With tax season past, we’ve pivoted to broader personal finance topics.
Q: I’m short on cash until payday. Should I use a paycheck advance service?
A: Ideally, we would all have emergency savings available for situations such as this. Unexpected expenses happen, though, and some options for handling them are considerably better than others.
Here’s how I generally view these services:
Earned Wage Access services: Usually the least risky option. These services allow you to access wages you’ve earned, but before payday. Because you’re accessing earned income rather than taking out a traditional loan, costs are often lower than other alternatives. The main downside is that your next paycheck will be smaller.
Cash advance apps: Use with caution. These apps typically provide small advances that are repaid from your next paycheck. While the costs may appear modest, frequent use can create a cycle in which each paycheck starts with less money available than expected.
Payday loans: Generally the riskiest option. Payday loans often carry very high fees and effective interest rates. What begins as a short-term solution can quickly become an expensive cycle of borrowing.
Pay attention to patterns. Needing occasional help is understandable. If you find yourself relying repeatedly on advances between paychecks, it may be a sign a longer-term cash-flow solution is needed.
The bottom line: Unexpected cash shortages happen from time to time. If you need short-term help, be sure you understand the costs and tradeoffs before borrowing. As a general rule, Earned Wage Access services are often the least problematic of these options; cash advance apps fall in the middle; and payday loans are typically the most expensive and highest-risk choice.
Send questions about your taxes to Vincent Hicks, a CPA based in Cambridge who has more than 20 years of experience, at vincent@hickscpasolutions.com. You can call Hicks at (859) 553-0788.
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