It's an issue that the Federal Reserve grew tired hearing about: Like many online payday loan companies, do credit card issuers actually target those already in debt?  

As a result, the Fed issued a report downplaying assertions that the banking industry contributed to bankruptcies through such a practice. In the release, it was concluded that credit card issuers do not follow the lead of faxless payday loan lenders; they aren't soliciting customers or extending credit to them without assessing their ability to repay debt.

Congress requested the report as part of a 2005 bankruptcy law.   

''Despite the large expansion in the proportion of households with credit cards in recent decades, measures of debt repayments relative to income show no signs of a rise in distress in the aggregate,'' the report stated.   

In its review, the Fed was asked to assess whether industry practices encourage consumers to accumulate debt, how issuers determine whether a consumer will repay the debt, and how they solicit and select customers. Maybe a similar look into the world of faxless online payday loans would be a good idea.

It happens all the time.

You, the consumer, think you are making a move that will help get a handle on your escalating debt. The next thing you know, you are in a damaging payday loan trap. It's hanging over your head. You want out. But what to do? Are there debt consolidation places that can help get you out of this cycle? What is the best course of action?

According to Bankrate.com advisor Steve Bucci, this is a cycle that can be very difficult to break — but it can and must be done.

If you are living paycheck to paycheck, as so many American families are, and are without savings or conventional credit, handling unexpected expenses can be a major problem. And payday loans can seem like a godsend at a time like this.

The main reason is that the money from the first loan is an advance against your next paycheck. That leaves you with less income than you are used to and, for most people, puts you behind on your usual expenses. Therefore, to catch up so that you do not miss any bills due to your faxless payday loan, you go back and apply for another, or renew your current one.

One of the many problems with these types of loans is that until you break the cycle of borrowing, you never catch up.

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You know it's a big deal when Oprah gets involved. The talk show host has dedicated various shows to force America on a "Debt Diet," with a series of episodes featuring families that overspend to the brink of bankruptcy. As we've discussed, student loan debt is an especially major problem.

Dr. Robert Berg, chair of Argosy University/Atlanta's College of Business and Information Technology, agrees. He doesn't necessarily recommend online payday loans are a resource, however.

"Banks shower graduates with offers since their research shows that once people open an account, and are initially satisfied, they are reluctant to switch banks," says Dr. Berg. "Students discover credit card financing early on, leading to the notion of looking in a wallet and knowing you have the power to charge more than you should."

So what can a recent grad do to stay on track and be a smart earner and saver? Applying for a quick cash advance is often eschewed by experts.
"Set up a budget," says Anna Kelly, director of student financial services of The New England Institute of Art. "It's simple, easy to do, and serves as a guidepost to help young people learn to pay off debt, not accumulate more debt, and learn to save too."

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After going through bankruptcy a few years ago, Latoya Gibson thought it was safe to assume that debt collectors would never bother her again.

In her dreams. The 30-year old public housing counselor in Fort Lauderdale, Fla., had the kind of consumer debt that never dies. Zombie debt, some call it.

According to the South Florida Sun-Sentinel, this phenomenon takes place when your credit card company sells off its bad debts. The buyer pays a few pennies for every dollar you owe and tries to turn that investment into a few nickels. They track people down and demand payment.

Often, bad debt buyers or their collection agencies will do one more thing that is especially harmful to your credit rating. It often happens in secret, and is very much illegal: they "re-age" the debt. In other words, they report old debt to a credit bureau as a new obligation.

South Florida consumer advocates, attorneys and debt counselors say re-aging happens all the time, possibly pushing cash-strapped citizens to apply for payday loans and other high-risk alternatives in order to make ends meet. It happens to people who are late on their accounts, too — not strictly those who are delinquent or in bankruptcy.

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The Witchita Eagle raises an issue that can be as risky as a payday loan: overdraft protection programs.

You can see billboard across the city for these Fidelity Bank services, advertised as "Your checkbook's best friend." And, don't get us wrong, people who occasionally bounce a check may appreciate it.

The program, like those at other banks, covers an overdrawn check instead of returning it to the merchant. Banks, of course, call the programs a courtesy to customers. Payday advance companies do the same for their loans.

But the Center for Responsible Lending calls them high-dollar loans. The group worries that some people are becoming too reliant on overdraft programs. Consumers spend $10.3 billion a year in overdraft protection fees, the bulk of that by repeat users who are continually overdrawn, a recent study by the center says.

"For repeat users of overdraft," said Eric Halperin, senior policy counsel for the center, "this is a credit source that in the long run is going to cause more harm than good."

Al Sanchez, a spokesman for Fidelity Bank, said the service is a "purely discretionary courtesy or privilege that the bank may provide to our customers from time to time … It is that simple."

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It can be understandable why students may need payday loans. They leave school with graduate debt and little income.

However, it's most distrubing that the levels of debt among sixty-somethings rose sharply in Great Britain last year, according to a report published this week by a leading debt charity.

The average sum of money owed by over-60's who contacted the Consumer Credit Counselling Service (CCCS) for help rose by 25 per cent to 33,568 pounds. Some of these individuals suffered from payday loan use — while others could actually benefit from such cash advances.

On average, people who undertook a CCCS debt management plan - under which interest on debt is frozen in exchange for a set amount being repaid each month - owed an average of 30,763 pounds during 2005, up from 29,340 pounds in previous years.

Cases of extreme debt have also worsened. Applications for no fax payday loans may soon be on the rise. Stuart Glendinning, Managing Director of www.moneysupermarket.com, a price comparison website, said:

"It’s no surprise that debt levels are rising and that increasing numbers of people are getting into difficulty, but it is disheartening to discover that it is the older age groups whose debt is rising the fastest. This report is a fresh reminder that debt crisis is becoming more and more of an issue."

It may be time to at least consider bad credit payday loans in order to deal with various problems.

While payday loans offer prompt access to cash to consumers under the direst of circumstances, paying off debt is the best way to assure that you'll never need these resources.

So why can't people do it?

The premise is simple. All you need to do is earn more than you spend, and apply the savings toward paying down debt. But most Americans these days find paying off credit card debt exceptionally hard. A great many of them are fighting a losing battle, and may end up strapped for cash in the worst way.

• Consider that 57 percent of all credit card holders carry an outstanding balance.
• Among families that have at least one credit card, the average balance is a staggering $9,313.
• Ten years ago it was $4,301.

"People are out of control," says Howard Strong, a consumer attorney.

And it's taking a toll. According to a survey of 1,500 consumers by Consolidated Credit Counseling Services, a whopping 71 percent said debt is making their home life unhappy. Part of the problem is that the credit card companies have made it easier than ever to carry balances.

"People are addicted to minimum-payment crack," Steve Rhode, co-founder of the debt counseling service Myvesta, said.

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As Americanprogress.org points out, the current debate within Congress to raise the federal minimum wage from $5.15 to $7.25 would have a far-reaching impact. Those that have been relying on faxless payday loans, for example, may have an opportunity to make payments on their own.

The recent explosion of the payday loan industry has mostly impacted low-wage families. Thanks to high fees and exorbitant interest rates, these cash advances often trap many low-wage earners and their loved ones. Now, raising the minimum wage could increase families’ ability to save and help put a dent in their debt on their own. In other words:

Rethinking the low-wage structure is not just about allowing families to better afford life’s essentials; it’s also about protecting them from a debt trap, via online payday loans, that could forever hold them back from achieving the American dream.

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How easy is it for a person who bought a house with cash to get a credit card? Not easy at all, according to the Chicago Sun-Times.

Arjan Schutte, whose immigrant father paid bills on time for decades, only decided to get a credit card so he could order plane tickets online.

"He was denied by everybody," said Schutte, Associate Director of the Center for Financial Services Innovation in Chicago, speaking before a panel on alternative credit scoring.

Lenders are starting to realize that potential borrowers often experience trouble getting loans because they lack traditional credit information.

While normally lauded as admirable habits, making purchases with cash and avoiding consumer debt don't build a conventional credit history, which means consumers might have to overpay for home loans and other important purchases. With that in mind, companies are exploring other gauges — even going so far as to include payday loan payments — when evaluating consumer credit.

The chart at left shows just how greatly one's credit score can affect the interest rate granted by a lender — and why it is cause for such concern.

One way to allow consumers to build credit is to count regular, on-time payments like rent, phone and utilities towards a credit score, said Michael Nathans, founder and chairman of PRBC, a Washington-based credit bureau that provides alternative scoring.

"Payments for rent and gas are indicators of one's ability and willingness to make recurring payments on time, but they are not reported to the traditional credit bureaus," said Nathans, who said PRBC is close to signing an agreement with a top U.S. automaker that wants to use PRBC data.

PRBC already has in place a "memorandum of understanding" with the National Association of Mortgage Brokers to help educate association members on how to offer PRBC service to prospective customers.

Experian, one of the nation's three traditional credit bureaus, is looking into the use of alternative credit scoring data as well. The company is considering looking at payments on payday loans, rent and utilities as a way of building credit history, in addition to traditional measurements.

Across the nation, those facing student loan debt are thinking about payday loans. This is especially true for recent graduates in Utah.
Recent reports show that student debt is at an all-time high in that state - and students are in for another hit on July 1 when interest rates go up. The rates on existing loans will rise 1.84 percentage jumps and rates on new loans will go up from the current 5.3 percent to 6.8 percent.

Education leaders worry that the increasing tuition and growing debt are pricing some students out of higher education and causing others to bypass lower-income careers, such as teaching and social work, for higher-paying jobs so they more readily can pay off their loans. Moreover, the payday loan issue can't help but be raised.

"You have to go on to get a graduate degree to be marketable, but I didn't feel comfortable with the debt I already had to get further into debt,'' said Brigham Young graduate Max Hunsaker, 24, who owes $15,000. "I want to have it paid off. It's kind of the motivation for all the decisions I'm making right now.''

In Utah, the average debt on a bachelor's degree is about $14,790, a 45 percent increase since 1995.

"There's some growing trends that because of the costs, people have to look at what is the major that's going to help me pay this back, which is not especially good for society,'' said David Feitz, associate executive director of the Utah Higher Education Assistance Authority. "If somebody has $80,000 in debt and they have an MBA degree, we don't worry too much about them. But if they're going into elementary education, those borrowers are the ones we have concerns about."

What is one of those individuals to do? Some consider online payday loans. Others take on more than one job. Others ask parents for help.

Feitz attributes the overall debt increase to tuition hikes. Total tuition and fees at the University of Utah have shot up more than 60 percent in the past 10 years. At the same time, the amount of aid money offered through federal grants has remained stagnant.

It's a dangerous combination. Ideally, no one would need a cheap payday loan in order to afford an education. These days, however, money is tight.