Are Payday Advances Bad?

App companies are making it easier for employees to get pay advances—but are pay advances bad?

Here’s the TL:DR: Beware! It’s very likely pay advances will land you deeper into the debt cycle you’re trying to avoid.

Jesse uses episode 393 and episode 394 to explain the recent rise in pay advance apps and what you need to know about getting paid “early” through their services. 

More Companies Using Pay Advances

“It’s a very nuanced issue,” Jesse warns. 

After reading a Wall Street Journal article about how more and more companies are offering pay advances and loans as a benefit to cash-strapped workers, he couldn’t help thinking employers are right about one thing: “If your employees are stressed about finances, it will most definitely impact productivity.” 

But pay advances are not the answer. 

In fact, using payroll advances may deepen the debt cycle for people seeking out these apps. The article refers to this side effect as furthering “chronic early spending.”

“Early spending is an interesting phrase,” Jesse says. “It’s the exact opposite of aging your money. Aging your money is saying, ‘I earned the dollar and ten days later, I spent the dollar—that dollar is ten days old.’ Early spending is spending money before it’s even born, so to speak.”

The draw to using these apps is a lower-cost way of helping many people avoid late and overdraft fees. These fees, at $20-$30 a pop, can really add up and eat into what was supposed to be savings, or grocery money, or a birthday gift.

“Those fees are horrifically expenses,” Jesse says. “Banks make loads of money...from overdraft fees alone. They’re stuck in this tricky little spot of wanting to help their customers be good money citizens but at the same time kind of hoping they won’t because they make so much bank (pun intended) having them overdraft.”

At first glance, pay advance apps like Earnin, PayActiv, and Kashable offer a low-cost or “no cost” alternative to avoiding these costly overdraft fees—but are they really free? (More on that in the podcast). And is this really fixing the problem? (Spoiler alert: No.)

Check out our comprehensive guide to learn how to break the cycle of living paycheck to paycheck.

Playing the Paycheck Timing Game

There seems to be an epidemic of people playing this paycheck timing game. Pay advance apps are simply helping you further the stressful cycle of living paycheck to (early) paycheck.

“To say that advancing someone’s payroll is helping them with the paycheck to paycheck cycle, I think that’s just putting your head in someplace different than the sand. It goes without saying that these payroll advances are really just kicking the can down the road. Avoiding the late fee, yes, let's stop the bleeding, but let’s take it a step further and see if we can get that person on a budget,” Jesse says.

So, if you find yourself feeling like a payday advance would be a quick fix, take a step back, and ask yourself how you could eliminate spending, plan ahead, and be in control of your money, rather than the other way around.

Want to break the cycle? Try YNAB for free for 34 days—no commitment or credit card required.


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Are Payday Advances Bad?