What is a 'debt trap'?
A debt trap
A debt trap is when a lender makes it difficult for you to pay back your debt, but easy for you to keep taking on more.
Let's use payday loans as an example. Payday loans are short-term loans that are designed to be paid back by your next paycheck. The way they work is that a lender will give you money, which you'll pay back after you get paid. This sounds like it could be a good deal, right? It's not! Because payday loan companies have no incentive to help you make the payments on time, they charge high-interest rates and fees that can easily snowball into an overwhelming financial burden.
What happens in a typical payday loan transaction
You borrow $500 and agree to pay it back in two weeks, with $25 in interest and $75 in fees. The problem is that if you're late making just one payment to a payday lender, you'll start paying fees for every single one of your subsequent payments. That means that instead of paying $25 for your first missed payment, you'll pay $37.50 (that's $25 + 25% of the original $500). If you miss the second payment on time, too, those fees jump
What are debt traps
A debt trap is a loan or credit card with a low introductory rate that then balloons to an astronomical level after a short period of time. The borrower may not be aware of this, especially if they use some form of automatic payment—like a checking or savings account overdraft—to pay the interest when the statement comes due. Debt traps are usually associated with credit cards and car loans, but can also apply to personal loans, mortgages, and even student loans.
If you have any questions, you can get a free consultation with the Best Attorneys in Utah.
Ascent Law LLC:
8833 South Redwood RoadSuite C
West Jordan, UT 84088
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