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Lesson plan · Credit & Debt · Lesson 6

Debt Traps

Payday loans, stacked buy-now-pay-later plans, and how debt spirals start.

  • 45 minutes
  • Grades 9–12
  • Beginner
  • Activity: small groups
Present slidesWorksheet + keyStudent lesson

Objectives

Students will be able to:

  • Explain how payday loans and rollovers work
  • Recognize the warning signs of predatory lending
  • Identify safer options for a short-term cash need

Materials

  • Slide deck and a projector
  • Worksheet (one per student)
  • Exit ticket slips (bottom of the worksheet)

Key vocabulary

Payday loan
A small, short-term loan due on your next payday, with a fee. According to the Consumer Financial Protection Bureau, a typical two-week payday loan fee of $15 per $100 borrowed works out to an APR of almost 400%.

45-minute agenda

  1. 0–5 min

    Warm-up

    Post: “A store offers to lend you $100 for two weeks for a $15 fee. Does that sound expensive? Guess the yearly rate.”

    Teacher note: $15 per $100 for two weeks is 15% × 26 two-week periods ≈ 390% APR.

  2. 5–17 min

    Direct instruction

    Present the lesson slides. Make sure students leave with these points:

    • Payday loans often cost close to 400% APR.
    • Rollovers add fees without shrinking what you owe.
    • Title loans can cost you your car.
    • Watch for "guaranteed approval" and pressure to sign today.
    • Credit union small-dollar loans and emergency funds are safer.

    Use the “See it” slide (Ways to cover a $400 emergency) to make the idea visual.

  3. 17–22 min

    Worked example

    Walk through “Tyler's $400 payday loan” on the slides. Pause before the result and ask students to predict it.

  4. 22–32 min

    Follow the Rollover

    Format: small groups · 10 minutes

    1. Scenario: Tyler borrows $400 from a payday lender. The fee is $15 per $100 every two weeks ($60).
    2. Tyler can't repay after two weeks, so he pays only the $60 fee and rolls the loan over. This happens four times.
    3. Groups draw a timeline showing each payment and what Tyler still owes.
    4. Groups list three safer choices Tyler had and rank them.

    What to look for: After the first period plus four rollovers, Tyler has paid 5 × $60 = $300 in fees and still owes the full $400. Safer options: an emergency fund, a credit union small-dollar loan, or asking the creditor for a payment plan.

  5. 32–37 min

    Check for understanding

    Use the question slides — or run them as a Four Corners game. Answers:

    1. Roughly what APR is that? — D. Almost 400%
    2. What's the biggest risk? — A. Overlapping payments are easy to lose track of and can cause overdrafts and late fees.
    3. A car title loan is low-risk because you get to keep driving the car. — False
  6. 37–42 min

    Discussion

    • Why do you think payday lenders are often located in lower-income neighborhoods?
    • Should buy-now-pay-later plans be regulated like credit cards? Why or why not?
  7. 42–45 min

    Exit ticket

    Prompt: Name one safer alternative to a payday loan.

    Answer: An emergency fund, a credit union small-dollar loan, or a payment plan with the company you owe.

Differentiation

Common misconception

“It's only a $15 fee.” Repeated over a year, that fee works out to hundreds of percent.

Support

Give groups a pre-drawn timeline with five blank boxes to fill in.

Extension

Research your state's rules on payday loans (limits on fees or rollovers) and summarize them in three bullet points.

Homework or make-up work

Students can complete the full interactive lesson — including its knowledge check — at learnwithflc.org/courses/credit-and-debt/debt-traps. No account needed; progress saves on their device.