Feb 25, 2010

Is advancing your paycheck really that bad?

I’ve googled “paycheck advances” or “payday loans” which, if you haven’t had any experience with them, is a short term loan. I’ve only done it once when I was in a financial crunch. Basically, they give you a limit you can advance (for me, $250). You tell them where you work and all the basic info and after they confirm and that all is well, they direct deposit the money into your account as soon as the next day.

I recieved the money in a timely manner and got through my financial crunch. I had set up my payday (aka payback day) 2 weeks ahead even though I’m paid weekly. I wanted the extra time for the “just in case” situations. However, I was prepared to have that money taken out of my account the very next week and set aside that amount.

I think with financial planning, getting a short term loan isn’t bad if you know you’ll have the income in the near future to pay it back. In this case, it was automatically deducted from my account so it was either have the money in there or be hit with overdraft fees.

Things may go awry if a) you don’t have a stable income or b) you don’t set the amount you borrowed aside as soon as you have it. It’s important to understand that it’s not free money, it’s money you were suppose to get later but needed at the time.

So no, I don’t think they’re bad. I think they’re helpful, especially for a contractor (like me) that doesn’t always get paid on time. :]