December 12, 2008, Newsletter Issue #36: Myth: Payday Advances Create a Cycle of Debt

Tip of the Week

It's important to understand that a payday advance is not meant to be a long term loan. It is not meant to function as a credit card or bank loan. What a payday advance has done is assist millions of American families with emergency needs. This means that a payday advance is given only under the agreement that it will be paid off on the applicant’s next payday (hence the term, payday advance).

The Community Financial Services Association is the regulatory organization for payday advances. They state that a payday advance can be rolled over, but only a maximum of four times. Thus, the payday advance applicant is not stuck in a long term, high interest rate loan. Furthermore, the CFSA reports that the upper majority of applicants use a payday advance yearly, rather than monthly. This is less than the number of people who bounce checks to overcome an immediate family emergency that may arise. A bounced check costs at least $25 from the bank, regardless of the amount of the check. Thus, a payday advance is a more economical option than bouncing a check.

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