hope it's able to get some people out of debt.

  • profile image

    Work at Home Jobs 

    10 years ago

    I am in the process of taking these steps to get out of the IPDL trap. Thanks for the useful info. I will print it out and use it as things progress.

  • Kris Z profile image

    Kris Z 

    10 years ago from New York

    Perfect, I was just looking for PD info. Thanks!

  • Jerilee Wei profile image

    Jerilee Wei 

    10 years ago from United States

    Very timely and much needed hub! The problem with these places is far more complex. (1) Using many of the bigger of them, is reported to the credit bureaus, so it affects credit ratings. (2) In many communities, utility companies are making it the sole place to pay your bill, in cash, but still shows up on credit reports as making use of it, as does their ATM. JamaGrenne is right, you don't want the plague to follow you around either.

  • JamaGenee profile image

    Joanna McKenna 

    10 years ago from Central Oklahoma

    A friend got into the PDL trap several years ago. I happened to be in a position to help her get out of it, but *only* on the condition that she NEVER, EVER use any of those places again. The only difference between PDL companies and loan sharks of old that employed no-neck leg-breakers to collect is they are now in brightly-painted buildings, are usually the neighborhood Western Union office, and/or a pay station for local utilities and phone companies. AVOID THEM LIKE THE PLAGUE!!

  • profile image

    loan modification 

    11 years ago

    Indeed one needs not get into the payday loan traps or I would say any kind of loan traps. But this is not really in the control of an individual to backout and postpone his / her plans in the wake of having so much availability of credit in his neighbrourhood. So this is sort of situation , he has to get into. Still I liked the idea of not getting into to :-)

  • profile image

    Debt Program 

    11 years ago

    Payday loans are never good. You're better off selling your stuff on eBay.


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