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The Hidden Costs of Payday Loans

Q. I’m struggling with a payday loan. I couldn’t pay off my first payday loan, so I went to another company to borrow more funds to pay it off.  Now I can’t pay off the new, larger loan.  What can I do?

A. Getting caught in a cycle of debt is a common problem with payday loans. Given the circumstances, you have a few options to consider. 

First, if you got your payday loan from a local company, go in and talk to the manager. See if the manager would be willing to set up installment payments on your loan. If he or she doesn’t agree to new payment arrangements, don’t take out another payday loan, which will only compound your problems. Instead, seek another option for repayment.

Second, you could consider visiting your nearest non-profit credit counseling agency and see if they can assist you. They will review your financial situation and can advise you on the best way to pay off your payday loan. Oftentimes, a fresh perspective can help you get a better handle on your finances. You may realize that reallocating some of your money will be enough to repay your loan.

Third, you could consider borrowing money from a friend or relative to pay off what you owe. If you pursue this option, you need to be clear about how you will repay what you borrowed and then make good on your promise. Your friends and relatives work just as hard for their money as you work for yours, so be diligent. 

Finally, you might choose to sell something you own at a pawn shop, second hand store, or online and use the money you make to pay off your loan. However you choose to repay your debt, I’d encourage you to break the cycle of using payday loans.

The Consumer Financial Protection Bureau (CFPB) recently reported that payday loans have a ripple effect for many people. The CFPB revealed that half of online borrowers incur additional banks fees averaging $185. These fees are a result of penalties when an online lender attempts to debit the borrower’s account. 

This happens when lenders collect payments by sending an online request to your bank or credit union. Even when the funds are not available, they make repeated attempts to collect the money. Each time this happens, the bank or credit union assesses an overdraft or insufficient fund’s fee. Meanwhile, online payday lenders charge a fee if they are unable to collect payment. These fees quickly add up.

According to the CFPB, a third of those who incur extra fees also end up having their account closed involuntarily. It can be a significant hardship to live without an account at a bank or credit union. 

You’ve already seen how problems with payday loans can snowball. I encourage you to meet the situation head on; look at all of your options and pay off your loan as soon as possible.

Bonnie Spain is the executive director of Consumer Credit Counseling Service of the Black Hills, a United Way member agency. For more information, email

The material in this transmission is provided for personal, non-commercial, educational, and informational purposes only. ACCE makes no representations or warranties with respect to the accuracy or completeness of the contents of this transmission and assumes no responsibility for errors, inaccuracies, omissions, or any inconsistency herein. You should consult a professional where appropriate.

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