The New Age Debt Trap: Same as the Old but with a Prettier UI.

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Picture this, it's March of 2026, James, a 21-year-old graduate, with student loans so high he has given up the possibility of owning a home, wakes to multiple debit transactions from his account, a $2.15 debit from Klarna for a Kebab he financed on a night out two months ago, another $15 from Affirm for a video game he purchased a month ago, 3 more from AfterPay and a final for his credit card. A total of $250 worth of payments was deducted that week, with additional deductions expected in the following weeks. It is the middle of the month, and he has yet to pay his gas and electricity bill. He turns to his only solution: Earned Wage Access. The only problem is that he has been stuck in this cycle of debt and EWA’s for months and has no relief in sight. The rampant growth of BNPL and EWA is not the cause of financial distress, but a symptom of it. They are the market's cold, efficient answer to systemic failures: decades of wage stagnation, soaring costs of living, and the evaporation of the social safety net

In this piece, we will discuss the new age debt cycle, which is similar to the old but with a lot less friction and a much more colourful user interface (UI). We would first discuss Earned Wage Access (EWA), what it is, how it is marketed, and the biggest player in the space, Dave, the conniving ways by which its platform operates, the lobbying efforts it makes to present itself as different to regulators to avoid laws that would affect its business model

We would then discuss the new debt system called Buy Now Pay Later (BNPL), what it is, how it is marketed, and the biggest player in the space as of now, Klarna, its origin, and where it stands as a business model. We would discuss how it changed the world of debt by giving micro-loans and how it is now an everyday loan company. We would then discuss its stark similarity to a credit card and the regulatory bodies that agree that it is a debt. We would then discuss the term Stacking as it refers to BNPL and why that causes the users to fall even deeper into debt.

We would then, using data available, map out what the new age debt cycle looks like, other factors that play into people falling into this trap, and how difficult it is for those within it to get out of it without declaring personal bankruptcy. We would then also discuss what people are doing instead of finding a way out of it and the broader consequences of those decisions.

Finally, we would discuss the way wealthier people (the 1%) take and use debt, the Buy, Borrow, Die system, and how they use it to their advantage. We would also discuss why financial institutions not only permit, but encourage this system, and its benefit to that institution.

Earned Wage Access: 2025’s Payday Loans

To start, it's imperative to state that these are payday loans; they just market them differently, and I trust you will come to agree with this statement shortly. What they are is a financial service that allows employees to get a portion of their earned but unpaid wages before their scheduled payday. As such, if you are paid every two weeks, you can receive the money that you are owed in two weeks instantly. Remember the word “instantly”, it would be important shortly.

It is marketed as “Your future money now.” “It’s your money just earlier.” As you can see, there is an emphasis on the fact that it is your money that is to be paid out to you, just received earlier than scheduled. Furthermore, to differentiate themselves from payday lenders, and the imagery that movies and media have portrayed payday lenders to be, these platforms:

• Are easy and free to download,

• Do not perform credit checks

• Use bright colours and, clean design in their apps

• Have adorable teddy bear mascots

• Use paid influencers on TikTok and Instagram who use specifically curated wordings like “no late fees” “no interest”

• Work with large companies to offer it as an employee benefit akin to dental coverage.

How it works is that the user connects their bank account to the app and agrees to have their wages garnished, a legal process where an employer is required to withhold a portion of an employee's earnings and send it to a creditor to repay a debt. As such, the user's salary is paid to the platform first, and only after that payment, inclusive of fees, is subtracted from that salary that the user gets the rest of their pay. This process is agreed to in the terms of service when signing up, which is a 21-clause, 38-page, 10,000-word agreement. These agreements are sent to those who are on minimum wage and most likely only have a high school degree. These terms are rarely read and even more rarely understood by those accepting. In addition, in their marketing materials, they emphasise that you could get this loan “instantly” or “in minutes,” which I argue is barely enough time to understand what is being agreed to.

In addition to that, these platforms ask their users to leave a tip, although they claim these tips given are donated towards helping hungry children. I must state for the reader that I am not American and only understand the concept of tipping in theory, and only when the person delivers exceptional service, I struggle to resonate with the concept of tipping someone for doing their job. More so, I think that the automatic machines that I operate, such as self-checkout tills, apps used to order goods and or services, and electronic order machines that request tips, are incredibly egregious. That being said, what I find the most egregious are these EWA platforms that ask for tips. These platforms are very aware of the financial predicament of their users and still request tips. An incredulous statistic is the fact that these platforms do receive those tips about 73% of the time, with the average tip of $4. This is not because of the generosity of the users, but because of the manipulative tactics deployed by these platforms to get their users to leave a tip. Such as building their UI in a way that the user has to opt out 13 different times in order not to leave a tip. In another case, they would use powerful visuals, such as showing that the lesser tip would equal less food to the hungry person in need.

Unsurprisingly, just like with other platforms, not all tips are directly donated. It was found by the Federal Trade Commission that EWA platforms donated 10 cents for every percentage tipped. That means, for example, if I tip 10% on $100 advance, my tip would be $10, but only $1 is donated; the rest is pocketed by Dave (Another EWA platform). Dave made $68 million from tips in 2024, and with EarnIn, 40% of its revenue is tips.

Furthermore, there are fees. Marketed as optional, but placed in such integral places within the UI that it makes the word optional do such heavy lifting. A perfect example of this happens right at the end of the transaction. After opting out 13 times from leaving a tip, the user is then given an option of how quickly the user receives the cash. Remember the word instantly? Well, if the user wants to receive their cash instantly, then they must pay a transaction fee that is deducted from the money that is being borrowed; if not, the user must wait up to 48 hours to receive their cash. This means that if a user needs to borrow $100 immediately, what they would receive is about $88 after tips and fees, and when they receive their salary, what is deducted is about $106, as there are a few other ancillary fees to be paid.

Finally, a discussion must be had about the APR that these EWAs have. When taking out a loan, there is a cost for that money, which is often viewed by looking at the interest rate; however, the true cost of a loan is hidden in the APR. This is why EWA’s can brag that there is no interest in the money, but a comparative analysis of EWA loans with other loans using APR would show that EWA’s end up being even more expensive. In order to calculate the loans’ Annual Percentage Rate (APR), or what you can call the price of a loan. It takes a holistic approach to a loan by taking into account what is paid in interest, fees, and the loan amount itself, and the number of days you have to repay it. The more time you have to repay the loan, the lower its APR. A really good APR for a credit card is 21% and the average APR for a credit card is 25%. The average annual APR for EWA platforms was 334% this is mainly because the average time to repay the loan is 10 days.

EWA Lobbying Actions

The framing matters. Payday loans are heavily regulated as predatory. EWA apps sidestep those rules by claiming they’re offering early access, not credit. But as The Dark Side of EWA video explained: “The moment you rely on tomorrow’s paycheque to pay for yesterday’s debt, it’s no longer an advance, it's a loan.” Industry lobbying has pushed to define these products as non-credit (fees, “tips”), to avoid Truth in Lending disclosure rules. Policymakers and consumer advocates argue classification matters: if products are loans, consumers get interest disclosure and statutory protections; if they’re “services,” those protections disappear.

In these lobbying efforts, these businesses use a variation of the same 5 talking points. Each of which I will attempt to briefly debunk.

• It’s Your Own Money: These platforms are lending, and the collateral for the loan is the user's wages. It is not your own money, but a lien on your future earnings

• There is No Interest: As shown above, the average effective interest rate is 334% APR. This is because when the cost of a loan is calculated, it is inclusive of fees, as such, those tips should be included in the calculation.

• Antiquated Payroll Systems: There is nothing antiquated about a 2-week or one-month pay cycle; the issue stems from the discrepancy between the higher cost of living and the stagnated wages that cannot afford these higher prices.

• Using APR is Misleading: APR is the standard method of calculating loans worldwide. Furthermore, stating that APR is misleading because the loans do not last a whole year is akin to saying that I did not violate the speed limit of 50 miles per hour because I did not drive for an hour.

• Users Never Have to Pay It Back: As stated before, the wages first go to those companies before they are then deducted and paid to the users.

The regulatory efforts are still ongoing, and it seems that these platforms may just be able to write the law that is intended to regulate them. This should be cause for concern because once someone begins to use EWAs, it becomes increasingly difficult to stop, as the average EWA user takes out 36 advances a year.

BNPL: Buy Now Pay Later

“What has been will be again, what has been done will be done again; there is nothing new under the sun. Is there anything of which one can say, “Look! This is something new"? It was here already, long ago; it was here before our time.”

The Bible said it best in Ecclesiastes chapter 1. It rings true up till today. BNPL is simply debt, and Klarna, Affirm, AfterPay, and ClearPay are simply debt collectors. Buy Now Pay Later, just like the phrase suggests, is a financial product that allows users to defer payments of a product or service from the time of receipt. These payments are then broken down into smaller amounts paid in regular instalments or intervals. The reasoning is that psychologically, it is easier to stomach 5 payments of $25 than one $125 payment.

The biggest player in this space by market capitalisation is Affirm Holdings; however, the most popular BNPL provider is Klarna as such I would be using Klarna to denote both Klarna and al other BNPL platforms. Founded by Sebastian Siematkowski, who worked in a debt collection agency in Sweden, realised that the reason his company's clients all had the same problem, they were not getting paid when selling on invoices, and their losses on credit were rising exponentially. Essentially, his clients’ customers would purchase the item on credit, but when it came time to pay, they couldn’t, and the loss would fall onto the client. They proposed that, should the debt collection agency handle the risk, they would be able to handle the transaction. It was on this notion that Klarna was founded. The reason I state Klarna’s origins is to drive home the point that there really is nothing new under the sun. A debt collection agent built a debt collection startup and just used better marketing and brighter colours to appeal to more people and change its perception.

How the business works is that when a user chooses Klarna’s pay in 4 option to make a purchase, Klarna pays the merchant company upfront for the purchase of the item, charges a fee on the transaction, and then chases the debt from the customer themselves. This means that the debt is owed to Klarna. These fees are typically higher from Klarna than from other payment processing platforms like Stripe, PayPal, and Square, which charge the merchant a flat fee between 1.5% and 3% of the transaction in payment processing fees. Klarna, on the other hand, also charges a flat fee and then an additional percentage of the sale, between 3% and 5%, this is in addition to other fees, such as chargeback fees. The reason merchants agree to these higher fees is:

• Customers tend to complete their transactions 30% more when there is a Klarna option, as opposed to leaving the items in the cart.

• Customers spend an average of 45% more money per transaction when there is a Klarna option.

• Customers return to that merchant 20% more frequently when there is a Klarna option.

For starters, as it is not a credit card, it doesn’t need to carry out creditworthiness checks on the users, which makes signing up frictionless. In some instances, Klarna makes signing up incredibly seamless by using the information that you provide to the merchant upon checkout, such as name, email, and phone number, often approving the loan within 60 seconds of signing up. This means that anyone, even a child, can get a loan instantl. In addition, they embed themselves within the last page just before checkout, as such, the user could choose Credit/Debit card, Apple/Google Pay, Paypal, or Klarna pay in 4 as an option. Some merchants are forced to show the amount to be paid and the payment schedule, even if the customer hasn’t selected Klarna as a payment option. All of these are light-touch psychological nudges to move the customer from not choosing Klarna as an option, to get the customer comfortable with the idea of it, to finally the customer caving and choosing to pay in four.

Klarna also makes money from its users. Furthermore, they charge late fees. Klarna late fees can be up to £5 for missed payments on orders of £20 or more, or 25% of the order value for smaller orders, with a maximum of two late fees per order. You'll receive a 7-day grace period after the payment is due, plus several reminders, before a fee is charged. Sebastian himself stated in a presentation that the best customers are those who don’t pay immediately but get a reminder and a debt collection letter. They are banking on people missing their payments. A study found that 41% of customers admitted that in 2025 they had been late on their Klarna payments, a 34% increase from the previous year. Additionally, Klarna charges interest on some of these loans. As discussed, the average APR for a credit card is 24%. Klarna, on the other hand, charges up to 35% APR.

A Lose-Lose Situation:

To be clear, in the new age of BNPL platforms, there are no winners. The users of Klarna are spiralling in debt and cannot keep up with payments and wreck their credit scores. Klarna (the business) is losing hundreds of millions of dollars because of this. Merchants are barely breaking even because of the higher fees charged, which results in them raising prices for everyone else, including you, who may or may not even use Klarna.

With loans so easily accessible and widely available, Klarna has evolved from being used for big-ticket items like furniture or appliances to being used as an everyday loan, often used as a bridge until the next paycheque. Users now use it for a range of different purchases, from necessary ones, such as buying groceries, to more frivolous purchases, such as a Kebab on Uber Eats. The problem with this is that the debt isn’t due on payday; it is due on the date of origination, which can be any day within the month. This has brought about the occurrence of what the Consumer Financial Protection Bureau calls Stacking. This is when a borrower takes out two or more concurrent BNPL loans from different lenders. Remember James? Each individual payment is manageable, but the spiral occurs when there are multiple. This is quite common; 1 in 4 BNPL users admit to having three or more active BNPL loans at a time. Anecdotally, there are users on TikTok who have said that they would not be making their Klarna payments. This is problematic because as of 2024, contrary to what was initially advertised, Klarna has begun reporting loan and repayment data to credit bureaus. In essence, missing your Klarna payment wrecks your credit score the same way or worse than missing your credit card.

Focusing on the financials of Klarna itself, this also tells a troubling story. In Q1 of 2025, they had revenues of $701 million, which is $80 million more than Q1 of the previous year, with an earnings profit of $3 million. They have also achieved a milestone of 100 million users. Although those numbers on the surface seem fantastic, the devil is in the details. Their net losses as of Q1 2024 sat at $47 million, and as of Q1 2025, is at nearly double that at $99 million. Their credit losses, the amount lost due to non-payment from their users, rose 17% to $136 million. As explained, Klarna pays the merchant using a line of credit, that line of credit generates interest they need to pay; this is known as financing costs. Their financing costs rose 15% from the previous year to $130 million. This has resulted in them repackaging their users' debt and selling it to investors, recently selling $26 billion worth of loans to Nelnet.

Buy, Borrow, Die: How the Wealthy Use Loans

There is a stark contrast between the way those who are wealthy, in this case with a net worth of over $3 million, use loans to amass an even greater fortune for themselves and avoid taxes in the process. Unlike those who use BNPL and EWAs to merely keep up with inflation in affording a basic standard of living, the wealthy use them to further advance their net worths, using them as an effective tool to spend as much as they want and pass the rest to their heirs, untaxed. The thing to note about debt itself, especially when viewed as a tool, is that just like any tool, it is not an inherently bad thing. Just like a hammer can be used to both commit a crime or build a baby crib, debt and the credit system are just dependent on how they're used. Ray Dalio, billionaire hedge fund founder, says the credit system is like the circulatory system of the body, necessary for the proper functioning of the entire economy.

Step 1; Buy: This is technically the most difficult step because it requires you to be wealthy or own wealth-generating assets already. Unlike wages, which are taxed the moment they are earned, assets are taxed only at the moment they are sold, or in tax terms, “realised.” The justification for this approach is that unrealised assets exist only on paper; you can’t pay for a private jet or buy a company with stocks, even if they have appreciated by billions of dollars. In theory, the rich will eventually need to sell their assets for cash, at which point they will pay taxes on their increase in wealth. As such, if you owned 100,000 in Nvidia before 2015, the price would have appreciated much more than when obtained. This is known as gains. To realise those gains, you, in theory, have to sell those shares, and you are only taxed at the point of sale of those shares. What happens in reality is much different from that.

Step 2; Borrow: In reality, what often occurs is that the wealthy would take a loan using those assets as collateral. They borrow against these assets and because loans aren’t taxed because they have to be repaid, they are able to spend this loan freely. Larry Ellison, a co-founder of Oracle and America’s fourth-richest person, has pledged more than $30 billion of his company’s stock as collateral in order to fund his lavish lifestyle, which includes building a $270 million yacht, buying a $300 million island, and purchasing an $80 million mansion. A Forbes analysis found that, as of April 2022, Musk had pledged Tesla shares worth more than $94 billion, which “serve as an evergreen credit facility, giving Musk access to cash when he needs it.” Liscow and Fox calculated that the top 1 percent of wealth-holders, excluding the richest 400 Americans, borrowed more than $1 trillion in 2022. And the approach appears to be gaining momentum. Last year, The Economist reported that, at Morgan Stanley and Bank of America alone, the value of “securities-backed loans” increased from $80 billion in 2018 to almost $150 billion in 2022.

Step 3; Die: According to a provision of the tax code known as “stepped-up basis”—or, more evocatively, the “angel of death” loophole—when an individual dies, the value that their assets gained during their lifetime becomes immune to taxation. Those assets can then be sold by the billionaire’s heirs to pay off any outstanding loans without them having to worry about taxes. The justification for the stepped-up basis rule is that the United States already levies a 40 percent inheritance tax on fortunes larger than $14 million, and it would be unfair to tax assets twice. In practice, however, a seemingly infinite number of loopholes allow the rich to avoid paying this tax, many of which involve placing assets in byzantine legal trusts that enable them to be passed seamlessly from one generation to the next. “Only morons pay the estate tax,” Gary Cohn, a former Goldman Sachs executive and the then–chief economic adviser to Donald Trump, memorably remarked in 2017. “All of this is completely, perfectly legal,” Edward McCaffery, the scholar who coined the term Buy, Borrow, Die, said.

One might then wonder, why would these financial institutions give such loans if they are acutely aware of this buy-borrow-die strategy? It is important to note that at these levels of wealth, the power dynamics are vastly different. A fantastic modernised quote from the economist Keynes  explains this succinctly, “if you owe the bank $1,000, then you have a problem, but if you owe the bank $1,000,000,000, then the bank has a problem.” Knowing that, plus the fact that the institution must still be profitable while giving out these loans, as it isn’t a charity, the institution then devises means to generate returns on the risk of these loans;

• Cheap Asset Acquisition: As discussed, these loans are backed by assets, which are typically company shares. A company's share price is volatile; as such, when structured, if the share price goes below a certain threshold, the financial institution the company can exercise its right to transfer ownership of those shares to itself, allowing it to acquire cheap shares without the use of its own capital. Furthermore, this acquisition is done without any disturbance to the share price itself. For example, the transfer of share ownership of $100 million would not, in theory, move the share price of a company compared to a financial institution spending $100 million to purchase those shares on the open market. You can imagine how many of these shares were transferred in the great sell-off that happened in April of 2025, when they hit their trigger amount in the loan clause, and what they could be worth now.

• Collateralised Debt Obligations: This is finance speak for the bundling of loans and sometimes other assets to sell to other investors and financial institutions. The holder of the collateralised debt obligation can, in theory, collect the borrowed amount from the original borrower at the end of the loan period. This is done to remove debts from the balance sheet of other investors. In this case, the bank would sell these loans to other investors, such as pension funds, who are looking for those bulk payouts at a much later date.

• Interest Payments: When loans are given, it isn’t necessarily depositors' funds that are given; the bank rather creates new money on that promise of repayment. That money, when paid back, eliminates the new money created, which is how books are balanced. The profit comes from the interest paid on the loan issued. As such, banks have every incentive to issue loans to generate those interest payments. For example, if a loan of $150 million is issued for a 30-year term at a 5% interest rate would generate $139.89 million in interest payments alone.

Conclusion:

At this point, you may choose to believe that if only James was more prudent and financially responsible, he would not be in this situation. I may even be inclined to agree that there is a time and place for financial prudence and monetary discipline. I may agree that he should have saved rather than going out on the weekend, but I strongly ask you to look at the bigger picture here.

As much as there are things within his control, there are decisions beyond his control that have reverberating effects on his financial situation and have put him in the situation he finds himself in. For example, in his lifetime, he has seen the breakdown of one fundamental societal contract: “Go to university and get a degree, it is an assured pathway to a good-paying job.” This is no longer the case, as the labour market, particularly for entry-level roles, is being eliminated because companies are relying more than ever on AI to do these roles. The process of hiring is also incredibly broken, not only due to the prevalence of ghost jobs (job postings with no intention of hiring), but hiring managers are using AI to sift through resumes, which has led to job seekers using AI to beat these systems and get seen by humans, leaving recruiters overwhelmed with thousands of AI-generated, low-quality CVs. This leaves him no choice but to work in whatever minimum wage job he can find.

This leads to the next major issue: the rapid rate of inflation means that he is unable to afford the basic necessities, such as groceries, fuel or transportation. For example, a meal deal in the UK grocery chain Tesco has risen from £3 in 2020 to £4.15 in just five years. All the while, wages have stagnated, barely keeping up with inflation. Furthermore, he is bracing for even higher prices as grocery chains in America have clearly stated that the new tariffs would directly lead to price increases. Additionally, the moratorium that he enjoyed for his student loans has just been cancelled and his payments begin shortly.

All of these pressures he is dealing with, while being inundated with videos and adverts about EWAs being free money, and that he can reduce his grocery bill by splitting it into 4 smaller payments. In order to get his head above water, pay his bills, and make his Klarna payments on time, he takes out his first EWA, promising himself he only needs to do it once, but the next paycheque after the EWA is done with it barely covers his expenses, and he has to take another, and another, and another. This is his life now, perpetually having to borrow from tomorrow to pay yesterday.