Too Smart to Live Like This

The aptly name Mrs. Accountability has called me out, looking for more information on my recent post What’s My Life-Changing Money? That’s fair. And it just calls up a post that I’ve had kicking in my brain for some time.

Every vice has its bottom. For drug addicts it might be resorting to burglary or prostitution in order to get the next fix.

For the Moneystupid, it’s Payroll Advance. For those who are unfamiliar with the practice, first, congratulate yourself. You’re better off. The best description I’ve read is at Wikipedia.

The key phrase to take out of that is:

Typical loans are between $100 and $500 and are due in two weeks, with interest rates of up to 400% APR.

You walk in with a checkbook, you walk out with $800 in cash (give or take). What you’ve left behind is $912.50 worth of checks dated two weeks out. $112.50 in Interest and Fees for two weeks. Some places will only lend $700. Some only $600. In Ohio, at least, the maximum is $800.

Now, I know what you’re thinking. There’s no possible way that anyone would be so stupid as to take that deal. It doesn’t even meet the most rudimentary tests of rational behavior.

Which is just it. It’s not rational, because there was no rational behavior involved in getting you to the situation where you have to make the choice in the first place. It usually starts as something like “The power has been turned off. They want $400 to turn it back on. They will not take a check.” or some similar crisis. Ignoring the fact that your moneystupid got you into that situation in the first place.

So you make the hard, dumb decision, and write the check to the Payroll Advance. What you’ve done, in reality, is added $225 to your monthly bills, because when the check comes due two weeks later, you certainly don’t have that much spare to pay off and walk away. If you did, you wouldn’t be in this position in the first place. So you pay off the check for $912.50, and (at least under Ohio Law), take out another $800 the next day. Some states you can just pay the $112.50 and be done for another two weeks.

Then the dominos start to fall. Two weeks end and you don’t have $912.50. If you don’t pay, they’ll submit the check to your bank. When it bounces, they can, and will, call the police for “passing bad checks.” They’ve got you, and in desperation you go to the Payroll Advance company across the street and repeat the cycle. Once you’re in with one place, you’re really caught, and the second, third, or fourth place isn’t that hard. You’re already in the trap, one more doesn’t seem that bad. In for a penny, in for a pound.

We float checks every two weeks at three different payroll advance places. The balance is around $2000. The Interest and Fees are approximately $300 each time we flip. That’s about $600/mo.

This is the third cycle we’ve gotten into with these leeches. I’ve paid them off completely twice, only to have perceived misfortune suck us right back in.  The $1600 loan from a friend is what’s left after the last time I paid them off.

Please understand. I’m not proud of this. I’m under no delusion that this is a good idea or even socially acceptable behavior.

As to how to fix it, after many years of relying on friends and family the well is dry. I can’t borrow from anyone anymore. So I’ve begun fixing it the only way I can, snowflaking the balance down. Finding bits of money here and there so that when the check rolls the next time a $600 check becomes a $550 check.

We’ve already killed our fourth payroll advance check through various methods, and we’re applying this method to the rest.

I’m working hard on creating a list of debts and payments, so that I can implement Ramsey’s snowball. The Checks, not the smallest debt, are the #1 item on my list, due to the absolutely ridiculous interest rates.

Honestly, it’s only been a week since I started down this path, that I woke up and decided that something had to be done. I’ve got some things about to hit ebay and craigslist, and I’ve got a few ideas for other snowflakes. I’ve spent my life letting other people bail me out of my mistakes, so for better or worse, I’m inclined to do this through my own determination.

Of all of my money issues, this is the facet that embarrasses me the most. I feel it deeply. This situation is what caused me to say to my wife the phrase that became the title of this blog.

I really am too smart to live like this.