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A debt trap is defined as "A situation in which a debt is difficult or impossible to repay, typically because high interest payments prevent repayment of the principal."[1] According to the Center for Responsible Lending, 76% of the total volume of payday loans in the United States are due to loan churning, where loans are taken out within two weeks of a previous loan. The center states that the devotion of 25-50 percent of the borrowers' paychecks leaves most borrowers with inadequate funds, compelling them to take new payday loans immediately. The borrowers will continue to pay high percentages to float the loan across longer time periods, effectively placing them in a debt-trap.[2]

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ReferencesEdit

  1. ^ "Definition of Debt trap | New Word Suggestion | Collins Dictionary". www.collinsdictionary.com. Retrieved June 14, 2016.
  2. ^ Parrish, Leslie (July 9, 2009). "Phantom Demand: Short-term due date generates need for repeat payday loans, accounting for 76% of total volume" (PDF). Center for Responsible Lending. Retrieved June 14, 2016.